-----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, DN8P89jnMNJMrqcQOMvEVAfpSrLEGjeyXB1BliiItsIB6xZ2+OhHJUe3szpkZD6J rVBu83vr3GtVZmrtL/OrlQ== /in/edgar/work/20000829/0001018848-00-000021/0001018848-00-000021.txt : 20000922 0001018848-00-000021.hdr.sgml : 20000922 ACCESSION NUMBER: 0001018848-00-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000715 FILED AS OF DATE: 20000829 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: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13705 FILM NUMBER: 711563 BUSINESS ADDRESS: STREET 1: 677 LARCH AVE CITY: ELMHURST STATE: IL ZIP: 60126 BUSINESS PHONE: 6308332900 MAIL ADDRESS: STREET 1: 677 LARCH AVE CITY: ELMHURST STATE: IL ZIP: 60126 FORMER COMPANY: FORMER CONFORMED NAME: KEEBLER CORP DATE OF NAME CHANGE: 19960715 10-Q 1 0001.txt Q200 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 JULY 15, 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 AUGUST 18, 2000: 84,991,955. PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS KEEBLER FOODS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
JULY 15, 2000 January 1, 2000 ----------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 20,115 $ 20,717 Trade accounts and notes receivable, net 44,718 65,052 Inventories, net: Raw materials 31,129 34,243 Package materials 17,575 13,907 Finished goods 104,610 126,954 Other 1,917 1,176 ----------------- ------------------ 155,231 176,280 Deferred income taxes 47,010 46,252 Other 33,302 27,278 ----------------- ------------------ Total current assets 300,376 335,579 PROPERTY, PLANT AND EQUIPMENT, NET 609,343 553,031 GOODWILL, NET 530,858 370,188 TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES, NET 241,192 211,790 PREPAID PENSION 31,813 33,240 ASSETS HELD FOR SALE 1,162 6,662 OTHER ASSETS 21,755 17,693 ----------------- ------------------ Total assets $ 1,736,499 $ 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)
JULY 15, 2000 January 1, 2000 ----------------- ------------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 46,550 $ 37,283 Trade accounts payable 132,106 147,862 Other liabilities and accruals 225,060 237,447 Income taxes payable 1,549 23,603 Plant and facility closing costs and severance 15,584 11,290 ----------------- ------------------ Total current liabilities 420,849 457,485 LONG-TERM DEBT 590,149 419,160 OTHER LIABILITIES: Deferred income taxes 121,278 124,389 Postretirement/postemployment obligations 64,443 64,383 Plant and facility closing costs and severance 8,022 12,062 Deferred compensation 26,221 24,581 Other 21,430 16,808 ----------------- ------------------ Total other liabilities 241,394 242,223 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 86,261,487 and 84,655,874 shares issued, respectively) 863 846 Additional paid-in capital 205,405 182,686 Retained earnings 317,851 255,813 Treasury stock (40,012) (30,030) ----------------- ------------------ Total shareholders' equity 484,107 409,315 ----------------- ------------------ Total liabilities and shareholders' equity $ 1,736,499 $ 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)
TWELVE Twelve TWENTY-EIGHT Twenty-Eight WEEKS ENDED Weeks Ended WEEKS ENDED Weeks Ended JULY 15, 2000 July 17, 1999 JULY 15, 2000 July 17, 1999 -------------- -------------- -------------- -------------- NET SALES $ 613,572 $ 587,847 $ 1,469,432 $ 1,439,880 COSTS AND EXPENSES: Cost of sales 253,341 257,349 616,730 638,052 Selling, marketing and administrative expenses 286,967 273,349 682,247 667,691 Other 6,733 8,417 10,228 14,760 Restructuring and impairment charge (996) 69,208 (996) 69,208 -------------- -------------- -------------- -------------- INCOME (LOSS) FROM OPERATIONS 67,527 (20,476) 161,223 50,169 Interest (income) (736) (315) (1,485) (941) Interest expense 11,723 8,399 25,621 22,341 -------------- -------------- -------------- -------------- INTEREST EXPENSE, NET 10,987 8,084 24,136 21,400 -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 56,540 (28,560) 137,087 28,769 Income tax expense (benefit) 23,099 (7,190) 56,123 17,462 -------------- -------------- -------------- -------------- NET INCOME (LOSS) $ 33,441 $ (21,370) $ 80,964 $ 11,307 ============== ============== ============== ============== BASIC NET INCOME (LOSS) PER SHARE $ 0.39 $ (0.25) $ 0.96 $ 0.14 WEIGHTED AVERAGE SHARES OUTSTANDING 84,449 83,778 84,096 83,818 DILUTED NET INCOME (LOSS) PER SHARE $ 0.38 $ (0.24) $ 0.93 $ 0.13 WEIGHTED AVERAGE SHARES OUTSTANDING 87,749 87,622 87,447 87,871 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4
KEEBLER FOODS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
TWENTY-EIGHT Twenty-Eight WEEKS ENDED Weeks Ended JULY 15, 2000 July 17, 1999 ---------------- ---------------- CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES Net income $ 80,964 $ 11,307 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 49,432 43,171 Deferred income taxes 3,759 (6,702) (Gain) loss on sale of property, plant and equipment (1,785) 514 Gain on sale of value brands assets (5,700) - Restructuring and impairment charge (615) 46,071 Income tax benefit related to stock options exercised 17,857 6,541 Changes in assets and liabilities: Trade accounts and notes receivable, net 10,539 (21,614) Inventories, net 29,201 21,697 Income taxes payable (20,918) (19,077) Other current assets (4,921) (1,558) Trade accounts payable and other current liabilities (42,508) 616 Plant and facility closing costs and severance (13,615) 19,861 Other, net (88) 7,864 ---------------- ---------------- Cash provided from operating activities 101,602 108,691 CASH FLOWS USED BY INVESTING ACTIVITIES Capital expenditures (36,662) (49,801) Proceeds from property disposals 8,547 2,420 Purchase of Sesame Street license (10,000) - Proceeds from sale of value brands assets 17,000 - Purchase of Austin Quality Foods, Inc., net of cash acquired (253,797) - ---------------- ---------------- Cash used by investing activities (274,912) (47,381) CASH FLOWS PROVIDED FROM (USED BY) FINANCING ACTIVITIES Purchase of treasury stock (9,982) (16,619) Exercise of employee stock options 4,879 2,445 Proceeds from receivables securitization 21,000 106,000 Long-term debt repayments (24,263) (94,443) Revolving facility, net 200,000 (60,000) Dividends paid (18,926) - ---------------- ---------------- Cash provided from (used by) financing activities 172,708 (62,617) ---------------- ---------------- Decrease in cash and cash equivalents (602) (1,307) Cash and cash equivalents at beginning of period 20,717 23,515 ---------------- ---------------- Cash and cash equivalents at end of period $ 20,115 $ 22,208 ================ ================ 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 $254.4 million, excluding related fees and expenses paid of approximately $3.0 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 to the tangible and intangible assets of Austin based on respective fair values. The acquisition has resulted in an unallocated excess purchase price over fair value of net assets acquired of $168.5 million, which is being amortized on a straight-line basis over a forty year period. Results of operations for Austin from March 6, 2000 to July 15, 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, additional depreciation of the property, plant and equipment acquired 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 Twenty-Eight Weeks Ended ---------------------------------------- July 15, 2000 July 17, 1999 ------------------- ----------------- Net sales...................................................................... $ 1,496,927 $ 1,553,818 Net income..................................................................... $ 77,026 $ 8,241 Diluted net income per share................................................... $ 0.88 $ 0.09
3. ASSETS HELD FOR SALE On May 2, 2000, the Sayreville, New Jersey manufacturing facility, which had been held for sale after its closure, was sold for $7.5 million. The sale resulted in a pre-tax gain of approximately $2.0 million, which was recorded in other income in the twelve weeks ended July 15, 2000. Disposition of the remaining assets held for sale is expected to occur within the next thirty-six months without a significant gain or loss. 4. DEBT Long-term debt consisted of the following at July 15, 2000:
(IN THOUSANDS) Interest Rate Final Maturity JULY 15, 2000 ------------------ ----------------------- ------------------ Revolving Facility.................................. 6.684% September 28, 2004 $ 200,000 Term Facility....................................... 6.655% September 28, 2004 296,000 Senior Subordinated Notes........................... 10.750% July 1, 2006 124,400 Other Senior Debt................................... Various 2001-2005 9,065 Capital Lease Obligations........................... Various 2002-2042 7,234 ------------------ 636,699 Less: Current maturities............................ 46,550 ------------------ Total.......................................... $ 590,149 ==================
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 July 15, 2000, the outstanding balance on the Revolving Facility was $200.0 million, with an available balance of $150.0 million. 5. 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, in 1999, to operating income of $66.3 million in total. In the second quarter of 2000, the charge was reduced by an adjustment of $1.0 million. The adjustment was for costs related to severance and other exit costs from the facility closure due to lower-than-expected severance costs and the earlier-than-expected sale of the facility. The restructuring and impairment charge included $19.2 million for cash costs related to severance and other exit costs from the Sayreville facility. The remaining $46.1 million were 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 Sunshine Biscuits, Inc. acquisition in June 1996. Approximately 650 employees were terminated as a result of the closing of the Sayreville facility, of which approximately 600 employees were represented by unions. 7 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 5. 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 JULY 15, 2000 ------------------ ------------ ------------ -------------- ------------------- Severance................. $ 2,037 $ - $ (1,153) $ (140) $ 744 Facility closure.......... 2,567 - (848) (1,556) 163 Other..................... 1,717 - 176 700 2,593 ------------------ ------------ ------------ -------------- ------------------- Total................. $ 6,321 $ - $ (1,825) $ (996) $ 3,500 ================== ============ ============ ============== ===================
At July 15, 2000, $3.3 million remained for plant and facility closing costs and severance accruals and $0.2 million for other liabilities and accruals. Only costs related to the settlement of worker's compensation claims (included in other above), and health and welfare payments are expected to extend beyond the year ended December 30, 2000. 6. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE Throughout 2000, as part of the acquisition of Austin, 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 allocation of the purchase price and totaled $14.5 million. Associated costs related to staff reductions of approximately 80 non-union employees were estimated at $14.0 million. At July 15, 2000, approximately 60 employees had been terminated, with the remaining terminations scheduled to occur during the second half of 2000. Spending on exit costs is expected to be substantially complete before the end of 2001, with primarily health and welfare 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 $2.3 million was spent during the first half 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. In the first half of 2000, approximately 150 employees under union contract and approximately 35 employees not under union contract had been terminated. The remaining terminations are expected to occur throughout the remainder of the current year. During the quarter ended July 15, 2000, Keebler adjusted accruals previously established in the accounting for the Keebler and Sunshine acquisitions by reducing goodwill and other intangibles by $0.5 million and $1.1 million, respectively, to recognize exit costs that are now expected to be less than initially anticipated. 8 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. 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 Adjustment JULY 15, 2000 ----------------- --------------- -------------- -------------- ---------------- KEEBLER COMPANY Severance................... $ 24 $ - $ - $ - $ 24 Facility closure............ 7,829 - (1,258) (500) 6,071 ----------------- --------------- -------------- -------------- ---------------- Subtotal................ 7,853 - (1,258) (500) 6,095 ----------------- --------------- -------------- -------------- ---------------- SUNSHINE BISCUITS, INC. Severance................... $ 63 $ - $ (12) $ - $ 51 Facility closure............ 1,962 - (679) (1,116) 167 ----------------- --------------- -------------- -------------- ---------------- Subtotal................ 2,025 - (691) (1,116) 218 ----------------- --------------- -------------- -------------- ---------------- PRESIDENT INTERNATIONAL, INC. Severance................... $ 2,829 $ - $ (2,097) $ - $ 732 Facility closure............ 4,596 - (223) - 4,373 Other....................... 10 - (10) - - ----------------- --------------- -------------- -------------- ---------------- Subtotal................ 7,435 - (2,330) - 5,105 ----------------- --------------- -------------- -------------- ---------------- AUSTIN QUALITY FOODS, INC. Severance................... $ - $ 13,979 $ (5,236) $ - $ 8,743 Facility closure............ - 479 (408) - 71 Other....................... - 28 - - 28 ----------------- --------------- -------------- -------------- ---------------- Subtotal................ - 14,486 * (5,644) - 8,842 ----------------- --------------- -------------- -------------- ---------------- Total................. $ 17,313 $ 14,486 $ (9,923) $ (1,616) $ 20,260 ================= =============== ============== ============== ================ * Recorded as part of the purchase price allocation.
7. SEGMENT INFORMATION Keebler has adopted Statement of Financial Accounting 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) 7. 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 (loss) 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 twelve weeks ended July 15, 2000 and July 17, 1999 and the twenty-eight weeks ended July 15, 2000 and July 17, 1999. Prior year amounts have been restated for reclassifications between reportable segments.
Branded Specialty Segment Segment Other (a) Total --------------- ---------------- ---------------- --------------- (IN THOUSANDS) TWELVE WEEKS ENDED JULY 15, 2000: NET SALES TO EXTERNAL CUSTOMERS............. $ 482,077 $ 131,495 $ - $ 613,572 DEPRECIATION EXPENSE........................ 6,234 2,419 10,392 19,045 PROFIT CONTRIBUTION......................... 83,379 22,905 - 106,284 TWELVE WEEKS ENDED JULY 17, 1999: Net sales to external customers............. $ 463,144 $ 124,703 $ - $ 587,847 Depreciation expense........................ 4,909 1,839 8,454 15,202 Profit contribution......................... 77,203 17,877 - 95,080 TWENTY-EIGHT WEEKS ENDED JULY 15, 2000: NET SALES TO EXTERNAL CUSTOMERS............. $ 1,085,141 $ 384,291 $ - $ 1,469,432 DEPRECIATION EXPENSE........................ 13,989 6,812 16,268 37,069 PROFIT CONTRIBUTION......................... 171,409 80,486 - 251,895 TWENTY-EIGHT WEEKS ENDED JULY 17, 1999: Net sales to external customers............. $ 1,053,945 $ 385,935 $ - $ 1,439,880 Depreciation expense........................ 10,508 4,241 17,836 32,585 Profit contribution......................... 157,543 72,389 - 229,932 (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 (loss) from continuing operations before income tax expense (benefit) for the twelve weeks ended July 15, 2000 and July 17, 1999 and the twenty-eight weeks ended July 15, 2000 and July 17, 1999 is as follows: 10 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. SEGMENT INFORMATION (CONTINUED)
Twelve Weeks Ended Twenty-Eight Weeks Ended ---------------------------------- ------------------------------------ JULY 15, 2000 July 17, 1999 JULY 15, 2000 July 17, 1999 --------------- --------------- ---------------- ---------------- (IN THOUSANDS) INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT): Reportable segment's profit contribution..... $ 106,284 $ 95,080 $ 251,895 $ 229,932 Unallocated functional support costs (b)..... 39,753 46,348 91,668 110,555 Restructuring and impairment charge.......... (996) 69,208 (996) 69,208 Interest expense, net........................ 10,987 8,084 24,136 21,400 --------------- --------------- ---------------- ---------------- Income (Loss) before Income Tax Expense (Benefit) ..................... $ 56,540 $ (28,560) $ 137,087 $ 28,769 =============== =============== ================ ================ (b) Includes support costs such as distribution, research and development, corporate administration and other (income) expense, which are not allocated internally to reportable segments.
8. 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 first quarter of 1999. 9. SUBSEQUENT EVENTS On August 24, 2000, the Board of Directors of Keebler declared a quarterly cash dividend of $0.1125 per share payable on September 20, 2000, to stockholders of record on September 6, 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 twelve and twenty-eight weeks ended July 15, 2000 and July 17, 1999 should be read in conjunction with Keebler's 1998 annual report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2000. Keebler's operating results for the twenty-eight weeks ended July 15, 2000, include the operating results of Austin Quality Foods, Inc. ("Austin") from the acquisition date of March 6, 2000, whereas the comparable period ended July 17, 1999, does not. Keebler's operating results for the twenty-eight weeks ended July 15, 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 twenty-eight weeks ended July 17, 1999, includes the operating results of the value brands business. RESULTS OF OPERATIONS Results of operations expressed as a percentage of net sales for the twelve and twenty-eight weeks ended July 15, 2000 and July 17, 1999 are set forth below:
Twelve Weeks Ended Twenty-Eight Weeks Ended -------------------------------------- ------------------------------------ July 15, 2000 July 17, 1999 July 15, 2000 July 17, 1999 ------------------ ------------------- ----------------- ------------------ NET SALES......................................... 100.0% 100.0% 100.0% 100.0% Cost of sales..................................... 41.3 43.8 42.0 44.3 Selling, marketing and administrative expenses.... 46.8 46.5 46.4 46.4 Restructuring and impairment charge............... (0.2) 11.8 (0.1) 4.8 INCOME (LOSS) FROM OPERATIONS..................... 11.0 (3.5) 11.0 3.5 Interest Expense, net............................. 1.8 1.4 1.6 1.5 NET INCOME (LOSS)................................. 5.5% (3.6)% 5.5% 0.8%
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 (loss) from operations. Prior year numbers have been restated for reclassifications between reportable segments. 12 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.
Twelve Weeks Ended Twenty-Eight Weeks Ended ------------------------------------------ ----------------------------------------- July 15, 2000 July 17, 1999 July 15, 2000 July 17, 1999 --------------------- -------------------- -------------------- -------------------- ($ IN MILLIONS) $ % $ % $ % $ % ---------- ---------- --------- ---------- --------- ---------- ---------- --------- NET SALES........................ $ 482.1 $ 463.1 $1,085.1 $1,053.9 PROFIT CONTRIBUTION.............. $ 83.4 17.3% $ 77.2 16.7% $ 171.4 15.8% $ 157.5 14.9%
For the quarter ended July 15, 2000, net sales of $482.1 million in the Branded segment increased 4.1% over the same period of a year ago and net sales of $1,085.1 million for the first half of 2000 finished 3.0% above the comparable period of 1999. The acquisition of Austin accounted for net sales of $36.7 million and $55.3 million for the twelve and twenty-eight weeks ended July 15, 2000, respectively. In addition, the sale of the value brands business, which totaled $11.4 million and $26.1 million of net sales for the second quarter and first half of 1999, respectively, affected comparisons for the initial two quarters of 2000. Excluding the impact of Austin sales in the current period and the revenue from the value brands business in the comparable periods of a year ago, net sales for the quarter ended July 15, 2000 decreased $6.3 million compared to the year-ago quarter and increased $2.0 million for the first half of 2000. During the current quarter, good growth in core Keebler brand cookie and cracker products, along with additional distribution points picked up in the national rollout of FAMOUS AMOS and MURRAY SUGAR FREE drove real volume gains that were offset by decreased sales of more promotion sensitive products. Competitive activity constrained net sales of our secondary cookie brands. For the first half of 2000, growth from new products, greater distribution of FAMOUS AMOS and MURRAY SUGAR FREE cookies, and continued growth in retail business outside supermarkets, including mass merchandisers and convenience channels, were the primary drivers of the increase in net sales as compared to the prior year. New products contributing to the overall year-to-date growth included Keebler SNAX STIX, HARVEST BAKERY crackers, ELF GRAHAMS and WHEATABLES SNACK MIX. The profit contribution of the Branded segment was $83.4 million, or 17.3% of net sales, in the second quarter of 2000 and $171.4 million, or 15.8% of net sales, for the first half of 2000. The growth in profit contribution for the twelve and twenty-eight weeks ended July 15, 2000 was driven by a higher gross margins achieved on Keebler's core products furthered by improved productivity and cost savings across the supply chain. Partially offsetting these improvements was the inclusion of the gross margin on Austin sales, which was lower than Keebler and President products. Higher distribution and freight, which were the result of increased fuel costs, also slightly offset the growth in profit contribution. SPECIALTY SEGMENT The Specialty segment produces cookies, crackers and brownies for the foodservice market and private label retailers. In addition, we also produce custom-baked products for other marketers of branded food products, including sales of cookies to the Girl Scouts of the U.S.A.
Twelve Weeks Ended Twenty-Eight Weeks Ended ------------------------------------------ ----------------------------------------- July 15, 2000 July 17, 1999 July 15, 2000 July 17, 1999 --------------------- -------------------- -------------------- -------------------- ($ IN MILLIONS) $ % $ % $ % $ % ---------- ---------- --------- ---------- --------- ---------- ---------- --------- NET SALES........................ $ 131.5 $ 124.7 $ 384.3 $ 385.9 PROFIT CONTRIBUTION.............. $ 22.9 17.5% $ 17.9 14.3% $ 80.5 20.9% $ 72.4 18.8%
13 For the twelve weeks ended July 15, 2000, net sales in the Specialty segment were $131.5 million compared to $124.7 million in the comparable quarter of 1999. The $6.8 million or 5.4% increase in net sales was due to continued volume growth in the foodservice channel and the Austin acquisition growth offset by revenue declines in custom-baked and private label products. Volume gains in the foodservice market were led by higher sales of both ice cream cones and Grab n' Go products. Sales of Austin products contributed $9.8 million in incremental revenue. Net sales for the year-to-date ended July 15, 2000 of $384.3 million were just $1.6 million below the comparable twenty-eight week period of last year. Lower sales of custom-baked and private label products were the primary contributors of the revenue loss in the first half. Partially offsetting the year-to-date sales decline were Austin sales, which added $15.7 million incremental net sales and growth of 9.8% in foodservice sales. The Specialty segment's profit contribution was $22.9 million or 17.5%, as a percentage of net sales, for the quarter ended July 15, 2000, and $80.5 million or 20.9%, as a percentage of net sales, for the first half of 2000. Removing the effects of Austin, Keebler's profit contribution finished the twelve and twenty-eight weeks 3.0 percentage points and 2.3 percentage points, as a percentage of net sales, ahead of the respective periods of the prior year. A product focus shift to higher margin products, which lowered cost of sales both in dollar spending and as a percentage of net sales, was the primary contributor to the increased profit margin. Additional cost reduction initiatives also contributed to higher segment profits. COST OF SALES For the twelve weeks ended July 15, 2000, cost of sales was $253.3 million, or 41.3% of net sales, versus $257.3 million, or 43.8% of net sales, in the comparable quarter of a year ago. Year-to-date, cost of sales was $616.7 million, or 42.0% of net sales, as opposed to $638.1 million, or 44.3% of net sales, from a year ago. Excluding Austin, cost of sales, as a percentage of net sales, was 39.7% and 40.9% for the second quarter and twenty-eight weeks ended July 15, 2000, respectively. The quarter and year-to-date improvements in cost of sales, as a percentage of net sales, were mainly attributable to productivity and cost savings and lower raw material costs. Lower sales of custom-baked, and private label and value products also contributed to lower cost of sales. These favorable factors more than offset the increase to cost of sales resulting from the inclusion of Austin since its March 6, 2000 acquisition date. Also contributing to the improvement in cost of sales was a favorable shift in the overall business mix to higher margin products and channels of distribution. SELLING, MARKETING AND ADMINISTRATIVE EXPENSES For the quarter and year-to-date ended July 15, 2000, selling, marketing and administrative expenses of $287.0 million and $682.2 million, respectively, were $13.6 million and $14.6 million higher than the same periods of a year ago. The 5.0% and 2.2% increase in selling, marketing and administrative expenses for the twelve and twenty-eight weeks, respectively, was primarily driven by the inclusion of Austin expenses. The remaining balances were principally due to an increase of $5.2 million and $11.0 million in selling and distribution for the quarter and first half, respectively. Excluding Austin, selling, marketing and administrative expenses finished the quarter and year-to-date periods, 2.5 and 1.3 percentage points, as a percentage of net sales, higher than the respective periods of last year. The increased selling and distribution expense was mainly due to transition expenses on converting certain non-core independent distributor routes acquired in the President acquisition to Keebler's direct store delivery system and higher fuel costs. OTHER Other expense for the second quarter and first half of 2000 was $6.7 million and $10.2 million, respectively, compared to $8.4 million and $14.8 million for the prior year comparable periods. The decrease for both the second quarter and year-to-date periods was principally due to the $2.0 million pre-tax gain on the sale of the Sayreville manufacturing facility in the second quarter of 2000 and the $5.7 million pre-tax gain on the sale of the value brands business in the first quarter of 2000. Partially offsetting these gains was incremental amortization expense resulting from intangible assets added from the Austin acquisition, higher costs related to the Receivables Purchase Agreement and increased bank fees. 14 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. In the second quarter of 2000 the charge was reduced by an adjustment of $1.0 million. The adjustment was for costs related to severance and other exit costs from the facility due to lower-than-expected severance costs and the earlier-than-expected sale of the facility. On May 2, 2000, the Sayreville, New Jersey facility was sold. The restructuring and impairment charge included $19.2 million for cash costs related to severance and other exit costs from the Sayreville facility. The remaining $46.1 million were 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 Sunshine Biscuits, Inc. ("Sunshine") acquisition in June 1996. Of the total $65.3 million charge, approximately $64.6 million was recorded as plant and facility closing costs and severance. The remaining $0.7 million was recorded as other liabilities and accruals. Approximately 650 total employees were terminated as a result of the closing of the Sayreville facility, of which approximately 600 employees were represented by unions. At July 15, 2000, $3.3 million remained for plant and facility closing costs and severance accruals and $0.2 million for other liabilities and accruals. Only costs related to the settlement of workers' compensation claims and health and welfare payments are expected to extend beyond the year ended December 30, 2000. The amount of suspended depreciation and amortization that would have been recognized for the twenty-eight weeks ended July 15, 2000, if the prior year impairments had not been recognized, was approximately $2.8 million. INTEREST EXPENSE, NET Net interest expense for the second quarter and year-to-date period ended July 15, 2000, of $11.0 million and $24.1 million was $2.9 million and $2.7 million higher than the second quarter and year-to-date period ended July 17, 1999, respectively. The increase in net interest expense was primarily due to additional interest expense associated with the incremental debt incurred in first quarter of 2000 in order to finance the acquisition of Austin. Outstanding debt at July 15, 2000, was $136.6 million above the level outstanding at July 17, 1999. Also adding to the increase in expense was a higher weighted average interest rate in 2000 compared to the same period in 1999. INCOME TAX EXPENSE Income tax expense for the twelve and twenty-eight weeks ended July 15, 2000, increased by $30.3 million and $38.7 million, respectively, compared to the same periods of a year ago. Increased taxable earnings was the primary driver of higher income tax expense. A lower effective tax rate of 40.9% in 2000 versus 42.5% in 1999 partially offset this increase. The effective tax rate decreased due to higher taxable earnings and 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. Partially offsetting the decrease in the effective tax rate was the increase in non-deductible goodwill amortization expense as a result of the Austin acquisition. The effective tax rate remains above the federal statutory rate due to nondeductible expenses, primarily the amortization of intangibles resulting from acquisitions. NET INCOME (LOSS) Net income for the twelve and twenty-eight weeks ended July 15, 2000 was $33.4 million and $81.0 million, respectively. Before restructuring and impairment changes or credits, net income was $32.8 million in the current quarter and $80.3 million for the twenty-eight weeks ended July 15, 2000. Net income exceeded the second quarter and year-to-date of the prior year, also before restructuring and impairment charges, by $9.2 million and $24.0 million, respectively. The increase over the comparable quarter and first half of 1999 was a combination of the on-going strength of our core branded business, successful integration of strategic acquisitions, realized cost savings from productivity gains and efficiencies in operations, and a strategic shift away from lower margin businesses. 15 LIQUIDITY AND CAPITAL RESOURCES During the first twenty-eight weeks of 2000, cash provided from operating activities was $101.6 million. Year-to-date net earnings of $81.0 million and a reduced investment in inventories of $29.2 million were primarily responsible for the positive cash flow. The lower inventory levels were due principally to the depletion of the Girl Scout finished goods inventory that existed at year end in anticipation of the annual Girl Scout cookie sale that occurred during the first quarter of the year. In addition, the income tax benefit of $17.9 million on stock options exercised contributed to the cash flow. Partially offsetting these cash resources was lower trade accounts payable and other current liabilities of $42.5 million, which was due primarily to timing of disbursements and payment of year end incentives, and spending of $13.6 million for plant and facility closing costs and severance. For the first half of 2000, cash used by investing activities of $274.9 million was principally attributable to the $253.8 million, net of cash acquired, in the acquisition of Austin during the first quarter. Also contributing to uses of cash was the $10.0 million purchase of a license agreement for the Sesame Street trademark from the Sesame Workshop, formerly known as the Children's Television Workshop. The majority of the $36.7 million in capital spending in the first half of 2000 was used for automation and capacity enrichments, product development and several equipment upgrades related to cost reduction programs for improved production expansion. Proceeds received from asset disposals of $25.5 million partially offset capital expenditures, with the sale of the value brands business and the Sayreville facility accounting for $24.5 million of the proceeds. Financing activities provided $172.7 million of cash during the first twenty-eight weeks of 2000. The increase resulted principally from proceeds of long-term debt borrowings under the existing Revolving facility to fund the acquisition of Austin. Also contributing to the increase were net cash proceeds of $21.0 million received from the sale of accounts receivable under the Receivables Purchase Agreement and $4.9 million of cash generated from employee stock options exercised during the first half of 2000. Partially offsetting the positive cash flow were scheduled principal payments of $24.3 million, dividend payments totaling $18.9 million and purchases of common stock into treasury of $10.0 million. As of July 15, 2000, cash and cash equivalents were $20.1 million, long-term debt outstanding was $636.7 million and current maturities were $46.6 million. Available borrowings under Keebler's Revolving facility were $350.0 million, of which $200.0 million was outstanding at July 15, 2000. 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. NEW ACCOUNTING PRONOUNCEMENTS In June 2000, the Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," an amendment of FASB Statement No. 133. FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. FASB Statement No. 138 addresses a limited number of issues causing implementation difficulties for numerous entities that apply FASB Statement No. 133. 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 sales trends 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. 16 When used in this discussion, the words "anticipate," "believe," "estimate," "expect" 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 customers and competitors; o our ability to recover material costs in the pricing of our products; o the extent to which we are able to successfully 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. 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 July 15, 2000, with a notional amount of $322.3 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 $23.1 million at July 15, 2000 would be impacted by $2.2 million. PART II: OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit NUMBER DESCRIPTION ------- ----------- 27 Financial Data Schedule 17 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: August 28, 2000 /s/ E. NICHOL MCCULLY ------------------------------------------------------ E. Nichol McCully Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 28, 2000 /s/ JAMES T. SPEAR ------------------------------------------------------ James T. Spear Vice President Finance and Corporate Controller (Principal Accounting Officer) Date: August 28, 2000 18 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Keebler Company Consolidated Balance Sheet at July 15, 2000 and the Consolidated Statement of Operations for the twenty-eight weeks ended July 15, 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 7-MOS DEC-30-2000 JAN-02-2000 JUL-15-2000 20,115 0 53,081 8,363 155,231 300,376 842,470 233,127 1,736,499 420,849 590,149 0 0 863 483,244 1,736,499 1,469,432 1,469,432 616,730 1,297,981 10,228 11,672 24,136 137,087 56,123 80,964 0 0 0 80,964 0.96 0.93
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