-----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, ECFmHEx7ldTPpCUPqKgi6r25s0Yfzm4GXmGzCjqg+F8oJrapMJzJCGdF8J9NLAMb XWGY7P3cL5oXrj6svLU0HQ== 0001018848-98-000011.txt : 19980817 0001018848-98-000011.hdr.sgml : 19980817 ACCESSION NUMBER: 0001018848-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980718 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEEBLER FOODS CO CENTRAL INDEX KEY: 0001018848 STANDARD INDUSTRIAL CLASSIFICATION: COOKIES & CRACKERS [2052] IRS NUMBER: 363839556 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13705 FILM NUMBER: 98687898 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 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 18, 1998 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 7, 1998: 83,987,487. PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS KEEBLER FOODS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
JULY 18, January 3, 1998 1998 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 64,865 $ 27,188 Trade accounts and notes receivable, net 115,854 98,963 Inventories, net: Raw materials 26,501 25,543 Package materials 9,693 7,306 Finished goods 76,024 78,131 Other 1,237 1,482 ------------- ------------- 113,455 112,462 Deferred income taxes 45,913 42,730 Other 23,458 20,303 ------------- ------------- Total current assets 363,545 301,646 PROPERTY, PLANT, AND EQUIPMENT, NET 471,300 478,121 TRADEMARKS AND TRADE NAMES, NET 152,039 154,146 GOODWILL, NET 46,401 47,059 PREPAID PENSION 41,573 43,060 ASSETS HELD FOR SALE 3,742 3,742 OTHER ASSETS 13,526 15,077 ------------- ------------- Total assets $ 1,092,126 $ 1,042,851 ============= ============= 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 18, January 3, 1998 1998 ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 30,315 $ 26,365 Trade accounts payable 96,255 126,213 Other liabilities and accruals 235,042 194,923 Income taxes payable 21,195 13,784 Plant and facility closing costs and severance 6,407 6,900 ------------- ------------- Total current liabilities 389,214 368,185 LONG-TERM DEBT 256,140 272,390 OTHER LIABILITIES: Deferred income taxes 66,895 69,417 Postretirement/postemployment obligations 62,457 60,605 Plant and facility closing costs and severance 12,374 15,578 Deferred compensation 17,443 18,669 Other 16,461 15,956 ------------- ------------- Total other liabilities 175,630 180,225 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 83,987,487 and 77,638,206 shares issued, respectively) 840 776 Additional paid-in capital 168,854 148,613 Retained earnings 106,208 72,737 Treasury stock (4,760) (75) ------------- ------------- Total shareholders' equity 271,142 222,051 ------------- ------------- Total liabilities and shareholders' equity $ 1,092,126 $ 1,042,851 ============= ============= 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 18, 1998 July 12, 1997 JULY 18, 1998 July 12, 1997 --------------- ---------------- --------------- ---------------- NET SALES $ 490,042 $ 459,828 $ 1,126,788 $ 1,056,862 COSTS AND EXPENSES: Cost of sales 208,685 200,082 472,772 460,101 Selling, marketing, and administrative expenses 241,261 227,124 579,437 535,667 Other 1,916 1,826 4,723 4,746 --------------- ---------------- --------------- ---------------- INCOME FROM OPERATIONS 38,180 30,796 69,856 56,348 Interest (income) (1,017) (183) (1,406) (328) Interest expense 5,725 8,574 13,555 21,133 --------------- ---------------- --------------- ---------------- INTEREST EXPENSE, NET 4,708 8,391 12,149 20,805 --------------- ---------------- --------------- ---------------- INCOME BEFORE INCOME TAX EXPENSE 33,472 22,405 57,707 35,543 Income tax expense 14,041 9,441 24,236 14,966 --------------- ---------------- --------------- ---------------- INCOME BEFORE EXTRAORDINARY ITEM 19,431 12,964 33,471 20,577 EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax - - - 2,692 --------------- ---------------- --------------- ---------------- NET INCOME $ 19,431 $ 12,964 $ 33,471 $ 17,885 =============== ================ =============== ================ BASIC NET INCOME PER SHARE: Income before extraordinary item $ 0.23 $ 0.16 $ 0.40 $ 0.26 Extraordinary item - - - 0.04 --------------- ---------------- --------------- ---------------- Net income $ 0.23 $ 0.16 $ 0.40 $ 0.22 =============== ================ =============== ================ WEIGHTED AVERAGE SHARES OUTSTANDING 83,779 77,595 82,799 77,613 =============== ================ =============== ================ DILUTED NET INCOME PER SHARE: Income before extraordinary item $ 0.22 $ 0.16 $ 0.38 $ 0.26 Extraordinary item - - - 0.04 --------------- ---------------- --------------- ---------------- Net income $ 0.22 $ 0.16 $ 0.38 $ 0.22 =============== ================ =============== ================ WEIGHTED AVERAGE SHARES OUTSTANDING 87,748 79,215 87,243 79,233 =============== ================ =============== ================ 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 18, 1998 July 12, 1997 --------------- --------------- CASH FLOWS PROVIDED FROM (USED BY) OPERATING ACTIVITIES Net income $ 33,471 $ 17,885 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 31,549 31,473 Deferred income taxes (5,705) (5,207) Accretion on Seller Note - 1,404 Loss on early extinguishment of debt, net of tax - 2,692 Loss (gain) on sale of property, plant, and equipment 36 (605) Changes in assets and liabilities: Trade accounts and notes receivable, net (16,891) 22,805 Inventories, net (993) (11,017) Income taxes payable 7,411 12,955 Other current assets (3,155) (677) Deferred debt issue costs - (1,250) Trade accounts payable and other current liabilities 10,167 (1,984) Plant and facility closing costs and severance (3,692) (11,830) Other, net 3,211 5,020 --------------- --------------- Cash provided from (used by) operating activities 55,409 61,664 CASH FLOWS (USED BY) PROVIDED FROM INVESTING ACTIVITIES Capital expenditures (21,466) (15,251) Proceeds from property disposals 414 4,969 --------------- --------------- Cash (used by) provided from investing activities (21,052) (10,282) CASH FLOWS PROVIDED FROM (USED BY) FINANCING ACTIVITIES Purchase of treasury stock (4,685) (75) Exercise of options and warrant 20,305 - Long-term debt borrowings - 109,750 Long-term debt repayments (12,300) (162,800) --------------- --------------- Cash provided from (used by) financing activities 3,320 (53,125) --------------- --------------- Increase (decrease) in cash and cash equivalents 37,677 (1,743) Cash and cash equivalents at beginning of period 27,188 11,954 --------------- --------------- Cash and cash equivalents at end of period $ 64,865 $ 10,211 =============== =============== 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. BUSINESS AND OWNERSHIP Keebler Foods Company (the "Company") was acquired by INFLO Holdings Corporation ("INFLO") on January 26, 1996. INFLO was owned by Artal Luxembourg S. A. ("Artal"), a private investment company, Flowers Industries, Inc. ("Flowers"), a New York Stock Exchange-listed company, Bermore, Limited ("Bermore"), a privately held corporation and the parent of G.F. Industries, Inc., and certain members of the Company's current management. On November 20, 1997, INFLO was merged into Keebler Corporation, and subsequently changed its name to Keebler Foods Company. The Company made an initial public offering (the "Offering") of 13,386,661 shares of common stock on January 29, 1998. As part of the transaction, Flowers acquired additional shares of common stock from Artal and Bermore which increased its ownership from approximately 45% to 55%. Artal, having sold shares to both Flowers and the public, retained ownership of approximately 21%. Bermore exercised a warrant in exchange for 6,135,781 shares of common stock, sold shares to both Flowers and the public, and retained ownership of approximately 6%. Management's ownership remained at approximately 2%, with the balance of the outstanding common stock being sold to non-affiliates. FISCAL PERIODS PRESENTED The Company's fiscal year consists of thirteen four-week periods (52 or 53 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. SHAREHOLDERS' EQUITY COMMON STOCK The consolidated financial statements reflect the Company's declaration of a 57.325-for-1 stock split of common stock (the "Stock Split") effective January 22, 1998. The Stock Split was effected in the form of a stock dividend. Accordingly, all references in the consolidated financial statements to number of shares, options, warrants, and the related prices, as well as per share amounts and the average number of shares outstanding, have been restated to reflect these changes. 6 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) On January 29, 1998, the Company made a public offering of 13,386,661 shares of common stock. Concurrent with the Offering, Bermore exercised a warrant to purchase 6,135,781 shares of common stock. The exercise of the warrant resulted in the Company receiving $19.8 million of cash proceeds. All of the shares in the Offering were sold by Artal and Bermore, with no proceeds from the Offering going to the Company. TREASURY STOCK In March 1998, the Company's Board of Directors authorized the repurchase, at management's discretion, of up to $30.0 million in shares of the Company's common stock. The buyback program was primarily instituted to offset dilution which may result from the exercise and sale of shares related to employee stock options. The Company's repurchases of shares of common stock are recorded as treasury stock and result in a reduction of shareholders' equity. The Company utilizes the cost method for recording treasury stock transactions. Should the treasury shares be reissued, the Company intends to use a first-in, first-out method of reissuance. Total treasury shares held were 207,894 and 42,994 at July 18, 1998 and January 3, 1998, respectively. The total cost of treasury stock held by the Company was approximately $4.8 million and $0.1 million at July 18, 1998 and January 3, 1998, respectively. 3. NET INCOME PER SHARE Basic net income per share is calculated using the weighted average number of common shares outstanding during each period. Diluted net income per share is calculated using the weighted average number of common and dilutive potential common shares outstanding during each period. The following table sets forth the computation of basic and diluted net income per share:
Twelve Weeks Ended Twenty-Eight Weeks Ended ------------------------------- ------------------------------- JULY 18, July 12, JULY 18, July 12, 1998 1997 1998 1997 ------------- ------------- ------------- ------------- NUMERATOR: Income before extraordinary item................. $ 19,431 $ 12,964 $ 33,471 $ 20,577 Extraordinary item, net of tax................... - - - 2,692 ------------- ------------- ------------- ------------- Net income....................................... $ 19,431 $ 12,964 $ 33,471 $ 17,885 ============= ============= ============= ============= DENOMINATOR: Denominator for Basic Net Income Per Share Weighted average shares..................... 83,779 77,595 82,799 77,613 Effect of Dilutive Securities: Stock options............................... 3,969 1,620 4,000 1,620 Warrants.................................... - - 444 - ------------- ------------- ------------- ------------- Diluted potential common shares............. 3,969 1,620 4,444 1,620 ------------- ------------- ------------- ------------- Denominator for Diluted Net Income Per Share..... 87,748 79,215 87,243 79,233 ============= ============= ============= =============
7 KEEBLER FOODS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) For the twelve weeks ended July 18, 1998, there were weighted average options to purchase 33,300 shares of common stock at $29.38 per share, 38,500 shares of common stock at $29.78 per share, and 26,871 shares of common stock at $28.88 per share which were excluded from the computation of diluted net income per share as the exercise price of the options exceeded the average market price of common shares; and therefore, the effect would have been antidilutive. For the twenty-eight weeks ended July 18, 1998, there were weighted average options to purchase 22,257 shares of common stock at $29.38 per share, 24,357 shares of common stock at $29.78 per share, and 11,516 shares of common stock at $28.88 per share which were excluded from the computation of diluted net income per share as the exercise price of the options exceeded the average market price of common shares; and therefore, the effect would have been antidilutive. There were no antidilutive securities for either the twelve weeks or twenty-eight weeks ended July 12, 1997. 8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Results of operations expressed as a percentage of net sales for the twelve and twenty-eight weeks ended July 18, 1998 and July 12, 1997 are set forth below:
Twelve Weeks Ended Twenty-Eight Weeks Ended -------------------------------- ------------------------------- July 18, July 12, July 18, July 12, 1998 1997 1998 1997 -------------- -------------- -------------- -------------- NET SALES 100.0% 100.0% 100.0% 100.0% COSTS AND EXPENSES: Cost of sales 42.6 43.5 42.0 43.5 Selling, marketing, and administrative expenses 49.2 49.4 51.4 50.7 Other 0.4 0.4 0.4 0.5 -------------- -------------- -------------- -------------- INCOME FROM OPERATIONS 7.8 6.7 6.2 5.3 INTEREST EXPENSE, NET 1.0 1.8 1.1 2.0 -------------- -------------- -------------- -------------- INCOME BEFORE INCOME TAX EXPENSE 6.8 4.9 5.1 3.3 Income tax expense 2.8 2.1 2.1 1.4 -------------- -------------- -------------- -------------- INCOME BEFORE EXTRAORDINARY ITEM 4.0 2.8 3.0 1.9 EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of tax -- -- -- 0.2 -------------- -------------- -------------- -------------- NET INCOME 4.0% 2.8% 3.0% 1.7% ============== ============== ============== ==============
NET SALES. Net sales for the twelve and twenty-eight weeks ended July 18, 1998 were $490.0 million and $1,126.8 million, respectively. Both periods reflected a 6.6% increase in net sales over the comparable periods of the prior year. The net sales growth for both the quarter and first half was driven primarily by selected price increases coupled with an increase in sales volume and a more favorable sales mix. The benefit achieved from pricing was principally the result of price increases initiated in the first quarter of 1998. Volume gains, both quarter-on-quarter and year-to-date, continued to be accelerated by sales of new products and line extensions of existing products. GROSS PROFIT. Improvements in gross profit realized in the first quarter of 1998 continued to be achieved during the second quarter of the year. Gross profit for the second quarter of 1998 increased $21.6 million, or 0.9 percentage points as a percentage of net sales, over the same quarter a year ago. For the first twenty-eight weeks ended July 18, 1998, gross profit of $654.0 million increased $57.3 million, or 1.5 percentage points as a percentage of net sales, better than the comparable period of 1997. The gross profit margin improvements realized in the quarter and year-to-date were attributed to increased sales achieved through higher prices combined with lower operating costs resulting from favorable cost savings programs implemented in the current year. Additionally, in spite of incremental inflation increases in labor wage rates, per unit labor costs declined for both the twelve and twenty-eight weeks ended July 18, 1998, reflecting productivity gains achieved from cost savings programs aimed at significant cost reduction opportunities. SELLING, MARKETING, AND ADMINISTRATIVE EXPENSES. Selling, marketing, and administrative expenses were $14.1 million and $43.8 million higher for the twelve and twenty-eight weeks ended July 18, 1998, respectively, as compared with the same periods a year ago. Increased spending for both periods presented was attributed primarily to higher marketing and sales force expenses, offset partially by lower distribution costs. Increased sales volume was the primary driver of the overall higher selling, marketing, and administrative expenses. In addition, higher marketing expense resulted as the Company continued to invest in higher brand-building advertising and consumer promotions as compared to the year-earlier periods. Lower distribution costs continued to be attributed to improved inventory handling and deployment. Despite the overall higher spending levels, for the second quarter of 1998 selling, marketing, and administrative expenses, as a percentage of net 9 sales, were 0.2 percentage points lower as compared to the second quarter of 1997; evident of higher volume passing through a more efficient fixed cost structure. On a year-to-date basis, selling, marketing, and administrative expenses, as a percentage of net sales, were 0.7 percentage points above year-to-date 1997 principally due to the increased marketing expenses. INCOME FROM OPERATIONS. Income from operations of $38.2 million and $69.9 million for the twelve and twenty-eight weeks ended July 18, 1998, respectively, was $7.4 million and $13.5 million higher than the comparable periods of a year ago. For the quarter, the improvement in operating income resulted primarily from a higher gross margin combined with savings achieved from a more efficient fixed cost structure. On a year-to-date basis, income from operations improved due to a higher gross margin offset partially by increased selling, marketing, and administrative expenses. INTEREST EXPENSE. Net interest expense of $4.7 million for the twelve weeks ended July 18, 1998 was $3.7 million lower than the comparable twelve weeks of a year ago. On a year-to-date basis, net interest expense was $12.1 million compared to $20.8 million for the first half of 1997. The decrease in interest expense for both the quarter and first half of the year was primarily due to a lower average debt balance and lower interest rates in 1998. The refinancing of the Credit Agreement, late in the first quarter of 1997, provided more favorable terms, fees, and interest rates and resulted in the early extinguishment of $43.8 million of debt. Additionally, in the fourth quarter of 1997, there were $70.0 million of principal pre-payments on the term note and a $29.0 million early extinguishment of the Seller Note. The year-to-date weighted average interest rate decreased 0.8 percentage points compared to the same period last year. INCOME TAXES. Income tax expense was $14.0 million and $24.2 million for the twelve and twenty-eight weeks ended July 18, 1998, respectively, which was $4.6 million and $9.3 million higher than the same periods a year ago. Increased pre-tax income for the respective periods resulted in the higher income tax expense. The Company provided for income taxes at an effective tax rate of 42% for all periods presented. The effective tax rate exceeded the statutory rate due to nondeductible expenses, principally amortization of intangibles, including trademarks, trade names, and goodwill. EXTRAORDINARY ITEM NET OF INCOME TAXES. In the first quarter of 1997, the Company recorded extraordinary charges for the write-off of unamortized bank fees associated with the early extinguishment of debt. The after-tax extraordinary charge recorded in the first quarter of 1997 was $2.7 million. The tax benefit related to the extraordinary charge was $1.9 million. There were no extraordinary charges recorded in the second quarter of 1997 or during the first half of 1998. NET INCOME. Both quarterly and year-to-date net income showed significant improvement over the prior year comparable periods. Net income of $19.4 million for the quarter was $6.5 million higher than the year earlier quarter, while year-to-date net income of $33.5 million increased $15.6 million over the prior year comparable twenty-eight weeks. The substantial growth in net earnings for both periods presented was due primarily to net sales growth from price increases and volume gains, combined with productivity gains achieved from cost savings programs and significantly lower interest expense in 1998. LIQUIDITY AND CAPITAL RESOURCES Cash provided from operating activities during the first twenty-eight weeks of 1998 was $55.4 million. Net earnings of $33.5 million for the first half of the year combined with decreased funding of current liabilities and income taxes principally contributed to the positive cash flow. The reduced funding of current liabilities was attributed primarily to the timing of payments, while the increase in income taxes payable was attributed to a $22.2 million increase in pre-tax earnings over the prior year comparable period. Spending for plant and facility closing costs and severance of $3.7 million, related to exit costs associated with the Keebler and Sunshine acquisitions, slightly offset the above working capital sources. During the first half of 1998, cash used by investing activities of $21.1 million was primarily used to fund capital expenditures. Capital spending of $21.5 million was made principally to introduce new products, update and enhance production facilities, and achieve near-term cost savings and efficiencies in the manufacturing, sales, and distribution process. 10 Financing activities provided $3.3 million of positive cash flow in the first twenty-eight weeks of 1998. Concurrent with the Company's initial public offering, Bermore, Limited exercised a warrant in exchange for 6,135,781 shares of common stock. The exercise of the warrant resulted in the Company receiving $19.8 million of cash proceeds on February 3, 1998. Employee stock options were also exercised during the first half of 1998 which resulted in an additional $0.5 million of cash proceeds. In order to offset any dilution that may result from the exercise of employee stock options or the sale of common stock, the Company used $4.7 million to repurchase common stock. Also offsetting the cash provided from the exercise of the warrant and employee stock options were long-term debt repayments of $12.3 million, primarily for scheduled principal payments on the term note and other debt. As of July 18, 1998, cash and cash equivalents were $64.9 million and total outstanding debt was $286.5 million, of which current maturities were $30.3 million. Available borrowings under the Company's Revolving Loan facility were $140.0 million for which there was no outstanding balance on July 18, 1998. The Company met all financial covenants contained in the financing agreements. Available cash, as well as existing short-term credit facilities, are expected to be sufficient to meet the Company's normal operating requirements for the foreseeable future. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The new statement establishes accounting and reporting standards for derivative instruments and hedging activities. The statement requires that all derivatives be recognized as either assets or liabilities in the statement of financial position and that the instruments be measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company has not yet determined the impact the new statement may have on disclosures in the consolidated financial statements. YEAR 2000 ISSUE The Year 2000 Issue arose because many existing computer programs use only the last two digits to refer to a year. As a result, computer programs may not properly recognize a year that begins with "20" instead of the familiar "19." If not corrected, many computer applications could generate erroneous results. The Company utilizes software and related technologies that will be affected by the date change in the year 2000. The Company is currently conducting a comprehensive review of the computer systems and non-information technology systems (i.e. elevators) to identify potential Year 2000 Issues. The Company is in the final stages of assessing the impact of the Year 2000 Issue on the business. As the Company has implemented the SAP R/3 management information system and Manugistics software, both of which were developed/purchased as Year 2000 compliant, the impact of the Year 2000 Issue on the business is not anticipated to be material. Additionally, efforts are also currently underway to review all secondary information systems for Year 2000 compliance. These secondary systems, which are not material to the Company's ability to forecast, manufacture, or deliver product, are currently being tested, and if needed, a plan will be developed to resolve any deficiencies. The Company is also undertaking efforts to verify, by no later than December 31, 1998, that all vendors and suppliers will be Year 2000 compliant. An assessment of the most reasonably likely worst case scenario and related contingency plan to deal with such scenario has not yet been established. This assessment is anticipated to be made as part of the comprehensive review of the Year 2000 Issue that is currently underway. Management does not expect the most reasonably likely worst case scenario or the related contingency plan to have a material impact on the business, results of operations, or financial condition. 11 FORWARD-LOOKING STATEMENTS When used in this discussion, the words "believes" and "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, over which the Company may have no control, which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligations to republish revised forward-looking statements to reflect events or circumstances after the date thereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company, in this report, as well as the Company's periodic reports filed with the Securities and Exchange Commission. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. PART II: OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit NUMBER DESCRIPTION ------ ----------- 27 Financial Data Schedule (b) Reports on Form 8-K None. 12 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 and Chief Executive Officer Date: August 14, 1998 /s/ E. NICHOL MCCULLY ---------------------------------------------------- E. Nichol McCully Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 14, 1998 /s/ JAMES T. SPEAR ---------------------------------------------------- James T. Spear Vice President Finance and Corporate Controller (Principal Accounting Officer) Date: August 14, 1998 13 EX-27 2
5 This schedule contains summary financial information extracted from the Keebler Foods Company Consolidated Balance Sheet at July 18, 1998 and the Consolidated Statement of Operations for the twenty-eight weeks ended July 18, 1998 found on pages 2 through 4 of the Company's Form 10-Q and is qualified in its entirety by reference to such financial statements. 0001018848 KEEBLER FOODS COMPANY 1,000 7-MOS JAN-2-1999 JAN-4-1998 JUL-18-1998 64,865 0 121,219 5,365 113,455 363,545 595,174 123,874 1,092,126 389,214 256,140 0 0 840 270,302 1,092,126 1,126,788 1,126,788 472,772 1,052,209 4,723 10,496 12,149 57,707 24,236 33,471 0 0 0 33,471 0.40 0.38
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