-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Jk01+6IK+zGzzdv+O5XmsUOG2rIt2F4eIsthCMxcXBWyhS/UmV2LUHqTkKY/pM1Z WALIt1t5aPd9EiJ/mUDlKA== 0000912057-94-002945.txt : 19940908 0000912057-94-002945.hdr.sgml : 19940908 ACCESSION NUMBER: 0000912057-94-002945 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940719 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19940902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEMING COMPANIES INC /OK/ CENTRAL INDEX KEY: 0000352949 STANDARD INDUSTRIAL CLASSIFICATION: 5140 IRS NUMBER: 480222760 STATE OF INCORPORATION: OK FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08140 FILM NUMBER: 94547727 BUSINESS ADDRESS: STREET 1: 6301 WATERFORD BLVD STREET 2: P O BOX 26647 CITY: OKLAHOMA CITY STATE: OK ZIP: 73126 BUSINESS PHONE: 4058407200 8-K/A 1 8-K/A - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 JULY 19, 1994 Date of Report (Date of earliest event reported) FLEMING COMPANIES, INC. (Exact name of registrant as specified in its charter) OKLAHOMA 1-8140 48-0222760 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification Number)
6301 WATERFORD BOULEVARD, BOX 26647 OKLAHOMA CITY, OKLAHOMA 73126 (Address of Principal Executive Offices) (405) 840-7200 Registrant's telephone number, including area code - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of business acquired: HANIEL CORPORATION Report of Independent Public Accountants.................... F-1 Consolidated Balance Sheets as of December 31, 1992 and 1993 and June 30, 1994.............................................. F-2 Consolidated Statements of Income for the three years ended December 31, 1993 and the six months ended June 30, 1993 and 1994................................................... F-3 Consolidated Statements of Stockholder's Equity for the three years ended December 31, 1993 and the six months ended June 30, 1994........................................ F-4 Consolidated Statements of Cash Flows for the three years ended December 31, 1993 and the six months ended June 30, 1993 and 1994.............................................. F-5 Notes to Consolidated Financial Statements.................. F-6 (b) Pro forma financial information: FLEMING AND HANIEL COMBINED Pro Forma Financial Information -- Introduction............. F-17 Pro Forma Statements of Operations -- Interim period ended 1994 and fiscal year ended 1993............................ F-18 Notes to Pro Forma Statements of Operations................. F-19 Pro Forma Balance Sheet..................................... F-20 Notes to Pro Forma Balance Sheet............................ F-21 1 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FLEMING COMPANIES, INC. By: /s/ DONALD N. EYLER ----------------------------------- Donald N. Eyler SENIOR VICE PRESIDENT -- CONTROLLER Date: September 2, 1994 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Haniel Corporation: We have audited the accompanying consolidated balance sheets of Haniel Corporation (a Delaware corporation) and subsidiaries as of December 31, 1992 and 1993, and the related consolidated statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Haniel Corporation and subsidiaries as of December 31, 1992 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 6 to the financial statements, the Company changed its method of accounting for income taxes in 1993 and restated prior year financial statements to reflect the change. In addition, as discussed in Note 5 to the financial statements, the Company changed its method of accounting for postretirement benefits other than pensions, effective January 1, 1993. ARTHUR ANDERSEN & CO. Oklahoma City, Oklahoma, March 11, 1994 F-1 HANIEL CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------------ JUNE 30, 1992 1993 1994 -------------- -------------- -------------- (UNAUDITED) Current Assets: Cash....................................... $ 2,703,700 $ 3,252,760 $ 2,461,225 Receivables- Accounts receivable...................... 147,241,595 154,674,250 148,704,447 Notes receivable......................... 44,092,855 53,877,158 71,630,512 Less-Allowance for doubtful accounts..... (18,208,359) (18,160,262) (22,497,023) -------------- -------------- -------------- 173,126,091 190,391,146 197,837,936 Inventories................................ 441,534,444 415,560,007 372,250,362 Other current assets....................... 22,193,935 16,780,520 12,147,871 -------------- -------------- -------------- Total current assets................... 639,558,170 625,984,433 584,697,394 -------------- -------------- -------------- Direct financing leases, net of current portion..................................... 2,604,875 2,280,345 2,110,575 Investments.................................. 1,897,725 1,805,165 1,503,210 Property and equipment, at cost Land and buildings......................... 212,322,536 223,064,269 229,324,212 Furniture, fixtures and equipment.......... 200,407,415 225,683,911 237,002,425 Transportation equipment................... 83,047,275 85,122,869 83,906,755 Leasehold improvements..................... 56,589,307 64,903,194 64,589,031 -------------- -------------- -------------- 552,366,533 598,774,243 614,822,423 Less-Accumulated depreciation and amortization.............................. (218,254,460) (263,480,135) (282,075,739) -------------- -------------- -------------- 334,112,073 335,294,108 332,746,684 Intangible assets............................ 393,343,279 388,586,106 381,788,061 Other assets................................. 15,030,473 17,964,971 14,538,180 -------------- -------------- -------------- 408,373,752 406,551,077 396,326,241 -------------- -------------- -------------- Total Assets........................... $1,386,546,595 $1,371,915,128 $1,317,384,104 -------------- -------------- -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable........................... $ 253,759,183 $ 276,628,540 $ 235,885,834 Current portion of long-term debt and capitalized lease obligations............. 32,862,051 20,048,742 15,821,059 Other current liabilities.................. 118,959,028 121,553,230 135,458,771 -------------- -------------- -------------- Total current liabilities.............. 405,580,262 418,230,512 387,165,664 -------------- -------------- -------------- Long-term debt, net of current portion....... 682,300,947 638,043,771 600,859,660 Capitalized lease obligations, net of current portion..................................... 5,691,370 3,774,524 3,381,862 Deferred income taxes........................ 49,108,353 42,582,700 42,582,700 Other liabilities............................ 2,173,014 2,374,286 3,096,186 Commitments and Contingencies Stockholder's Equity: Common stock, par value $100 per share, 500,000 shares authorized, issued and outstanding............................... 50,000,000 50,000,000 50,000,000 Additional paid-in capital................. 12,026,436 12,026,436 12,026,436 Retained earnings.......................... 179,666,213 204,882,899 218,271,596 -------------- -------------- -------------- 241,692,649 266,909,335 280,298,032 -------------- -------------- -------------- Total Liabilities and Stockholder's Equity................................ $1,386,546,595 $1,371,915,128 $1,317,384,104 -------------- -------------- -------------- -------------- -------------- --------------
The accompanying notes are an integral part of these consolidated balance sheets. F-2 HANIEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, ---------------------------------------------------- ---------------------------------- 1991 1992 1993 1993 1994 ---------------- ---------------- ---------------- ---------------- ---------------- (UNAUDITED) Net sales.................... $ 5,606,198,504 $ 5,684,888,683 $ 6,016,975,280 $ 3,237,938,862 $ 3,224,344,635 Costs and expenses: Cost of goods sold......... 4,835,078,213 4,892,604,182 5,167,570,482 2,784,290,579 2,762,698,270 Selling, operating and administrative expenses... 661,332,632 686,954,018 752,430,781 400,719,857 411,094,534 Interest: Interest income............ 6,191,346 6,100,801 6,079,193 3,229,956 3,746,665 Interest expense........... (71,520,472) (62,022,838) (56,297,924) (31,150,028) (27,569,099) ---------------- ---------------- ---------------- ---------------- ---------------- Income before income taxes... 44,458,533 49,408,446 46,755,286 25,008,354 26,729,397 Provision for income taxes... 22,890,300 24,490,563 21,538,600 12,337,514 13,340,700 ---------------- ---------------- ---------------- ---------------- ---------------- Net income............... $ 21,568,233 $ 24,917,883 $ 25,216,686 $ 12,670,840 $ 13,388,697 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 HANIEL CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
COMMON STOCK ADDITIONAL ------------------------ PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL --------- ------------- -------------- -------------- -------------- Balance, December 31, 1990............ 500,000 $ 50,000,000 $ 6,000,000 $ 131,669,709 $ 187,669,709 Cumulative effect of accounting change (Note 6).................... -- -- -- 1,510,388 1,510,388 --------- ------------- -------------- -------------- -------------- Balance, December 31, 1990, as restated............................. 500,000 50,000,000 6,000,000 133,180,097 189,180,097 Net income.......................... -- -- -- 21,568,233 21,568,233 --------- ------------- -------------- -------------- -------------- Balance, December 31, 1991............ 500,000 50,000,000 6,000,000 154,748,330 210,748,330 Net income.......................... -- -- -- 24,917,883 24,917,883 Capital contribution (Note 2)....... -- -- 6,026,436 -- 6,026,436 --------- ------------- -------------- -------------- -------------- Balance, December 31, 1992............ 500,000 50,000,000 12,026,436 179,666,213 241,692,649 Net Income.......................... -- -- -- 25,216,686 25,216,686 --------- ------------- -------------- -------------- -------------- Balance, December 31, 1993............ 500,000 50,000,000 12,026,436 204,882,899 266,909,335 Net income (unaudited).............. -- -- -- 13,388,697 13,388,697 --------- ------------- -------------- -------------- -------------- Balance, June 30, 1994 (unaudited)......................... 500,000 $ 50,000,000 $ 12,026,436 $ 218,271,596 $ 280,298,032 --------- ------------- -------------- -------------- -------------- --------- ------------- -------------- -------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 HANIEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, --------------------------------------------- ---------------------------- 1991 1992 1993 1993 1994 -------------- ------------- -------------- ------------- ------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................................... $ 21,568,233 $ 24,917,883 $ 25,216,686 $ 12,670,840 $ 13,388,697 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment....................................... 46,306,580 46,152,193 50,255,461 26,768,610 26,680,948 Amortization of excess purchase price............ 9,156,576 9,253,793 9,930,338 5,412,126 5,352,524 Amortization of other noncurrent assets.......... 3,613,324 3,482,314 5,003,846 2,428,285 3,066,140 Deferred items................................... (688,696) 2,027,741 (6,324,381) 2,459,212 721,900 Changes in assets and liabilities: Increase in receivables........................ (575,334) (17,682,429) (17,296,491) (31,660,300) (7,446,790) Decrease (increase) in inventories............. (33,536,329) (261,128) 25,974,437 18,791,065 43,309,645 Decrease (increase) in other current assets.... 16,932,007 (2,551,500) 5,413,415 (2,520,416) 4,632,649 Increase (decrease) in accounts payable........ 77,406,313 (35,568,099) 22,869,357 (19,043,230) (40,742,706) Increase (decrease) in other current liabilities................................... (6,807,629) (7,359,969) 2,594,202 3,450,087 13,905,541 -------------- ------------- -------------- ------------- ------------- Net cash provided by operating activities.... 133,375,045 22,410,799 123,636,870 18,756,279 62,868,548 -------------- ------------- -------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Changes in long-term investments................... (437,990) 285,414 92,560 48,007 301,955 Proceeds from sale of property and equipment, net............................................... 24,919,819 3,162,820 3,572,706 396,825 608,104 Capital expenditures............................... (49,333,751) (41,717,059) (55,010,202) (31,483,633) (24,741,628) Reductions of (additions to) intangible and other assets............................................ (1,654,937) (11,977,364) (13,111,509) (7,911,559) 1,806,172 -------------- ------------- -------------- ------------- ------------- Net cash used in investing activities........ $ (26,506,859) $ (50,246,189) $ (64,456,445) $ (38,950,360) $ (22,025,397) -------------- ------------- -------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in direct financing leases................ $ 437,397 $ 449,513 $ 355,966 $ 188,912 $ 169,770 Repayments of capital lease obligations............ (849,198) (748,314) (1,916,846) (1,620,481) (392,662) Changes in long-term debt.......................... (107,526,535) 22,371,304 (57,070,485) 23,337,259 (41,411,794 Capital contribution............................... -- 6,026,436 -- -- -- -------------- ------------- -------------- ------------- ------------- Net cash effect of financing activities...... (107,938,336) 28,098,939 (58,631,365) 21,905,690 (41,634,686) -------------- ------------- -------------- ------------- ------------- Net increase (decrease) in cash.............. (1,070,150) 263,549 549,060 1,711,609 (791,535) Cash at beginning of period.......................... 3,510,301 2,440,151 2,703,700 2,703,700 3,252,760 -------------- ------------- -------------- ------------- ------------- Cash at end of period................................ $ 2,440,151 $ 2,703,700 $ 3,252,760 $ 4,415,309 $ 2,461,225 -------------- ------------- -------------- ------------- ------------- -------------- ------------- -------------- ------------- ------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for- Interest (net of amounts capitalized)............ $ 70,347,000 $ 59,745,000 $ 58,916,000 $ 32,334,000 $ 26,213,000 Income taxes..................................... 20,243,000 26,523,000 22,537,000 10,887,000 7,865,000
The accompanying notes are an integral part of these consolidated financial statements. F-5 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 1. ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION Haniel Corporation is a United States subsidiary of Franz Haniel & Cie. GmbH ("Franz Haniel"). Haniel Corporation's principal operations consist of holding investments in the companies described below. The consolidated financial statements include the accounts of Haniel Corporation and its wholly owned subsidiaries, Scrivner, Inc., Hanamerica Energy Corporation and their subsidiaries, collectively referred to as (the "Company"). All significant intercompany transactions and balances have been eliminated. NOTES RECEIVABLE Notes receivable amounts due beyond one year which total $33,324,000 at December 31, 1992, $44,747,000 at December 31, 1993, and $55,078,000 at June 30, 1994, are included in current assets, primarily in anticipation of their sale to banks. The majority of the notes receivable bear interest at prime plus 2% (8% at December 31, 1993 and 9.25% at June 30, 1994) and are scheduled to mature over the next five years and thereafter as follows: $16,552,508 in 1994; $4,748,287 in 1995; $7,401,489 in 1996; $8,795,049 in 1997; $7,468,237 in 1998 and $26,664,942 thereafter. INVENTORIES As further discussed in Note 3, wholesale and retail grocery inventories are priced at the lower of cost or market, with cost being determined by the last-in, first-out (LIFO) method and the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT Depreciation of property and equipment is computed primarily on the straight-line method, based on the estimated useful lives of the assets as follows:
USEFUL LIFE IN YEARS ---------- Buildings............................................................... 4 - 45 Furniture, fixtures and equipment....................................... 2 - 15 Transportation equipment................................................ 2 - 7
Leasehold improvements are amortized over the shorter of their useful lives or terms of their leases. INTANGIBLE ASSETS At December 31, 1992 and 1993 and June 30, 1994, unamortized intangible assets attributable to excess purchase price over net assets acquired were approximately $352,127,544, $342,502,204 and $337,373,805, respectively, which are being amortized on a straight-line basis over 10 to 40 years. The remaining amounts of $41,215,735, $46,083,902 and $44,414,256 as of December 31, 1992 and 1993 and June 30, 1994, respectively, consist of other acquired intangible assets which are being amortized over 3 to 40 years. Accumulated amortization of intangible assets was $45,635,636, $57,996,557 and $65,749,961 at December 31, 1992 and 1993 and June 30, 1994, respectively. INCOME TAXES The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," in 1993 and elected to restate its prior years' financial statements as discussed in Note 6. Deferred income taxes reflect the estimated future tax effects of differences between financial statement and tax bases of assets and liabilities at each year-end. FAIR VALUE OF FINANCIAL INSTRUMENTS The methods and assumptions used to estimate the fair value of significant financial instruments are discussed in the various footnotes. F-6 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 1. ACCOUNTING POLICIES: (CONTINUED) POSTEMPLOYMENT BENEFITS In November 1992, the Financial Accounting Standards Board ("FASB") issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The Company will adopt SFAS No. 112 in 1994. The annual postemployment benefit expense computed in accordance with the new standard will not have a material effect on the Company's financial position or future results of operations. INSURANCE The Company self-insures the first $125,000 of medical coverage provided certain of its employees, the physical damage coverage on its transportation equipment and the first $350,000 of its workers compensation, general, and auto liability coverage. A provision for self-insured claims is recorded when sufficient information is available to reasonably estimate the amount of the loss. CAPITALIZATION OF INTEREST Interest attributed to funds used to finance major capital expenditures is capitalized as an additional cost of the related assets. Capitalization of interest ceases when the related assets are substantially complete and ready for their intended use. 2. POOLING OF INTERESTS: Effective June 6, 1992, all of the outstanding stock of Food Holdings, Inc. was acquired by Franz Haniel for $8,084,046 and contributed to the Company. The purchase price over the net tangible assets was $6,026,436. Food Holdings' primary asset is its 50% common stock interest in Gateway Foods, Inc. through a holding company in which Scrivner holds the remaining 50% common stock interest. The contribution of Food Holdings' common stock has been accounted for as a pooling of interests and, accordingly, the financial statements have been restated to include the accounts and operations of Food Holdings for all periods beginning September 1989, the date Scrivner and Food Holdings acquired Gateway Foods. 3. INVENTORIES: All inventories are valued at the lower of cost or market. Costs are determined through use of the LIFO and FIFO methods as follows (in thousands of dollars):
DECEMBER 31, -------------------- JUNE 30, 1992 1993 1994 --------- --------- ----------- (UNAUDITED) LIFO................................................. $ 406,139 $ 399,657 $ 360,493 FIFO................................................. 35,395 15,903 11,757 --------- --------- ----------- $ 441,534 $ 415,560 $ 372,250 --------- --------- ----------- --------- --------- -----------
Inventories on a FIFO basis would have been stated higher by approximately $53,781,530 at December 31, 1992, $55,028,898 at December 31, 1993 and $55,232,785 at June 30, 1994. Accordingly, reported net income would have increased by approximately $356,000 and $121,000 for the six months ended June 30, 1993 and 1994, respectively, and by approximately $757,000 and $662,000 for the years ended December 31, 1992 and 1993, respectively. F-7 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 4. DEBT OBLIGATIONS: NOTES PAYABLE The Company has informal agreements with various banks from which it may borrow up to $385,000,000 (subject to formal approval by the banks). LONG-TERM DEBT Long-term debt at December 31, 1992 and 1993 and June 30, 1994, consisted of the following (in thousands of dollars):
DECEMBER 31, -------------------- JUNE 30, 1992 1993 1994 --------- --------- ----------- (UNAUDITED) Unsecured notes, at rates approximating prime rate minus 2%, to 12% due through various dates to 2003................................................ $ 5,298 $ 3,594 $ 2,951 Real estate mortgage notes, at fixed rates ranging from 4% to 10.5% and variable rates at 60% of prime rate, due serially through various dates to 2003.... 10,078 9,758 6,248 Amounts covered under revolving credit agreements.... 283,000 237,000 199,750 Amounts payable under Senior Term Notes.............. 166,000 157,000 157,000 Amounts payable under Senior Subordinated Notes...... 150,000 150,000 150,000 Amounts payable under Senior Notes................... 50,000 50,000 50,000 Amounts payable under Subordinated Notes............. 50,000 50,000 50,000 Other................................................ 39 39 39 --------- --------- ----------- 714,415 657,391 615,988 Less-Current portion................................. 32,114 19,347 15,129 --------- --------- ----------- Long-term debt, net of current portion............. $ 682,301 $ 638,044 $ 600,859 --------- --------- ----------- --------- --------- -----------
Scrivner's $180,000,000 revolving credit agreement and Gateway Foods' $150,000,000 revolving credit agreement and $65,000,000 Senior Term loan were refinanced with a five-year $430,000,000 revolving credit agreement dated November 19, 1993. Under terms of its revolving credit agreement, the Company may borrow up to the lower of $430,000,000 or a Borrowing Base amount equal to a percentage of the Company's eligible receivables and inventories, as defined in the agreement, through November 19, 1998, at principally the prime interest rate, adjusted certificate of deposit rate or a rate based on the Eurodollar London Interbank interest rate ("LIBOR"). The Company is required to pay fees of 3/8 of 1% per annum on the unborrowed portion. There are no requirements for maintaining compensating balances. At December 31, 1992 and 1993 and June 30, 1994, the Company had borrowings covered under its revolving credit agreements of $283,000,000, $237,000,000 and $199,750,000, respectively. The Company's $157,000,000 of Senior Term Notes at December 31, 1993 and June 30, 1994 consist of $92,000,000 which bears interest at 10% and $65,000,000 which bears interest at 10.6%. The $92,000,000 Senior Term Note is payable in annual installments of $8,000,000 in 1994 and $12,000,000 each year thereafter through 2001. The $65,000,000 note is payable in annual installments of $5,000,000 through 1996 and $10,000,000 each year thereafter through 2001. The $150,000,000 Senior Subordinated Notes bear interest at 12.86%. The notes are payable in annual installments of $30,000,000 beginning September 15, 1997 and each year thereafter through 2001. F-8 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 4. DEBT OBLIGATIONS: (CONTINUED) As of December 31, 1991, the Company had outstanding debt of $48,595,048 to Franz Haniel and Haniel Finance B.V., a subsidiary of Franz Haniel. This debt consisted of short-term borrowings bearing interest at various rates based on LIBOR. In 1992, the weighted average interest rate on these borrowings was approximately 4.85%. The Company incurred interest on its debt to Franz Haniel and Haniel Finance B.V. of approximately $1,672,000 in 1992 and $3,463,000 in 1991. In September 1992, Haniel borrowed $100,000,000 from two banks. The proceeds of these loans were used to retire all notes payable to Haniel Finance B.V. and Franz Haniel and Food Holdings' outstanding debt and accrued interest of $43,020,841. The new debt consists of a $50,000,000 subordinated note payable bearing interest at LIBOR plus 1 1/8% and $50,000,000 senior note payable bearing interest at LIBOR plus 3/8 of 1%. The subordinated note matures in 1999 while the senior note matures in 1998. No principal payments are due until these maturity dates. The revolving credit agreement and the note agreements impose, among other things, certain restrictions on the payment of cash dividends and provide that neither the Company nor any subsidiary, without the consent of the holders of the notes, shall (a) pledge any of its assets, except as provided in the loan agreements, (b) enter into any merger or consolidation proceedings or dissolve, sell, dispose of or lease all or substantially all of its assets or (c) guarantee debt obligations of any other corporation or individual, except as provided. Under the terms of these agreements, the Company has available $5,000,000, plus 50% of net income recognized after December 31, 1993, for the payment of cash dividends. The real estate mortgage notes are collateralized by property and equipment (primarily land, buildings and equipment) with a net book value of approximately $9,238,000 and $8,617,000 at December 31, 1993 and June 30, 1994, respectively. Payments on long-term debt as of December 31, 1993, for the next five years are as follows (in thousands of dollars): 1994...................................................... $ 19,347 1995...................................................... 18,819 1996...................................................... 18,814 1997...................................................... 53,135 1998...................................................... 337,770
At December 31, 1993 and June 30, 1994, the Company has interest rate cap agreements on $170,000,000, which limit the interest rate the Company would pay on its floating rate debt, from 7.5% to 11.5%. The Company also enters into interest rate swap and forward rate agreements in order to hedge the impact of future interest rate increases. At December 31, 1993 and June 30, 1994, the Company had an outstanding forward rate agreement of $50,000,000, which matures in July 1994. There were no interest rate swap agreements outstanding at December 31, 1993 or June 30, 1994. The differential paid on the interest rate swap and forward rate agreements is recognized as interest expense. The fair value of long-term debt, interest rate cap and forward rate agreements as of December 31, 1993, was determined using valuation techniques that considered cash flows discounted at current market rates for similar types of borrowing arrangements. At December 31, 1992 and 1993, the fair value of debt, interest rate cap and forward rate agreements exceeded the carrying amount by approximately $28,116,000 and $43,993,000, respectively. F-9 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 5. BENEFIT PLANS: The Company and its subsidiaries sponsor or contribute to various contributory and noncontributory defined benefit pension plans and noncontributory profit sharing plans. These plans provide for certain benefits upon retirement or termination for all full-time employees not covered by union-sponsored, collectively-bargained multiemployer pension plans. The Company also has a nonqualified supplemental retirement plan for selected management employees. Annual expense for the above-mentioned benefit plans is as follows (in thousands of dollars):
1991 1992 1993 --------- --------- --------- Pension and supplemental plans................................................... $ 676 $ 257 $ 215 Profit sharing plans............................................................. 6,333 7,097 7,053 Multiemployer plans.............................................................. 9,000 9,066 9,732 --------- --------- --------- Total.......................................................................... $ 16,009 $ 16,420 $ 17,000 --------- --------- --------- --------- --------- ---------
The pension plan benefits are based on years of service and a percentage of the participant's compensation during years of employment. The Company makes annual contributions to the plans that comply with the minimum funding provisions of the Employee Retirement Income Security Act. Such contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The following table sets forth the Company's defined benefit pension and supplemental plans' funded status and amounts recognized in the Company's financial statements (in thousands of dollars):
DECEMBER 31, 1992 DECEMBER 31, 1993 -------------------------- -------------------------- ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ------------ ------------ ------------ ------------ Actuarial present value of accumulated benefit obligations: Vested........................................ $ 13,507 $ 130 $ 15,025 $ -- Total......................................... 13,755 3,239 15,247 2,685 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Projected benefit obligations................... 14,646 3,025 16,469 2,557 Plan assets at fair value....................... 17,543 455 17,346 737 ------------ ------------ ------------ ------------ Plan assets in excess of or (less than) projected benefit obligations.................. 2,897 (2,570) 877 (1,820) Unrecognized net loss (gain).................... 235 127 2,031 (355) Unrecognized prior service cost................. (52) 1,622 (47) 1,497 Unrecognized net asset.......................... (2,013) -- (1,738) -- ------------ ------------ ------------ ------------ Pension asset (liability)....................... $ 1,067 $ (821) $ 1,123 $ (678) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1991 1992 1993 --------- --------- --------- Net pension expense included the following components: Service cost-benefits earned during the year.......................... $ 1,160 $ 796 $ 605 Interest expense on projected benefit obligation...................... 1,738 1,378 1,499 Actual return on plan assets.......................................... (1,919) (353) (603) Net amortization and deferral......................................... (303) (1,564) (1,286) --------- --------- --------- Net periodic pension expense............................................ $ 676 $ 257 $ 215 --------- --------- --------- --------- --------- ---------
F-10 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 5. BENEFIT PLANS: (CONTINUED) The weighted-average discount rates and rates of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations at December 31, 1993, were 8.25% to 9% and 5%, respectively. The expected long-term rates of return on assets at December 31, 1993, were 8.75% to 9%. The Company computes pension expense using the projected unit credit actuarial cost method. The profit sharing plans maintained by the Company are for employees who meet certain types of employment and length of service requirements. Contributions and costs of these profit sharing plans are determined at the discretion of the Board of Directors. However, the contributions to the profit sharing plans shall not exceed the maximum amount deductible for Federal income tax purposes. For union-sponsored, multiemployer plans, contributions are made in accordance with negotiated contracts. The Company provides certain health care and life insurance benefits to eligible retired employees covered under various group plans. Benefits, eligibility requirements and cost-sharing provisions for employees vary by group plan and/or bargaining unit. Generally, the plans pay a stated percentage of most medical expenses reduced for any deductible and payments made by government programs and other group coverage. Several of the group plans require retiree contributions and the majority of the group plan's eligibility for retiree benefits are frozen. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these plans in the future. The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" as of the beginning of 1993. This new standard requires that the expected cost of these postretirement benefits must be charged to expense during the years that the employees render service. The Company has elected to amortize the unfunded obligations that were measured as of the beginning of 1993, over a period of 20 years. The effect of this change in accounting was to decrease 1993 pre-tax income by $378,000. Prior to 1993, the Company recognized postretirement health care and life insurance costs in the year that the benefits were paid. Postretirement health care and life insurance costs charged to expense in 1991 and 1992 were $1,296,000 and $1,267,000, respectively. F-11 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 5. BENEFIT PLANS: (CONTINUED) The following table reconciles the plans' funded status to the accrued postretirement health care and life insurance cost liability as reflected on the balance sheet as of December 31, 1993 (in thousands of dollars):
1993 --------- Accumulated postretirement benefit obligation: Retirees.............................................................................................. $ (6,627) Other fully eligible participants..................................................................... (350) Other active participants............................................................................. (1,103) --------- (8,080) Unrecognized actuarial loss............................................................................. 553 Unrecognized transition obligation...................................................................... 7,149 --------- Accrued postretirement health care cost liability................................................... $ (378) --------- --------- Net postretirement health care cost for 1993 included the following components: Service cost -- benefits attributed to service during the period...................................... $ 80 Interest cost on accumulated postretirement benefit obligation........................................ 595 Amortization of transition obligation over 20 years................................................... 376 Net amortization and deferral......................................................................... -- --------- Net postretirement health cost...................................................................... $ 1,051 --------- ---------
The discount rate used in determining the accumulated postretirement benefit obligation was 8.25%. A 12.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1993; the rate was assumed to decrease gradually to 6% in year 2006 and remain at that level thereafter. A 1% increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation as of December 31, 1993 by approximately $531,000, and the total of the service and interest cost components of net postretirement health care cost for the year then ended by approximately $72,000. 6. PROVISION FOR INCOME TAXES: The Company adopted SFAS No. 109, "Accounting for Income Taxes," in 1993, and has elected to apply the provisions retroactively beginning with its year ended December 31, 1983. It was not practical to restate prior to 1983. SFAS No. 109 utilizes the liability method and deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. Prior to the implementation of SFAS No. 109, the Company accounted for income taxes using Accounting Principles Board Opinion No. 11. As a result of this change, retained earnings at December 31, 1990, increased by $1,510,000, the cumulative effect of the change in the method of accounting for income taxes. The effect of adopting SFAS No. 109 was not material to the Company's statements of income for the years ended 1991, 1992 and 1993, other than the valuation allowance adjustment discussed below. The Company reduced its valuation allowance by $3,187,000 for the year ended December 31, 1993, as a result of the recognition of certain net operating loss carryforwards for financial reporting purposes. The Company's ability to obtain future benefit of its net operating loss carryforwards is attributable to the restructuring of subsidiaries implemented in 1993, as discussed in Note 2. F-12 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 6. PROVISION FOR INCOME TAXES: (CONTINUED) Provision for income taxes has been made as follows (in thousands of dollars):
1991 1992 1993 --------- --------- --------- Federal: Current.............................................................. $ 16,957 $ 15,104 $ 16,086 Deferred............................................................. 1,650 4,703 3,190 --------- --------- --------- 18,607 19,807 19,276 State (current and deferred)........................................... 4,283 4,684 5,450 --------- --------- --------- 22,890 24,491 24,726 Benefit of operating loss carryforward................................. -- -- (3,187) --------- --------- --------- $ 22,890 $ 24,491 $ 21,539 --------- --------- --------- --------- --------- ---------
The provision for income taxes differs from an amount computed at the statutory rate as follows (in thousands of dollars):
1991 1992 1993 --------- --------- --------- Income taxes at statutory rate (35% in 1993, 34% in 1992 and 1991)..... $ 15,116 $ 16,799 $ 16,364 Amortization of excess purchase price.................................. 3,028 3,036 3,541 Benefit of operating loss carryforward................................. -- -- (3,187) State income taxes, net of Federal benefit............................. 2,668 2,965 2,805 Other, net............................................................. 2,078 1,691 2,016 --------- --------- --------- $ 22,890 $ 24,491 $ 21,539 --------- --------- --------- --------- --------- ---------
The 1% increase in the Federal statutory tax rate increased the Company's 1993 provision for income taxes $1,540,000. This consisted of a $468,000 increase in the current tax provision and a $1,072,000 increase in the deferred tax provision as a result of adjusting the deferred tax asset and liability accounts recorded in the Company's balance sheets. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table includes $1,780,000 of net current deferred tax liabilities, which are included in other current F-13 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 6. PROVISION FOR INCOME TAXES: (CONTINUED) liabilities at December 31, 1993 and $4,965,000 of net deferred tax assets, included in other current assets at December 31, 1992, in the consolidated balance sheets. The following is a summary of the significant components of the Company's deferred tax assets and liabilities (in thousands of dollars):
DECEMBER 31, -------------------- 1992 1993 --------- --------- Deferred tax assets: Net operating loss carryforwards, expiring 2003 to 2008................................... $ 15,566 $ 7,501 Provision for obligations and contingencies to be settled in future periods............... 22,524 20,394 Other..................................................................................... 3,114 6,765 --------- --------- Total deferred tax assets............................................................... 41,204 34,660 --------- --------- Deferred tax liabilities: Depreciation and amortization............................................................. 56,441 56,947 Inventories............................................................................... 14,354 14,354 Other..................................................................................... 6,585 7,721 --------- --------- Total deferred tax liabilities.......................................................... 77,380 79,022 --------- --------- Deferred tax valuation allowance............................................................ 7,967 -- --------- --------- Net deferred tax liability.............................................................. $ 44,143 $ 44,362 --------- --------- --------- ---------
7. LEASES: The Company leases certain of its operating facilities under terms ranging up to twenty-five years. In addition, the Company leases certain equipment used in its operations under terms ranging up to ten years. The Company also leases certain facilities which it in turn subleases to some of its independent retail store operators. Some of these agreements contain provisions calling for additional rentals based on sales. Amounts attributable to capitalized subleases have been included in direct financing leases in the accompanying balance sheets. The following is a summary of property and equipment under leases that have been capitalized and included in the accompanying balance sheets (in thousands of dollars):
DECEMBER 31, -------------------- 1992 1993 --------- --------- Land and buildings................................................................. $ 5,224 $ 3,688 Less-Accumulated depreciation.................................................... (2,426) (2,170) --------- --------- Net property under capital leases.................................................. $ 2,798 $ 1,518 --------- --------- --------- ---------
F-14 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 7. LEASES: (CONTINUED) The following represents the minimum lease payments remaining at December 31, 1993, under the capitalized leases and the minimum sublease rentals to be received under the direct financing leases, covering certain facilities which are sublet to retail customers (in thousands of dollars):
TOTAL DIRECT CAPITAL FINANCING LEASES SUBLEASES NET ------------ ----------- --------- 1994.......................................................................... $ 1,330 $ (593) $ 737 1995.......................................................................... 1,202 (535) 667 1996.......................................................................... 1,060 (482) 578 1997.......................................................................... 777 (360) 417 1998.......................................................................... 732 (350) 382 Later years................................................................... 3,294 (1,859) 1,435 ------------ ----------- --------- Total minimum lease payments.............................................. 8,395 (4,179) $ 4,216 --------- --------- Less-Executory costs........................................................ (360) -- Less-Imputed interest (6% to 13.37%)........................................ (3,558) 1,574 ------------ ----------- Present value of minimum lease payments....................................... 4,477 (2,605) Less-Current maturities..................................................... (702) 325 ------------ ----------- Long-term obligations and receivables..................................... $ 3,775 $ (2,280) ------------ ----------- ------------ -----------
Total rental expense for all operating (noncapitalized) leases amounted to (in thousands of dollars):
LEASE RENTALS 1991 1992 1993 - - -------------------------------------------------------------------- ---------- ---------- ---------- Minimum............................................................. $ 63,947 $ 76,404 $ 84,133 Contingent.......................................................... 4,650 5,012 3,188 Less-Sublease income.............................................. (36,728) (39,344) (38,737) ---------- ---------- ---------- $ 31,869 $ 42,072 $ 48,584 ---------- ---------- ---------- ---------- ---------- ----------
The future minimum lease commitments as of December 31, 1993, for all noncancelable operating leases are as follows (in thousands of dollars):
SUBLEASE EXPENSE INCOME NET ---------- ----------- ---------- 1994.............................................................. $ 85,198 $ (35,897) $ 49,301 1995.............................................................. 81,229 (33,648) 47,581 1996.............................................................. 76,078 (28,004) 48,074 1997.............................................................. 69,798 (23,807) 45,991 1998.............................................................. 63,089 (17,638) 45,451 Later years....................................................... 505,346 (53,435) 451,911 ---------- ----------- ---------- $ 880,738 $ (192,429) $ 688,309 ---------- ----------- ---------- ---------- ----------- ----------
Most of the real estate and retail store leases have renewal options of up to twenty-five years. 8. COMMITMENTS AND CONTINGENCIES: During the year ended December 31, 1992 and 1993 and the six months ended June 30, 1994, the Company sold $40,591,000, $51,036,000 and $12,138,000, respectively, of its notes receivable to banks at cost. F-15 HANIEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO JUNE 30, 1993 AND 1994 IS UNAUDITED) 8. COMMITMENTS AND CONTINGENCIES: (CONTINUED) The Company is contingently liable, up to approximately $13,630,000 and $12,620,764, for any future losses experienced by the banks in connection with sold notes receivable at December 31, 1993 and June 30, 1994, respectively. The Company has guaranteed the payment of notes and leases made by certain retail store operators to various banks and lessors. These contingent liabilities totaled approximately $3,301,000 and $4,160,000 at December 31, 1993 and June 30, 1994. The Company derives interest income as a guarantor of the notes and leases. The Internal Revenue Service (the "IRS") has examined the Company's Federal income tax returns for the years 1983 through 1987, and has issued notices of proposed tax deficiencies for those years. The Company has formally protested the IRS proposed deficiencies, and the entire matter is now being reviewed by the IRS Appeals Office. The significant issues have been tentatively agreed to for settlement, subject to final approval by the IRS. The Company has accrued reserves sufficient to provide for the proposed settlement amounts. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial position or future results of operations. F-16 PRO FORMA FINANCIAL INFORMATION -- INTRODUCTION The unaudited PRO FORMA financial information set forth below presents the PRO FORMA statement of operations of the Company for the 28 weeks ended July 9, 1994 as if the acquisition of Haniel ("Acquisition") and the financing thereof and the offering of $500 million of debt that will be registered with the Securities and Exchange Commission ("Offering") and the use of proceeds therefrom had occurred on December 26, 1993 and the PRO FORMA statement of operations of the Company for the year ended December 25, 1993 as if the Acquisition and the financing thereof and the Offering and the use of proceeds therefrom had occurred on December 27, 1992. Also presented is the PRO FORMA balance sheet of the Company at July 9, 1994 as if the Acquisition and the financing thereof and the Offering and the use of proceeds therefrom had occurred on such date. The unaudited PRO FORMA financial information has been prepared on the basis of assumptions described in the notes thereto and includes assumptions relating to the allocation of the consideration paid for the Scrivner Group to the related assets and liabilities based on preliminary estimates of their respective fair values. The actual allocation of such consideration may differ from that reflected in the PRO FORMA financial statements after valuation and other studies are completed. The Acquisition has been accounted for using the purchase method of accounting. The unaudited PRO FORMA financial information does not necessarily represent what the Company's financial position and results of operation would have been if the Acquisition and the financing thereof and the Offering and the use of proceeds therefrom had actually been completed as of the dates indicated, and are not intended to project the Company's financial position or results of operations for any future period. The unaudited PRO FORMA financial information should be read in conjunction with the consolidated financial statements of Fleming and Haniel and the related notes thereto. F-17 PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
INTERIM PERIOD ENDED 1994(A)(B) -------------------------------------------------- THE SCRIVNER FLEMING GROUP ADJUSTMENTS PRO FORMA ------- -------------- ----------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net sales.............................................. $6,916 $3,224 $10,140 Costs and expenses: Cost of sales(c)....................................... 6,477 2,762 $ 1(d) 9,240 Selling and administrative(c)...................... 346 411 1(d) 759 2(e) (1)(f) Interest expense................................... 38 28 36(g) 102 Interest income(h)................................. (28) (4) (32) Equity investment results.......................... 6 -- 6 ------- ------ --- --------- Total costs and expenses............................... 6,839 3,197 39 10,075 ------- ------ --- --------- Earnings before taxes.................................. 77 27 (39) 65 Taxes on income........................................ 34 14 (17)(h) 31 ------- ------ --- --------- Net earnings........................................... $ 43 $ 13 $(22) $ 34 ------- ------ --- --------- ------- ------ --- --------- Net earnings per share................................. $ 1.16 -- -- $ .92 ------- --------- ------- --------- Weighted average shares outstanding.................... 37 -- -- 37 ------- --------- ------- ---------
FISCAL YEAR ENDED 1993(A)(B) -------------------------------------------------- THE SCRIVNER FLEMING GROUP ADJUSTMENTS PRO FORMA ------- -------------- ----------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net sales.............................................. $13,092 $6,017 $19,109 Costs and expenses: Cost of sales(c)....................................... 12,327 5,168 $ 2(d) 17,497 Selling and administrative(c)...................... 558 752 2(d) 1,314 4(e) (2)(f) Interest expense................................... 78 56 61(g) 195 Interest income(h)................................. 63 6 69 Equity investment results.......................... 12 -- 12 Facilities consolidation and restructuring......... 108 -- 108 ------- ------ --- --------- Total costs and expenses............................... 13,020 5,970 67 19,057 ------- ------ --- --------- Earnings before taxes.................................. 72 47 (67) 52 Taxes on income........................................ 35 22 (30)(h) 27 ------- ------ --- --------- Earnings before extraordinary item(i).................. $ 37 $ 25 $(37) $ 25 ------- ------ --- --------- ------- ------ --- --------- Net earnings per share................................. $ 1.02 -- -- $ .68 ------- --------- ------- --------- Weighted average shares outstanding.................... 37 -- -- 37 ------- --------- ------- --------- (FOOTNOTES ON FOLLOWING PAGE)
F-18 NOTES TO PRO FORMA STATEMENTS OF OPERATIONS (a) PRO FORMA statements of operations for the interim period ended 1994 and fiscal year ended 1993 have been prepared by combining the consolidated statement of operations of Fleming for the 28 weeks ended July 9, 1994 and year ended December 25, 1993 with the consolidated statement of operations of the Scrivner Group for the six months ended June 30, 1994 and year ended December 31, 1993, respectively, assuming the Acquisition occurred at the beginning of the respective periods. The Acquisition has been accounted for using the purchase method of accounting. (b) No adjustments have been made to reflect any of the potential cost savings that the Company may realize from the Acquisition, including those from increased buying power, facilities consolidation and reduced corporate overhead. Nor have any adjustments been made to reflect potential cost savings from the Company's plan to consolidate additional facilities, reorganize management and re-engineer operations. (c) PRO FORMA statement of operations captions for cost of sales and selling and administrative expense are affected by classification differences between Fleming's and Haniel's consolidated financial statements. Certain costs and expenses included in determining cost of sales for Fleming are classified as selling, operating and administrative expenses in Haniel's consolidated financial statements. Subsequent to the Acquisition, account classification will be conformed to that used by Fleming. (d) To depreciate the estimated increase in the fair value of property and equipment acquired over the Scrivner Group's historical cost related to such property and equipment. Such fair values are based on estimates made at the time of the Acquisition. Appraisals have not yet been completed. (e) To reflect the net adjustment resulting from (i) the elimination of the Scrivner Group's goodwill amortization during the period, and (ii) the amortization over forty years of the excess of cost over the fair value of assets and liabilities acquired and assumed in the Acquisition. Such fair values are based on estimates made at the time of the Acquisition. Appraisals have not yet been completed. (f) To eliminate the salaries of former Scrivner Group officers who are not Company associates and whose functions have been assumed by Fleming officers. (g) To reflect the net adjustment for the interim 1994 period and fiscal year ended 1993 for (i) the elimination of interest expense associated with approximately $616 million aggregate principal amount of Scrivner Group indebtedness that was refinanced in connection with the Acquisition ($26 million and $53 million, respectively); (ii) the elimination of interest expense associated with approximately $400 million aggregate principal amount of Fleming indebtedness that was refinanced at the time of the Acquisition ($9 million and $19 million, respectively); (iii) the elimination of interest expense associated with $48.5 million of Fleming Medium-Term Notes, based on an assumption that one-half of the Medium-Term Notes subject to an offer to purchase such Medium-Term Notes, which offer expires on September 20, 1994, are tendered ($2 million and $6 million, respectively); (iv) the addition of interest expense associated with indebtedness outstanding under Tranche A (as defined) and Tranche C (as defined) of the Credit Agreement, after taking into account the effect of interest rate protection agreements the Company has entered into with respect to $1 billion of such indebtedness ($48 million and $93 million, respectively); and (v) the addition of interest expense associated with the Notes, including the amortization of related deferred debt issuance costs ( $25 million and $46 million, respectively). Each incremental 25 basis point increase or decrease in the assumed interest rate of the Fixed Rate Notes and the Floating Rate Notes would increase or decrease annual interest expense on the Fixed Rate Notes and the Floating Rate Notes by $937,500 and $312,500, respectively. (h) To provide for income taxes at an assumed effective rate of 47% for all adjustments except those relating to goodwill amortization. (i) In 1993, the Company realized an extraordinary after-tax loss of $2.3 million related to the early retirement of indebtedness. F-19 PRO FORMA BALANCE SHEET (UNAUDITED)
AS OF THE SECOND QUARTER END, 1994(A) -------------------------------------------------- THE SCRIVNER FLEMING GROUP ADJUSTMENTS PRO FORMA ------- -------------- ----------- --------- (DOLLARS IN MILLIONS) ASSETS Current assets: Cash and cash equivalents............................ $ 7 $ 2 $ $ 9 Receivables.......................................... 273 198 471 Inventories.......................................... 804 372 48(b) 1,223 (1)(c) Other current assets................................. 98 12 110 ------- ------ ----- --------- Total current assets................................. 1,182 584 47 1,813 Investments and notes receivable....................... 344 -- 344 Investment in direct financing leases.................. 237 2 239 Property and equipment, net............................ 618 333 (2)(d) 968 (15)(c) 34(e) Other assets........................................... 107 16 (9)(d) 134 (1)(c) (18)(f) 39(g) Goodwill and intangible assets......................... 462 382 (337)(f) 1,013 506(h) ------- ------ ----- --------- Total assets........................................... $2,950 $1,317 $244 $ 4,511 ------- ------ ----- --------- ------- ------ ----- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable..................................... $ 706 $ 236 $ $ 942 Current maturities of long-term debt................. 43 15 5(i) 63 Current obligations under capital leases............. 14 1 15 Other current liabilities............................ 139 135 13(j) 362 12(d) 25(c) 38(g) ------- ------ ----- --------- Total current liabilities.......................... 902 387 93 1,382 Long-term debt......................................... 507 601 454(i) 1,562 Long-term obligations under capital leases............. 350 3 353 Deferred income taxes.................................. 17 43 (40)(h) 20 Other liabilities...................................... 89 3 7(d) 109 10(c) Shareholders' equity: Common stock, $2.50 par value per share.............. 93 50 (50)(k) 93 Capital in excess of par value....................... 491 12 (12)(k) 491 Reinvested earnings.................................. 513 218 (218)(k) 513 ------- ------ ----- --------- 1,097 280 (280) 1,097 Less guarantee of ESOP debt.......................... 12 -- 12 ------- ------ ----- --------- Total shareholders' equity......................... 1,085 280 (280) 1,085 ------- ------ ----- --------- Total liabilities and shareholders' equity............. $2,950 $1,317 $244 $ 4,511 ------- ------ ----- --------- ------- ------ ----- --------- (FOOTNOTES ON FOLLOWING PAGE)
F-20 NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET (a) The PRO FORMA balance sheet has been prepared by combining the consolidated balance sheet of Fleming as of July 9, 1994 with the consolidated balance sheet of the Scrivner Group as of June 30, 1994 using the purchase method of accounting and assuming the Acquisition had occurred as of the end of the second quarter. (b) To reflect purchase accounting adjustments required to revalue inventory at estimated fair value. Such fair value is based on an estimate made at the time of the Acquisition. Appraisals have not yet been completed. (c) To record provisions for the costs related to the closure of eight Scrivner Group distribution facilities and to reduce the carrying value of related assets to estimated net realizable values. (d) To reflect purchase accounting adjustments required to record the fair value of liabilities assumed and assets acquired in the Acquisition, except as otherwise described herein. Such fair values are based on estimates made at the time of the Acquisition. Appraisals have not yet been completed. (e) To reflect purchase accounting adjustments required to revalue property and equipment at estimated fair value. Such fair value is based on an estimate made at the time of the Acquisition. Appraisals have not yet been completed. (f) To eliminate Scrivner Group goodwill and other intangible assets of the Scrivner Group with no continuing value. (g) To record debt issuance costs, investment advisory fees and other acquisition-related expenses. (h) To record the impact on goodwill and deferred income taxes resulting from the adjustments described in these notes. (i) To record the net effect of the elimination of indebtedness of Fleming and the Scrivner Group refinanced in connection with the Acquisition and the financing thereof, borrowings under Tranche A and Tranche C of the Credit Agreement and the issuance of the Notes. On August 16, 1994, the Company made an offer to purchase up to $97 million aggregate principal amount of a series of Medium-Term Notes in accordance with the terms of the indenture under which they were issued. The offer is scheduled to expire on September 20, 1994. The Company intends to finance any such repurchase by drawing additional amounts under Tranche A of the Credit Agreement. For purposes of calculating PRO FORMA indebtedness, it is assumed that $48.5 million of such series of Medium-Term Notes is tendered. (j) To conform the accounting policies of the Scrivner Group to those of Fleming with respect to (i) assumptions used to determine pension obligations; and (ii) recognition of the transition obligation for postretirement medical benefits. (k) To eliminate Scrivner Group equity accounts. F-21 -----END PRIVACY-ENHANCED MESSAGE-----