EX-99.01 11 k60557ex99-01.txt UNAUDITED PRO FORMA FINANCIAL INFORMATION 1 EXHIBIT 99.1 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following unaudited pro forma combined financial statements give effect to (1) our proposed acquisition of Keebler and (2) the offering of the securities and application of the proceeds of the offering to repay indebtedness incurred in connection with the acquisition of Keebler. To implement the Keebler acquisition, we will acquire all of the outstanding stock of Keebler's controlling stockholder, Flowers Industries, Inc., in a merger, subject to approval of Flower's stockholders. Prior to our acquisition of Flowers, Flowers will transfer all of its assets, other than its Keebler stock, and certain of its liabilities to a wholly owned subsidiary, and will then distribute all of the stock of this subsidiary to its stockholders in a spin-off. Keebler will then merge with a wholly owned subsidiary of Kellogg. As part of this merger, all of the outstanding stock of Keebler, other than the stock owned by Flowers, will convert into the right to receive the cash merger consideration. As a result of these transactions, Kellogg will own 100% of the outstanding stock of Keebler. Pro forma adjustments related to the pro forma combined balance sheet have been determined assuming these transactions were consummated on December 31, 2000. The pro forma combined balance sheet combines our consolidated balance sheet as of December 31, 2000 with Keebler's consolidated balance sheet as of December 30, 2000. The pro forma combined income statement combines the companies' respective income statements as if the combination had occurred at the beginning of the period presented. The unaudited pro forma combined financial statements are based on the assumptions and adjustments described in the accompanying notes. The pro forma combined income statement is not necessarily indicative of operating results that would have been achieved had the combination been consummated as of the beginning of the period presented and should not be construed as representative of future operations. You should read the pro forma combined financial statements in conjunction with our historical consolidated financial statements, including the related notes, filed as part of our Annual Report on Form 10-K for the year ended December 31, 2000. 2 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 (IN MILLIONS, EXCEPT PER SHARE DATA)
KELLOGG KEEBLER PRO FORMA ACTUAL ACTUAL(A) ADJUSTMENTS PRO FORMA -------- --------- ----------- --------- Net sales......................................... $6,954.7 $2,757.0 $ (61.7) (1) $9,650.0 Cost of goods sold................................ 3,327.0 1,119.1 (61.7) (1) 4,545.2 160.8 (2) Selling, general & administrative expense......... 2,551.4 1,310.4 97.1 (3) 3,798.4 (160.5) (2) Restructuring charges............................. 86.5 (1.0) 85.5 -------- -------- ------- -------- Operating profit................................ 989.8 328.5 (97.4) 1,220.9 Interest expense.................................. 137.5 48.8 282.9 (4) 469.2 Other income (expense), net....................... 15.4 4.7 0.3 (2) 20.4 -------- -------- ------- -------- Income before taxes............................. 867.7 284.4 (380.0) 772.1 Income taxes...................................... 280.0 108.8 (125.8) (5) 263.0 -------- -------- ------- -------- Net income...................................... $ 587.7 $ 175.6 $(254.2) $ 509.1 ======== ======== ======= ======== Net earnings per share: basic and diluted......... $ 1.45 $ 1.26 Average shares outstanding........................ 405.6 405.6
--------------- (a) Keebler's operating results are for the fiscal year ended December 30, 2000. 3 UNAUDITED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 2000 (IN MILLIONS)
KELLOGG KEEBLER PRO FORMA ACTUAL ACTUAL(A) ADJUSTMENTS PRO FORMA -------- --------- ----------- --------- Current assets:................................. Cash and cash equivalents..................... $ 204.4 $ 34.2 $ -- $ 238.6 Accounts receivable, net...................... 685.3 43.5 -- 728.8 Inventories................................... 443.8 164.8 1.2 (6) 609.8 Income tax receivable......................... -- 19.4 84.3 (7) 103.7 Other current assets.......................... 273.3 66.9 (13.7) (8) 326.5 -------- -------- -------- --------- Total current assets.................. 1,606.8 328.8 71.8 2,007.4 Property, net................................... 2,526.9 629.5 (29.5) (9) 3,126.9 Other assets.................................... 762.6 814.6 3,936.0 (10) 5,513.2 -------- -------- -------- --------- Total assets.......................... $4,896.3 $1,772.9 $3,978.3 $10,647.5 ======== ======== ======== ========= Current liabilities:............................ Current maturities of long-term debt.......... $ 901.1 $ 55.1 $ 146.8 (12) $ 1,103.0 Notes payable................................. 485.2 -- -- 485.2 Accounts payable.............................. 388.2 145.1 -- 533.3 Income taxes payable.......................... 130.8 -- -- 130.8 Other current liabilities..................... 587.3 231.3 87.7 (11) 906.3 -------- -------- -------- --------- Total current liabilities............. 2,492.6 431.5 234.5 3,158.6 Long-term debt.................................. 709.2 527.6 3,696.8 (12) 4,933.6 Deferred income taxes........................... 266.7 134.6 537.6 (8) 938.9 Other liabilities............................... 530.3 116.5 72.1 (13) 718.9 -------- -------- -------- --------- Total liabilities..................... 3,998.8 1,210.2 4,541.0 9,750.0 -------- -------- -------- --------- Shareholders' equity:........................... Common stock.................................. 103.8 0.9 (0.9) (14) 103.8 Capital in excess of par value................ 102.0 208.5 (208.5) (14) 102.0 Retained earnings............................. 1,501.0 393.3 (393.3) (14) 1,501.0 Treasury stock................................ (374.0) (40.0) 40.0 (14) (374.0) Accumulated other comprehensive income........ (435.3) -- -- (435.3) -------- -------- -------- --------- Total shareholders' equity............ 897.5 562.7 (562.7) 897.5 -------- -------- -------- --------- Total liabilities and shareholders' equity.............................. $4,896.3 $1,772.9 $3,978.3 $10,647.5 ======== ======== ======== =========
--------------- (a) Keebler's balance sheet is as of December 30, 2000. 4 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION A. General The pro forma combined balance sheet reflects our proposed acquisition of Keebler for an aggregate estimated purchase price of approximately $4,426.3 million. We calculated the purchase price as follows (in millions): Acquisition of equity ($42 per share)...................... $3,572.4 Assumed debt of Keebler.................................... 587.8 Payment to Keebler option holders.......................... 216.1 Transaction costs.......................................... 50.0 -------- $4,426.3 ========
The actual amount of debt assumed will depend on the actual amount of debt outstanding on the date of the acquisition. (Keebler debt outstanding at the date of consummation of the transaction is expected to be approximately $700 million, which will increase the total value of the transaction to approximately $4.5 billion). The excess of the purchase price over the fair value of net tangible and intangible assets acquired has been allocated to goodwill. B. Computation of Net Earnings Per Share Basic net earnings per share is determined by dividing net income by the weighted average number of common shares outstanding. Diluted net earnings per share is determined by dividing net income by the weighted average number of common shares outstanding, giving effect to all potentially dilutive issuances of common shares. Dilution in all periods presented was less than $.01 per share. C. Pro Forma Combined Financial Data Compared to Historical Data Pro forma adjustments related to the pro forma combined balance sheet have been determined assuming the acquisition was consummated at December 31, 2000. The assets and liabilities of Keebler have been included on the pro forma combined balance sheet at fair value, as determined by appraisal and valuation, where appropriate. Pro forma adjustments to the combined balance sheet also reflect certain accruals for employee termination and facility exit costs. Pro forma adjustments related to the pro forma combined income statement have been determined assuming the combination was consummated as of the beginning of the period presented. The pro forma combined results of operations vary from the combined historical results of Kellogg and Keebler due to the following: (1) Adjustment to eliminate sales from Keebler to Kellogg, which are treated as intercompany sales for the purposes of the combined pro forma financial statements. (2) Adjustment to conform the classification of expenses between cost of goods sold, selling, general and administrative expense and other income (expense). (3) Adjustment to amortization expense to reflect the amortization of intangible assets, including goodwill, which would have resulted, had the combination occurred at the beginning of the period presented. Intangible assets have been amortized on the straight-line basis over the following useful lives (in millions):
INTANGIBLE CATEGORY ESTIMATED VALUE USEFUL LIFE ------------------- --------------- ----------- Goodwill............................................ $2,824.3 40 years Direct store door delivery system................... 590.0 40 years Trademarks.......................................... 1,310.0 40 years
This adjustment is based on our current estimates and is lower than the earlier estimate in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report to Share Owners. 5 (4) Adjustment to interest expense to recognize additional debt of $4,301.9 million to be incurred to finance the Keebler acquisition. The amount of this additional debt is equal to the estimated purchase price of $4,426.3 million less the $124.4 million of indebtedness assumed that is not currently contemplated to be repaid. An average rate of 7.4% to was used to compute the incremental interest expense. Financing of the transaction will be through the issuance of $4.1 billion in aggregate principal amount of long-term securities and through the issuance of $201.9 million of short-term notes. (5) Adjustment to present the tax effect of additional interest expense and deductible amortization of intangible assets computed at the rate of 39%. (6) Fair value adjustment of acquired finished goods inventory to retail value, less selling and distribution expenses. (7) Adjustment to record tax receivable related to the payments made to holders of Keebler stock options. (8) Adjustment to record deferred tax effect of fair value adjustments to Keebler's opening balance sheet. (9) Fair value adjustment for Keebler property and equipment. (10) Adjustment primarily to record goodwill and other intangible assets. (11) Adjustment primarily to record liabilities for facility exit costs and employee severance. (12) Adjustment to record the issuance of long-term securities and the additional short-term notes, as described in Note 4 above. (13) Fair value adjustment for certain Keebler pension and other post-retirement benefit plans based upon actuarial valuations. (14) Adjustment to eliminate Keebler's equity accounts as a result of the acquisition.