-----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, ABQt194SclxI9lyxDy6zBdzUNHatGr8cjHRYuETAZqA7jxmLYbc069G69XxwnSjS zbiRIj4W84C3l7ZJVRuXeA== /in/edgar/work/20000605/0001018848-00-000015/0001018848-00-000015.txt : 20000919 0001018848-00-000015.hdr.sgml : 20000919 ACCESSION NUMBER: 0001018848-00-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000422 FILED AS OF DATE: 20000605 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEEBLER FOODS CO CENTRAL INDEX KEY: 0001018848 STANDARD INDUSTRIAL CLASSIFICATION: [2052 ] IRS NUMBER: 363839556 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13705 FILM NUMBER: 649334 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 10-Q 1 0001.txt Q100 FORM 10-Q FOR KEEBLER FOODS COMPANY UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 22, 2000 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: NO. 001-13705 -------------------- KEEBLER FOODS COMPANY (Exact name of Registrant as specified in its charter) DELAWARE 36-3839556 (State or 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 FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO | | NUMBER OF SHARES OF COMMON STOCK, $0.01 PAR VALUE, OUTSTANDING AS OF THE CLOSE OF BUSINESS ON MAY 26, 2000: 84,384,198. PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS KEEBLER FOODS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
APRIL 22, 2000 January 1, 2000 ---------------- ---------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 21,302 $ 20,717 Trade accounts and notes receivable, net 57,098 65,052 Inventories, net: Raw materials 32,113 34,243 Package materials 15,293 13,907 Finished goods 93,808 126,954 Other 1,426 1,176 ---------------- ---------------- 142,640 176,280 Deferred income taxes 55,528 46,252 Other 27,342 27,278 ---------------- ---------------- Total current assets 303,910 335,579 PROPERTY, PLANT AND EQUIPMENT, NET 596,330 553,031 GOODWILL, NET 578,041 370,188 TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES, NET 221,285 211,790 PREPAID PENSION 34,132 33,240 ASSETS HELD FOR SALE 6,662 6,662 OTHER ASSETS 25,188 17,693 ---------------- ---------------- Total assets $ 1,765,548 $ 1,528,183 ================ ================ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 2
KEEBLER FOODS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
APRIL 22, 2000 January 1, 2000 ---------------- ---------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 42,244 $ 37,283 Trade accounts payable 119,830 147,862 Other liabilities and accruals 236,640 237,447 Income taxes payable 19,381 23,603 Plant and facility closing costs and severance 20,259 11,290 ---------------- ---------------- Total current liabilities 438,354 457,485 LONG-TERM DEBT 627,582 419,160 OTHER LIABILITIES: Deferred income taxes 123,236 124,389 Postretirement/postemployment obligations 67,002 64,383 Plant and facility closing costs and severance 16,395 12,062 Deferred compensation 25,348 24,581 Other 21,909 16,808 ---------------- ---------------- Total other liabilities 253,890 242,223 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock ($.01 par value; 100,000,000 shares authorized and - - none issued) Common stock ($.01 par value; 500,000,000 shares authorized and 85,345,058 and 84,655,874 shares issued, respectively) 853 846 Additional paid-in capital 190,972 182,686 Retained earnings 293,909 255,813 Treasury stock (40,012) (30,030) ---------------- ---------------- Total shareholders' equity 445,722 409,315 ---------------- ---------------- Total liabilities and shareholders' equity $ 1,765,548 $ 1,528,183 ================ ================ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3
KEEBLER FOODS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
SIXTEEN Sixteen WEEKS ENDED Weeks Ended APRIL 22, 2000 April 24, 1999 ---------------- ---------------- NET SALES $ 855,860 $ 852,033 COSTS AND EXPENSES: Cost of sales 363,389 380,703 Selling, marketing and administrative expenses 395,280 394,342 Other 3,495 6,343 ---------------- ---------------- INCOME FROM OPERATIONS 93,696 70,645 Interest (income) (749) (626) Interest expense 13,898 13,942 ---------------- ---------------- INTEREST EXPENSE, NET 13,149 13,316 ---------------- ---------------- INCOME BEFORE INCOME TAX EXPENSE 80,547 57,329 Income tax expense 33,024 24,652 ---------------- ---------------- NET INCOME $ 47,523 $ 32,677 ================ ================ BASIC NET INCOME PER SHARE $ 0.57 $ 0.39 WEIGHTED AVERAGE SHARES OUTSTANDING 83,830 83,848 DILUTED NET INCOME PER SHARE $ 0.55 $ 0.37 WEIGHTED AVERAGE SHARES OUTSTANDING 87,182 88,042 CASH DIVIDENDS PAID PER COMMON SHARE $ 0.1125 $ - THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4
KEEBLER FOODS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIXTEEN Sixteen WEEKS ENDED Weeks Ended APRIL 22, 2000 April 24, 1999 ---------------- ---------------- CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES Net income $ 47,523 $ 32,677 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 24,751 23,475 Deferred income taxes (10,768) (642) Loss (gain) on sale of property, plant and equipment 178 (75) Gain on sale of value brands assets (5,700) - Changes in assets and liabilities: Trade accounts and notes receivable, net 13,223 (6,965) Inventories, net 41,638 28,549 Income taxes payable (3,086) (12,992) Other current assets 1,039 (1,797) Trade accounts payable and other current liabilities (42,714) (13,372) Plant and facility closing costs and severance (3,791) (740) Other, net (13,891) 7,304 ---------------- ---------------- Cash provided from operating activities 48,402 55,422 CASH FLOWS USED BY INVESTING ACTIVITIES Capital expenditures (17,737) (22,889) Proceeds from property disposals 968 1,032 Proceeds from sale of value brands assets 17,000 - Purchase of Austin Quality Foods, Inc., net of cash acquired (256,315) - ---------------- ---------------- Cash used by investing activities (256,084) (21,857) CASH FLOWS PROVIDED FROM (USED BY) FINANCING ACTIVITIES Purchase of treasury stock (9,982) (12,796) Exercise of employee stock options 1,954 1,333 Proceeds from receivables securitization 6,000 74,000 Long-term debt repayments (10,617) (85,355) Revolving facility, net 224,000 (25,000) Income tax benefit related to stock options exercised 6,339 4,541 Dividends paid (9,427) - ---------------- ---------------- Cash provided from (used by) financing activities 208,267 (43,277) ---------------- ---------------- Increase (decrease) in cash and cash equivalents 585 (9,712) Cash and cash equivalents at beginning of period 20,717 23,515 ---------------- ---------------- Cash and cash equivalents at end of period $ 21,302 $ 13,803 ================ ================ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5
KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION 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 consolidated 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. FISCAL YEAR Keebler's fiscal year consists of thirteen four week periods (fifty-two or fifty-three weeks) and ends on the Saturday nearest December 31. The first quarter consists of four four-week periods. RECLASSIFICATIONS Certain reclassifications of prior period data have been made to conform with the current period reporting. 2. ACQUISITION OF AUSTIN QUALITY FOODS, INC. On March 6, 2000, Keebler Foods Company ("Keebler") acquired Austin Quality Foods, Inc. ("Austin") from R&H Trust Co (Jersey) Limited, as Trustee, HB Marketing & Franchising L.P., 697163 Alberta Ltd., and William C. Burkhardt, for an aggregate purchase price of $256.9 million, excluding related fees and expenses paid of approximately $2.8 million. The acquisition of Austin was a cash transaction funded with approximately $235.0 million from borrowings under the $700.0 million Senior Credit Facility Agreement dated as of September 28, 1998, and the remainder from cash received on additional sales of accounts receivable under Keebler's $125.0 million Receivables Purchase Agreement. The acquisition of Austin by Keebler has been accounted for as a purchase. The total purchase price and the fair value of liabilities assumed have been allocated on a preliminary basis to the tangible and intangible assets of Austin based on respective fair values. The acquisition has resulted in an estimated unallocated excess purchase price over fair value of net assets acquired of $211.5 million, which is being amortized on a straight-line basis over a forty year period. The determination of the respective fair values has not yet been finalized, but is expected to be completed by the end of the second quarter of 2000. Once the respective fair values have been finalized, a reclassification from goodwill to the appropriate asset classes, including property, plant and equipment, will be made, as well as any necessary adjustments to depreciation and amortization expense. At the time of this filing, the fair value valuation of the tangible and intangible assets of Austin had not yet been completed. Results of operations for Austin from March 6, 2000, have been included in the consolidated statements of operations. The following unaudited pro forma information has been prepared assuming the acquisition had taken place at the beginning of each respective fiscal year reported. The unaudited pro forma information includes adjustments for interest expense that would have been incurred related to financing the purchase and amortization of the trademarks, trade names, other intangibles and goodwill arising from the acquisition. The unaudited pro forma consolidated results of operations are not necessarily indicative of the results that would have been reported had the Austin acquisition been effected on the first day of the year reported. 6 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. ACQUISITION OF AUSTIN QUALITY FOODS, INC. (CONTINUED)
Unaudited (IN THOUSANDS EXCEPT PER SHARE DATA) For the Sixteen Weeks Ended ---------------------------------------- April 22, 2000 April 24, 1999 ------------------- ------------------- Net sales....................................................................... $ 883,355 $ 910,142 Net income...................................................................... $ 45,030 $ 30,009 Diluted net income per share.................................................... $ 0.52 $ 0.34
3. DEBT Long-term debt consisted of the following at April 22, 2000:
(IN THOUSANDS) Interest Rate Final Maturity APRIL 22, 2000 ------------------ ----------------------- ------------------ Revolving Facility.................................. 6.471% September 28, 2004 $ 224,000 Term Facility....................................... 6.538% September 28, 2004 305,000 Senior Subordinated Notes........................... 10.750% July 1, 2006 124,400 Other Senior Debt................................... Various 2001-2005 9,065 Capital Lease Obligations........................... Various 2002-2042 7,361 ------------------ 669,826 Less: Current maturities............................ 42,244 ------------------ Total.......................................... $ 627,582 ==================
On March 6, 2000, Keebler utilized existing credit facilities in order to finance the acquisition of Austin. The additional borrowings were under the Revolving Facility, which was originally entered into on September 28, 1998. At April 22, 2000, the outstanding balance on the Revolving Facility was $224.0 million, with an available balance of $126.0 million. 4. RESTRUCTURING AND IMPAIRMENT CHARGE In May of 1999, Keebler closed its manufacturing facility in Sayreville, New Jersey, which resulted in a pre-tax restructuring and impairment charge to operating income of $66.3 million. The restructuring and impairment charge included $20.2 million for cash costs related to severance and other exit costs from the Sayreville facility. The remaining $46.1 million was non-cash charges for asset impairments related to the Sayreville closing, including write-downs of property, plant and equipment at Sayreville and equipment at other locations, and a proportionate reduction of goodwill acquired in the acquisition of Sunshine Biscuits, Inc. in June 1996. Approximately 650 employees were expected to be terminated as a result of the closing of the Sayreville facility, of which approximately 600 employees were represented by unions. At April 22, 2000, approximately 595 employees under union contract and approximately 45 employees not under union contract had been terminated. 7 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. RESTRUCTURING AND IMPAIRMENT CHARGE (CONTINUED) The following table sets forth the activity related to the liabilities accrued in conjunction with the restructuring and impairment charge:
(IN THOUSANDS) January 1, 2000 Provision Spending Adjustment APRIL 22, 2000 ------------------ ------------ ------------- -------------- ------------------ Severance................. $ 2,037 $ - $ (509) $ - $ 1,528 Facility closure.......... 2,567 - (377) - 2,190 Other..................... 1,717 - (27) - 1,690 ------------------ ------------ ------------- -------------- ------------------ Total................. $ 6,321 $ - $ (913) $ - $ 5,408 ================== ============ ============= ============== ==================
At April 22, 2000, $5.2 million remained for plant and facility closing costs and severance accruals and $0.2 million for other liabilities and accruals. Subsequent to the end of the first quarter, on May 2, 2000, the Sayreville, New Jersey facility was sold for approximately $7.8 million. As a result, all remaining severance costs are expected to be spent during the second quarter. Exit costs and expenses incurred to ready the facility for sale are expected to be finalized in the second quarter, with any necessary adjustments to the total charge recognized at that time. Only costs related to the settlement of worker's compensation claims and health and welfare payments are expected to extend beyond the second quarter of 2000. 5. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE As part of accounting for the acquisition of Austin in the first quarter of 2000, Keebler recognized estimated costs pursuant to a plan to exit certain activities of the acquired company. These exit costs, for which there is no future economic benefit, were provided for in the initial allocation of the purchase price and are currently estimated at $17.1 million. Exit costs associated with staff reductions are currently estimated at $16.9 million. We currently expect that approximately 85 employees not under union contract will be terminated as a result of this plan. At April 22, 2000, no employees had been terminated, with the majority of the terminations expected to occur during the second quarter of 2000. Spending on exit costs are expected to be substantially complete before the end of 2001, with only certain benefit payments extending beyond that timeframe. During 1998, as part of acquiring President International, Inc. ("President"), Keebler provided for $12.8 million in exit costs in the allocation of the purchase price. At January 1, 2000, there remained $7.4 million in reserves of which $1.8 million was spent during the first quarter of 2000. There were 260 employees at January 1, 2000, still expected to be terminated as part of the exit plan, of which approximately 175 were represented by a union. At April 22, 2000, approximately 150 employees under union contract and approximately 25 employees not under union contract had been terminated. The remaining terminations are expected to occur before the end of the second quarter of 2000. 8 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 5. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE (CONTINUED) The following table sets forth the activity in Keebler's plant and facility closing costs and severance liabilities exclusive of the liabilities resulting from the restructuring and impairment charge recorded during 1999:
(IN THOUSANDS) January 1, 2000 Provision Spending APRIL 22, 2000 -------------------- ---------------- ------------------ ------------------- KEEBLER COMPANY Severance................... $ 24 $ - $ - $ 24 Facility closure............ 7,829 - (720) 7,109 -------------------- ---------------- ------------------ ------------------- Subtotal................ 7,853 - (720) 7,133 -------------------- ---------------- ------------------ ------------------- SUNSHINE BISCUITS, INC. Severance................... $ 63 $ - $ (8) $ 55 Facility closure............ 1,962 - (452) 1,510 -------------------- ---------------- ------------------ ------------------- Subtotal................ 2,025 - (460) 1,565 -------------------- ---------------- ------------------ ------------------- PRESIDENT INTERNATIONAL, INC. Severance................... $ 2,829 $ - $ (1,720) $ 1,109 Facility closure............ 4,596 - (74) 4,522 Other....................... 10 - (10) - -------------------- ---------------- ------------------ ------------------- Subtotal................ 7,435 - (1,804) 5,631 -------------------- ---------------- ------------------ ------------------- AUSTIN QUALITY FOODS, INC. Severance................... $ - $ 16,893 $ - $ 16,893 Facility closure............ - 200 - 200 -------------------- ---------------- ------------------ ------------------- Subtotal................ - 17,093 * - 17,093 -------------------- ---------------- ------------------ ------------------- Total................. $ 17,313 $ 17,093 $ (2,984) $ 31,422 ==================== ================ ================== =================== * Recorded as part of the initial allocation of purchase price.
6. SEGMENT INFORMATION Keebler has adopted Statement of Financial Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" for reporting segment information. Keebler's reportable segments are Branded and Specialty. The reportable segments were determined using Keebler's method of internal reporting, which divides and analyzes the business by sales channel. The nature of the customers, products and method of distribution can vary by sales channel. The reportable segments represent an aggregation of similar sales channels. The Branded segment is comprised of sales channels that principally market brand name cookie and cracker products to retail outlets. Either a Keebler sales employee or a distributor sells products in the Branded segment. The sales channels in the Specialty segment primarily sell cookie, cracker and brownie products that are manufactured on a made-to-order basis or that are produced in individual packs to be used in various institutions (i.e., restaurants, hospitals, etc.), as well as cookies manufactured for the Girl Scouts of the U.S.A. Many of the products sold by the Specialty segment are done so through the use of brokers. 9 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. SEGMENT INFORMATION (CONTINUED) Keebler evaluates the performance of the reportable segments and allocates resources based on the segment's profit contribution, defined as earnings before certain functional support costs, amortization, interest and income taxes. While the accounting policies for each reportable segment are the same as for the total company, the cost of sales used to determine a segment's profit contribution is calculated using standard costs for each product, whereas actual cost of sales is used to determine consolidated income from operations. There are no intersegment transactions that result in revenue or profit (loss). Asset information by reportable segment is not presented, as Keebler does not report or generate such information internally. However, depreciation expense included in the determination of a segment's profit contribution has been presented. The depreciation expense for each reportable segment reflects the amount absorbed in the standard cost of products sold, as well as the depreciation that relates to assets used entirely by the respective segment. The following table presents certain information included in the profit contribution of each segment for the sixteen weeks ended April 22, 2000 and April 24, 1999. Prior year numbers have been restated for reclassifications between reportable segments.
Branded Specialty (IN THOUSANDS) Segment Segment Other (a) Total --------------- ---------------- ---------------- --------------- SIXTEEN WEEKS ENDED APRIL 22, 2000: NET SALES TO EXTERNAL CUSTOMERS............. $ 603,064 $ 252,796 $ - $ 855,860 DEPRECIATION EXPENSE........................ 8,413 4,212 5,399 18,024 PROFIT CONTRIBUTION......................... 88,030 57,581 145,611 - SIXTEEN WEEKS ENDED APRIL 24, 1999: Net sales to external customers............. $ 590,801 $ 261,232 $ - $ 852,033 Depreciation expense........................ 5,599 2,402 9,382 17,383 Profit contribution......................... 80,340 54,512 - 134,852 (a) Represents expenses incurred by the functional support departments that are not allocated to the reportable segments.
The net sales to external customers from the reportable segments equal the consolidated net sales of Keebler. A reconciliation of segment profit contribution to total consolidated income from continuing operations before income tax expense for the sixteen weeks ended April 22, 2000 and April 24, 1999 is as follows:
Sixteen Weeks Ended ------------------------------------- (IN THOUSANDS) APRIL 22, 2000 April 24, 1999 ---------------- ----------------- INCOME BEFORE INCOME TAX EXPENSE: Reportable segment's profit contribution.................................... $ 145,611 $ 134,852 Unallocated functional support costs (b).................................... 51,915 64,207 Interest expense, net....................................................... 13,149 13,316 ---------------- ----------------- Income before Income Tax Expense......................................... $ 80,547 $ 57,329 ================ ================= (b) Includes support costs such as distribution, research and development, corporate administration and other (income) expense, which are not allocated internally to reportable segments.
10 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. SALE OF VALUE BRANDS ASSETS On January 4, 2000, Keebler sold its Birmingham, Alabama, and North Little Rock, Arkansas bakeries and the SUNNY and GREGS brands to Consolidated Biscuit Company. As a result of the sale, Keebler recorded a $5.7 million pre-tax gain in other income during the sixteen weeks ended April 22, 2000. 8. SUBSEQUENT EVENTS On May 23, 2000, the Board of Directors of Keebler declared a quarterly cash dividend of $0.1125 per common share payable on June 21, 2000, to stockholders of record on June 7, 2000. 11 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW MATTERS AFFECTING COMPARABILITY The following discussion of the financial condition and results of operations for the sixteen weeks ended April 22, 2000 and April 24, 1999 should be read in conjunction with Keebler's 1999 annual report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2000. Keebler's operating results for the sixteen weeks ended April 22, 2000, include the operating results of Austin Quality Foods, Inc. ("Austin") from the acquisition date of March 6, 2000, whereas the comparable quarter ended April 24, 1999, does not. Keebler's operating results for the sixteen weeks ended April 22, 2000 do not include the operating results of the Birmingham, Alabama, and North Little Rock, Arkansas bakeries and the SUNNY and GREGS brands ("the value brands business"), as these brands were sold to Consolidated Biscuit Company on January 4, 2000. The comparable sixteen weeks ended April 24, 1999 do include the operating results of the value brands business. RESULTS OF OPERATIONS Results of operations expressed as a percentage of net sales for the sixteen weeks ended April 22, 2000 and April 24, 1999 are set forth below:
Sixteen Weeks Ended --------------------------------------------- April 22, 2000 April 24, 1999 -------------------- -------------------- NET SALES.............................................................. 100.0% 100.0% Cost of sales.......................................................... 42.5 44.7 Selling, marketing and administrative expenses......................... 46.2 46.3 INCOME FROM OPERATIONS................................................. 10.9 8.3 Interest Expense, net.................................................. 1.5 1.6 NET INCOME............................................................. 5.6% 3.8%
Keebler's reportable segments are Branded and Specialty, which were determined using Keebler's method of internal reporting, which divides and analyzes the business by sales channel. The reportable segments represent an aggregation of similar sales channels. We evaluate the performance of the reportable segments and allocate resources based on the segment's profit contribution, defined as earnings before certain functional support costs, amortization, interest and income taxes. While the accounting policies for each reportable segment are the same as for the total company, the cost of sales used to determine a segment's profit contribution is calculated using standard costs for each product, whereas actual cost of sales is used to determine consolidated income from operations. Prior year numbers have been restated for reclassifications between reportable segments. BRANDED SEGMENT The Branded segment sells a number of well-recognized products, primarily to retail outlets such as supermarkets, mass merchandisers, warehouse club stores, convenience stores and drug stores. This segment also imports and distributes CARR'S crackers in the U.S. under an exclusive long-term licensing and distribution agreement with United Biscuits. 12
Sixteen Weeks Ended -------------------------------------------- April 22, 2000 April 24, 1999 --------------------- --------------------- ($ IN MILLIONS) $ % $ % ---------- ---------- ---------- ---------- NET SALES...................................... $ 603.1 $ 590.8 PROFIT CONTRIBUTION............................ $ 88.0 14.6% $ 80.3 13.6%
Net sales in the Branded segment closed the first quarter of 2000 at $603.1 million, with the acquisition of Austin contributing revenue of $18.6 million. In addition to the acquisition of Austin, the quarterly comparison of net sales was also impacted by the sale of the value brands business at the beginning of fiscal 2000. Net sales associated with the value brands business accounted for approximately $14.7 million in first quarter of last year. Excluding sales of Austin products in the current quarter and revenue from the value brands business in the first quarter of 1999, net sales increased approximately $8.4 million. Much of the revenue growth was from new products introduced in the second half of 1999 and early 2000, as well as from increased distribution of FAMOUS AMOS and MURRAY SUGAR FREE cookies. New products that contributed to the growth included KEEBLER SNAX STIX, HARVEST BAKERY crackers, ELF GRAHAMS and WHEATABLES SNACK MIX. Continued growth in the retail business outside of supermarkets, including at mass merchandisers and in convenience channels from the introduction of new single serve products, also benefited the quarterly results. For the sixteen weeks ended April 22, 2000, the Branded segment profit contribution was $88.0 million or 14.6% of net sales. The growth in profit contribution for the current quarter was partly achieved through increased gross profit on Keebler core and President Baking Company ("President") products, together with improved productivity and efficiencies achieved from successful integration of previous acquisitions. The gross margin rate on Austin products was lower than on Keebler core and President products. The increase in overall Branded profit contribution over the comparable quarter of the prior year, despite the lower margin on the Austin products, reflects the efficiencies achieved in production. In addition, a decreased marketing investment also added to the gains in profit contribution over the first quarter of last year. Partly offsetting these improvements were increased distribution costs from the rise in fuel prices throughout the current quarter. SPECIALTY SEGMENT The Specialty segment produces cookies, crackers and brownies for the foodservice market and private label retailers. In addition, we also produce custom-baked products for other marketers of branded food products, including sales of cookies to the Girl Scouts of the U.S.A.
Sixteen Weeks Ended -------------------------------------------- April 22, 2000 April 24, 1999 --------------------- --------------------- ($ IN MILLIONS) $ % $ % ---------- ---------- ---------- ---------- NET SALES...................................... $ 252.8 $ 261.2 PROFIT CONTRIBUTION............................ $ 57.6 22.8% $ 54.5 20.9%
Net sales in the Specialty segment for the sixteen weeks ended April 22, 2000 and April 24, 1999, were $252.8 million and $261.2 million, respectively. The sale of Austin products contributed $5.9 million to first quarter Specialty sales. The decrease in revenue was principally driven by a decline in the lower margin contract packing and private label businesses. Other sales channels within the Specialty segment realized significant growth. A record Girl Scout selling season benefited the quarter. In addition, gains within the foodservice market were achieved from solid sales of ice cream cone and Grab `n Go products. 13 The Specialty segment's profit contribution for the quarter ended April 22, 2000, was $57.6 million, or 22.8%, as a percentage of net sales. Excluding Austin, Keebler's profit contribution finished at 22.9%, as a percentage of net sales, or 2.0 percentage points ahead of the same quarter in 1999. The increase in profit contribution resulted partially from the shift in sales mix away from products that carry a higher cost of goods sold, in an effort to create capacity for higher margin opportunities. Volume increases in the core Specialty business, along with on-going cost reduction programs, also contributed to the higher profit contribution over the first quarter of the prior year. COST OF SALES Cost of sales for the sixteen weeks ended April 22, 2000, of $363.4 million, was $17.3 million lower than the comparable period of a year ago. As a percentage of net sales, cost of sales in the current quarter was 42.5%, as compared to 44.7% in the first quarter of 1999. After removing the impact of selling Austin products from the first quarter of 2000, cost of sales, as a percent of net sales, was 41.6%, 3.1 percentage points lower than the comparable quarter of 1999. The reduction in cost of sales, both in dollar spending and as a percentage of net sales, was primarily due to cost savings and lower raw material costs. Cost savings were principally achieved through the combination of network changes, capital projects and purchasing consolidations. SELLING, MARKETING AND ADMINISTRATIVE EXPENSES Selling, marketing and administrative expenses for the quarter ended April 22, 2000, were $395.3 million compared to $394.3 million for the comparable sixteen weeks of 1999. As a percentage of net sales, selling, marketing and administrative expenses were flat quarter-on-quarter. Excluding Austin, selling, marketing and administrative expenses closed the quarter $4.9 million lower than the first quarter of last year, but finished 0.5 percentage points, as a percentage of net sales, higher than the first quarter of 1999. The primary driver of the decline in spending was reduced marketing expenses. Advertising and consumer promotions of $27.5 million for the quarter ended April 22, 2000, was $6.1 million lower than the quarter ended April 24, 1999, principally due to heavier spending in 1999 in order to promote numerous new products. The level of new products introduced in the first quarter of 1999 was significantly higher than the first quarter of 2000. Partly offsetting the lower marketing expenses, and contributing to the higher rate, as a percentage of net sales, were higher distribution costs from increased fuel rates in the first quarter of 2000. OTHER For the sixteen weeks ended April 22, 2000 and April 24, 1999, other expense closed the quarter at $3.5 million and $6.3 million, respectively. The $2.8 million decrease from the prior year was principally driven by a $5.7 million pre-tax gain realized on the sale of the value brands business during the first quarter of 2000. Partially offsetting this benefit was increased amortization expense related to new intangibles resulting from the Austin acquisition, higher costs related to the Receivables Purchase Agreement and increased bank fees. RESTRUCTURING AND IMPAIRMENT CHARGE In May of 1999, Keebler closed its manufacturing facility in Sayreville, New Jersey, which resulted in a pre-tax restructuring and impairment charge to income from operations of $66.3 million. The restructuring and impairment charge included $20.2 million for cash costs related to severance and other exit costs from the Sayreville facility. The remaining $46.1 million was non-cash charges for asset impairments related to the Sayreville closing, including write-downs of property, plant and equipment at Sayreville and equipment at other locations, and a proportionate reduction of goodwill acquired in the acquisition of Sunshine Biscuits, Inc. ("Sunshine") in June 1996. Of the total $66.3 million charge, approximately $65.6 million was recorded as plant and facility closing costs and severance, with the remaining $0.7 million recorded as other liabilities and accruals. Approximately 650 total employees were expected to be terminated as a result of the closing of the Sayreville facility, of which approximately 600 employees were represented by unions. At April 22, 2000, approximately 595 employees under union contract and approximately 45 employees not under union contract had been terminated. At April 22, 2000, $5.2 million remained for plant and facility closing costs and severance accruals and $0.2 million for other liabilities and accruals. The amount of suspended depreciation and amortization that would have been recognized for the sixteen weeks ended April 22, 2000, if the prior year impairments had not been recognized, was approximately $1.4 million. 14 Subsequent to the end of the first quarter, on May 2, 2000, the Sayreville, New Jersey facility was sold for approximately $7.8 million. As a result, all remaining severance costs are expected to be spent during the second quarter. Exit costs and expenses incurred to ready the facility for sale are expected to be finalized in the second quarter, with any necessary adjustments to the total charge recognized at that time. Only costs related to the settlement of workers' compensation claims and health and welfare payments are expected to extend beyond the second quarter of 2000. INTEREST EXPENSE, NET Net interest expense was $13.1 million for the sixteen weeks ended April 22, 2000, compared to $13.3 million for the same period in 1999. The slight decrease in net interest expense was primarily due to a considerably lower average outstanding debt balance for just over half of the first quarter of 2000, until the acquisition of Austin on March 6, 2000. In order to finance the acquisition, we utilized existing credit facilities, borrowing an additional $235.0 million under the Revolving facility. INCOME TAX EXPENSE For the quarter ended April 22, 2000, income tax expense increased by $8.4 million to $33.0 million as compared to the sixteen weeks ended April 24, 1999. An increase in taxable income was the primary driver of the higher income tax expense. This increase was partially offset by a lower effective tax rate of 41% for the current quarter, compared to 43% for the quarter ended April 24, 1999. The effective tax rate decreased by 2.0 percentage points due to the adoption of a change in the tax basis of the assets acquired and liabilities assumed in the Keebler acquisition, in accordance with the Internal Revenue Code Section 338 during 1999. In addition, the elimination of nondeductible amortization associated with the goodwill written off in the second quarter of 1999 as part of the closure of the Sayreville, New Jersey facility, added to the reduction in the effective tax rate. The increase in intangible amortization resulting from the Austin acquisition slightly offset these decreases in the rate. The effective tax rate remains above the federal statutory rate due to nondeductible expenses, primarily the amortization of intangibles resulting from acquisitions. NET INCOME For the sixteen weeks ended April 22, 2000, net income of $47.5 million exceeded the first quarter of 1999 by $14.8 million. The 45.4% increase over the comparable quarter of last year was primarily achieved through a combination of successful integration of strategic acquisitions, realized cost savings resulting from productivity gains and efficiencies in operations and a continued emphasis on growth in the branded business with a strategic shift away from lower margin businesses. LIQUIDITY AND CAPITAL RESOURCES Operating activities for the sixteen weeks ended April 22, 2000, provided $48.4 million of cash. Net earnings of $47.5 million, together with a significant reduction in the investment in inventory, were significant contributors to the positive cash flow. The $41.6 million decline in inventory, principally in finished goods and exclusive of Austin acquired balances, demonstrated the usual seasonal reduction that results as the annual Girl Scout cookie sale occurs during the first quarter of each year. Also adding to the favorable cash flow was a decreased investment in trade accounts and notes receivable, before accounting for the securitization of receivables, of $13.2 million due mainly to an increase in cash collections. Offsetting the positive cash flow position was a $42.7 million reduction in trade accounts payable and other current liabilities. The additional funding of these liabilities was mainly attributable to the timing of disbursements, as well as from the payment of year end incentives. Also reducing the above working capital sources was $3.8 million of spending against plant and facility closing costs and severance, as well as a $10.0 million payment for a license agreement with the Children's Television Workshop. 15 During the first quarter, cash used by investing activities totaled $256.1 million. The most significant use of cash was $256.3 million, which was used for the acquisition of Austin. Additionally, $17.7 million was used to fund capital expenditures, which were incurred principally for automation improvements, expansion of product development, capacity advancement and numerous equipment upgrades related to cost reduction programs designed to enhance production output. Partly offsetting these uses of cash were proceeds totaling $18.0 million, principally derived from the sale of the value brands business, as well as from other asset disposals. Financing activities for the sixteen weeks ended April 22, 2000, provided $208.3 million of cash, principally from proceeds on long-term debt borrowings, and specifically a draw against the existing Revolving facility. Net cash proceeds of $6.0 million were also received from incremental sales of accounts receivable under the Receivables Purchase Agreement. Exercises of employee stock options generated an additional $2.0 million in cash. Partially offsetting the positive cash flow were scheduled principal payments of $10.6 million, purchases of common stock into treasury totaling $10.0 million and our initial quarterly dividend payment of $9.4 million. The $6.3 million income tax benefit related to stock options exercised served to reduce the financing uses of cash during the quarter. At April 22, 2000, cash and cash equivalents were $21.3 million. Total outstanding debt at the end of the first quarter was $669.8 million, of which current maturities were $42.2 million. Keebler's Revolving facility has an available line of credit of $350.0 million and at April 22, 2000, $224.0 million was outstanding. The $213.4 million increase in total outstanding debt from year end resulted as additional borrowings were needed to finance the acquisition of Austin. Keebler has met all financial covenants contained in the financing agreements. Available cash, as well as existing credit facilities, are expected to be sufficient to meet normal operating requirements for the foreseeable future. FORWARD-LOOKING STATEMENTS Certain statements incorporated by reference or made in this discussion are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). These statements are subject to the safe harbor provisions of the Reform Act. Such forward-looking statements include, without limitation, statements about: o the competitiveness of the cookie and cracker industry; o the future availability and prices of raw and packaging materials; o potential regulatory obligations; o our strategies and o other statements that are not historical facts. When used in this discussion, the words "anticipate," "believe," "estimate" and similar expressions are generally intended to identify forward-looking statements. Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to: o changes in general economic or business conditions (including in the cookie and cracker industry); o actions of competitors; o our ability to recover material costs in the pricing of our products; o the extent to which we are able to develop new products and markets for our products; o the time required for such development; o the level of demand for such products and o changes in our business strategies. 16 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The principal market risks to which we are exposed that may adversely affect results of operations and financial position include changes in future interest rates and raw material prices. We seek to minimize or manage these market risks through normal operating and financing activities and through the use of interest rate swap agreements and commodity futures and options contracts. The use of these instruments is limited to hedging activities and they are not entered for trading or speculative purposes. These agreements and contracts are entered into at a corporate level and as such, any income or expense associated with these transactions is not allocated to our reportable segments. Our exposure to market risk for changes in interest rates relates primarily to long-term debt obligations. Our current debt structure consists of both fixed and floating rate debt. Interest rate swap agreements are used to effectively manage changes in interest rates related to the majority of our borrowings with the objective of reducing overall interest costs. Sensitivity analysis was used to assess the impact that changes in market prices have on the fair value of interest rate swap agreements at year end. The fair value of the interest rate swap agreements at April 22, 2000, with a notional amount of $328.2 million, remains comparable to year end. Additionally, interest rates have not fluctuated materially from year end and therefore, the sensitivity analysis performed as of January 1, 2000 for interest rate swap agreements remains a valid estimate. We enter into commodity futures and options contracts to neutralize the impact of price increases on raw material purchases that are not likely to be recovered through higher prices on our products. We also used sensitivity analysis to assess the potential impact on the fair value of commodity futures and options contracts. Assuming a ten percent increase or decrease in market price, the fair value of open contracts with a notional amount of $36.0 million at April 22, 2000 would be impacted by $3.5 million. PART II: OTHER INFORMATION ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) Keebler's Annual Meeting of Shareholders ("Meeting") was held on May 23, 2000. (c) Represented at the Meeting, either in person or by proxy, were 81,396,069 voting shares that were voted as shown below: (i) To elect three directors to serve for three year terms expiring in the year 2003. All nominees are named below: o Franklin L. Burke Votes for Election 66,400,768 Votes Withheld 14,995,301 o C. Martin Wood, III Votes for Election 64,218,503 Votes Withheld 17,177,566 o Jimmy M. Woodward Votes for Election 67,525,951 Votes Withheld 13,870,118 17 (ii) To ratify the Board of Directors' appointment of PricewaterhouseCoopers LLP as independent public accountants for Keebler for 2000. Votes For Proposal 81,384,842 Votes Against Proposal 5,993 Votes Withheld 5,234 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit NUMBER DESCRIPTION ------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K 1. Current Report on Form 8-K dated January 28, 2000, announcing the intention of Keebler Foods Company to acquire Austin Quality Foods, Inc. from R&H Trust Co (Jersey) Limited, as Trustee, HB Marketing & Franchising L.P., 697163 Alberta Ltd., and William C. Burkhardt. 2. Current Report on Form 8-K dated March 16, 2000, related to the completion of the Stock Purchase Agreement between Keebler Foods Company, as Purchaser, and R&H Trust Co (Jersey) Limited, as Trustee, HB Marketing & Franchising L.P., 697163 Alberta Ltd., and William C. Burkhardt, together as Sellers. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant) /s/ SAM K. REED ------------------------------------------------------ Sam K. Reed President, Chief Executive Officer and Director Date: June 5, 2000 /s/ E. NICHOL MCCULLY ------------------------------------------------------ E. Nichol McCully Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: June 5, 2000 /s/ JAMES T. SPEAR ------------------------------------------------------ James T. Spear Vice President Finance and Corporate Controller (Principal Accounting Officer) Date: June 5, 2000 19 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Keebler Foods Company Consolidated Balance Sheet at April 22, 2000 and the Consolidated Statement of Operations for the sixteen weeks ended April 22, 2000 found on pages 2 through 4 of Keebler's Form 10-Q and is qualified in its entirety by reference to such financial statements. 0001018848 KEEBLER FOODS COMPANY 1,000 4-MOS DEC-30-2000 JAN-2-2000 APR-22-2000 21,302 0 65,942 8,844 142,640 303,910 815,472 219,142 1,765,548 438,354 627,582 0 0 853 444,869 1,765,548 855,860 855,860 363,389 758,669 3,495 6,489 13,149 80,547 33,024 47,523 0 0 0 47,523 0.57 0.55
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