Cagle's-Keystone Foods LLC
Financial Statements
for the 52-Week Periods Ended
December 27, 2003 and December 28, 2002
and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
Steering Committee of Cagle's-Keystone Foods LLC:
We have audited the accompanying balance sheets of Cagle's-Keystone Foods LLC
(the "Company"), which is owned 70% by Executive Holdings L.P. and 30% by
Cagle's Inc., as of December 27, 2003 and December 28, 2002 and the related
statements of operations, members' equity, and cash flows for the 52-week
periods then ended. 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 auditing standards generally
accepted in the United States of America. 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 the Company at December 27,
2003 and December 28, 2002 and the results of its operations and its cash
flows for the 52-week periods then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
April 9, 2004
CAGLE'S-KEYSTONE FOODS LLC
BALANCE SHEETS
(Dollars in thousands)
December 27, 2003 December 28, 2002
ASSETS
CURRENT ASSETS:
Cash $ 3,397 $ 951
Accounts receivable 8,423 5,971
Receivables-related party 4,677 13,302
Inventory 17,956 11,971
Notes receivable-related party 523
Prepaid and other current assets 212 248
----------------- -----------------
Total current assets 34,665 32,966
INVESTMENTS IN AND ADVANCES
TO AFFILIATED ENTITIES 464 254
PROPERTY, PLANT, AND EQUIPMENT:
Land 2,199 2,206
Buildings and improvements 57,397 53,224
Machinery and equipment 27,211 25,258
Furniture and fixtures 1,005 865
Construction in progress 289 4,424
----------------- -----------------
88,101 85,977
Less accumulated depreciation (28,375)
(20,238)
----------------- -----------------
Property, plant, and
equipment-net 59,726 65,739
OTHER ASSETS 3,107 2,191
----------------- -----------------
TOTAL $ 97,962 $ 101,150
See notes to financial statements.
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 7,500 $ 7,500
Debt-related party 16,976 4,000
Accounts payable 7,881 11,481
Accounts payable-related party 244 530
Accrued expenses 4,726 3,137
----------------- ------------------
Total current liabilities 37,327 26,648
LONG-TERM DEBT 47,063 67,880
OTHER LONG-TERM LIABILITIES 2,549 0
----------------- ------------------
Total liabilities 86,939 94,528
MEMBERS' EQUITY 11,023 6,622
----------------- ------------------
TOTAL $ 97,962 $ 101,150
See notes to financial statements.
CAGLE'S-KEYSTONE FOODS LLC
STATEMENTS OF OPERATIONS
(Dollars in thousands)
52-Week Periods Ended
December 27, December 28,
2003 2002
------------ ------------
NET SALES $ 215,443 $ 175,104
TOTAL COST OF PRODUCT SOLD 186,529 146,854
SELLING, GENERAL, AND ADMINISTRATIVE 7,338 6,208
DEPRECIATION AND AMORTIZATION 9,154 9,077
------------ ------------
OPERATING INCOME 12,422 12,965
OTHER INCOME (EXPENSES):
Interest-net of interest income (2,198) (4,145)
Interest-related party (377) (56)
Other-net (61) (94)
Equity in income of affiliates 269 306
------------ ------------
NET INCOME $ 10,055 $ 8,976
See notes to financial statements.
CAGLE'S-KEYSTONE FOODS LLC
STATEMENTS OF MEMBERS' EQUITY
(Dollars in thousands)
Executive Cagle's,
Holdings L.P. Inc. Total
BALANCE-December 29, 2001 (deficit) $ (405) $ (174) $ (579)
Net income 6,283 2,693 8,976
Other comprehensive income:
Net change in fair value of:
Interest rate hedge of company-
GA/KY Fundco LLC 1,192 510 1,702
Interest rate hedge of Cagle Foods
Credit, L.L.C.- equity method
investment (91) (39) (130)
Total comprehensive income 7,384 3,164 10,548
Distributions to members (2,343) (1,004) (3,347)
BALANCE-December 28, 2002 4,636 1,986 6,622
Net income 7,039 3,016 10,055
Other comprehensive income:
Net change in fair value of:
Interest rate hedge of company-
GA/KY Fundco LLC 5 3 8
Interest rate hedge of Cagle Foods
Credit, L.L.C.- equity method
investment 41 18 59
Total comprehensive income 7,085 3,037 10,122
Distributions to members (4,005) (1,716) (5,721)
BALANCE-December 27, 2003 $ 7,716 $ 3,307 $11,023
See notes to financial statements.
CAGLE'S-KEYSTONE FOODS LLC
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
52-Week Periods Ended
December 27, December 28,
2003 2002
OPERATING ACTIVITIES:
Net income $ 10,055 $ 8,976
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,154 9,077
Loss on sale of equipment 39 67
Equity in income of affiliates (269) (306)
Dividends received from affiliates 118 155
Changes in operating assets and liabilities:
Accounts receivable-net 6,173 (8,982)
Inventories (5,985) (2,201)
Accounts payable and accrued liabilities (2,289) 8,658
Other 2,585 496
Net cash provided by operating activities 19,581 15,940
INVESTING ACTIVITIES:
Investments in and advances to affiliates 523 47
Purchases of property, plant, and equipment (2,464) (5,536)
Proceeds from sale of property, plant, and equipment 83 5
Other assets and liabilities (4) (202)
Net cash used in investing activities (1,862) (5,686)
FINANCING ACTIVITIES:
Net payments under revolving lines of credit (12,000) (3,000)
Principal payments on long-term debt (8,817) (56,507)
Proceeds from the issuance of long-term debt 67,880
Loan fees (245) (2,207)
Debt-related party 11,510 (13,193)
Distributions to members (5,721) (3,347)
Net cash used in financing activities (15,273) (10,374)
NET INCREASE (DECREASE) IN CASH 2,446 (120)
CASH-Beginning of period 951 1,071
CASH-End of period $ 3,397 $ 951
See notes to financial statements.
CAGLE'S-KEYSTONE FOODS LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE 52-WEEK PERIODS ENDED DECEMBER 27, 2003 AND
DECEMBER 28, 2002
(Dollars in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business-Cagle's-Keystone Foods LLC (the "Company") was
established as a limited liability company on October 31, 1997 and is a joint
venture between Cagle's, Inc. (30%) and Executive Holdings L.P. (70%). The
Company's operations are located in Albany and Franklin, Kentucky. The latest
date at which the limited liability company is to dissolve is December 31,
2022. The Company is engaged in the production and sale of processed chicken.
A significant portion of all of the Company's sales are made to the joint
venture partners (see Note 3).
Revenue Recognition-The Company recognizes revenue when the product is
shipped to customers, an exchange has taken place, and the applicable
provisions of Statement of Financial Accounting Standards ("SFAS") No. 48,
Revenue Recognition When Right of Return Exists, have been made.
Inventories-Live field inventories are stated at the lower of cost or
market and breeders are stated at cost, less accumulated amortization.
Breeder costs are accumulated up to the production stage. Such costs are
amortized into hatching egg costs over the estimated production lives
based on monthly egg production. Finished products, feed, medication, and
supplies are stated at the lower of cost or market determined by the
first-in, first-out method.
Inventories at December 27, 2003 and December 28, 2002 consist of the
following:
2003 2002
Finished products $ 3,954 $ 1,320
Field inventory, breeders, and eggs 10,145 7,869
Feed, ingredients, and medication 1,529 1,200
Supply inventory 2,328 1,582
-------- --------
$ 17,956 $ 11,971
Property, Plant, and Equipment-Property, plant, and equipment are stated at
cost. Depreciation is computed principally by the straight-line method for
financial reporting purposes over the following periods:
Buildings and improvements 3-30 years
Machinery, furniture, and equipment 3-17 years
Land improvements 7 years
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which superceded SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of. SFAS No. 144 establishes a single accounting model for
long-lived assets to be disposed of by sale and resolves several
implementation issues arising from SFAS No. 121. The effect of adopting
SFAS No. 144 was not material to the results of operations or financial
condition of the Company.
The Company evaluates the estimated useful lives and the carrying value of
assets on a periodic basis to determine whether events or circumstances
warrant revised estimated useful lives or whether any impairment exists.
Management believes that no impairment existed at December 27, 2003.
Investment in Unconsolidated Affiliates-The equity method of accounting
is used to account for the Company's investment in unconsolidated
affiliates because of the Company's ability to exercise significant
influence.
Fair Value of Financial Instruments-The carrying amounts of cash,
accounts receivable, and accounts payable reflected in the financial
statements approximate fair values because of the short-term nature of
these instruments. Based on the borrowing rates currently available to
the Company for bank loans with similar terms and maturities, the Company
estimates that the carrying value of its long-term debt approximates fair
value. The fair value of the interest rate swaps (see Note 2) is the
amount the Company would receive or pay to terminate the swap agreements.
Use of Estimates-The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reporting Period-The Company's tax reporting year ends on the Saturday
closest to December 31, which for the current year was January 3, 2004.
For purposes of these financial statements, the Company has elected to
use the 52-week periods ended December 27, 2003 and December 28, 2002.
Income Taxes-The Company is a limited liability company and has received
a ruling from the Internal Revenue Service, which allows the Company to be
treated as a partnership for income tax purposes. As a partnership, it is
not subject to income taxes and the partners report their proportionate
share of the income on their tax returns.
Accumulated Other Comprehensive Loss-Included in members' equity is
accumulated other comprehensive loss related to interest rate swaps
(see Note 2) of $149 and $216 as of December 27, 2003 and December 28,
2002, respectively.
Derivative Instruments and Hedging Activities-On December 31, 2000, the
Company adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, which amended SFAS No. 133.
These standards require companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting.
Interest Rate Swap Agreements-These agreements involve the receipt of a
floating rate of interest on long-term debt in exchange for a fixed-rate
of interest over the life of the agreements without an exchange of the
underlying debt principal amount. These swap agreements have been
designated as cash flow hedges and their fair values are recognized as
an asset or liability in the financial statements with a corresponding
gain or lose recognized, in accumulated other comprehensive (loss) income
in members' equity.
Interest Rate Collar Agreements-These agreements involve the receipt of
a floating rate of interest above a certain cap or below a certain floor
on long-term debt in exchange for the cap or the floor over the life of
the agreements without an exchange of the underlying debt principal amount.
These agreements did not qualify as hedges under SFAS No. 133. The fair
values of the collars are recognized as an asset or liability in the
financial statements with a corresponding gain or loss recognized as
income or expense.
New Accounting Pronouncements-In November 2002, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. ("FIN") 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an Interpretation
of FASB Statement Nos. 5, 57, and 107 and Rescission of FASB Interpretation
No. 34. The interpretation requires that upon issuance of a guarantee, the
entity must recognize a liability for the fair value of the obligation it
assumes under that obligation. This interpretation is intended to improve
the comparability of financial reporting by requiring identical accounting
for guarantees issued with separately identified consideration and
guarantees issued without separately identified consideration. The
disclosure provisions of FIN 45 are effective for the Company as of
December 28, 2002. The initial recognition and measurement provisions of
FIN 45 are applicable to guarantees issued or modified after December 28,
2002. Adoption of the accounting recognition provisions of FIN 45 did not
have a significant impact on the Company's financial statements.
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities-an Interpretation of Accounting Research Bulletin No.
51. FIN 46 addresses consolidation by business enterprises where equity
investors do not bear the residual economic risks and rewards. The
underlying principle behind FIN 46 is that if a business enterprise has
the majority financial interest in an entity, which is defined in FIN 46
as a variable interest entity, the assets, liabilities and results of the
activities of the variable interest entity should be included in
consolidated financial statements with those of the business enterprise.
In December 2003, the FASB issued Revised FIN 46 ("FIN 46R") to clarify
certain aspects of FIN 46 including the determination of who is the
primary beneficiary of a variable interest entity. FIN 46R postponed the
effective date as to when companies are required to apply the provisions
of FIN 46 prospectively for all variable interest entities in existence
prior to January 31, 2003 until the first financial reporting period that
ends after March 15, 2004. However, for entities that are considered to
be special purpose entities, the effective date of FIN 46 is financial
reporting periods after December 15, 2003. The Company is evaluating the
impact of FIN 46 to determine the effect, if any, the pronouncement will
have on its financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. In particular, this statement clarifies
under what circumstances a contract with an initial net investment meets
the characteristic of a derivative and when a derivative contains a
financing component that warrants special reporting in the statement of
cash flows. This statement is effective for contracts entered into or
modified after June 30, 2003. Adoption of the pronouncement did not have
a significant impact on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments With Characteristics of Both Liabilities and
Equity. SFAS No. 150 establishes how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities
and equity. This statement is effective for instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. As a result
of concerns over implementation and measurement issues, the FASB
unanimously decided on October 29, 2003 to defer the application of SFAS
No. 150 to certain noncontrolling interests of limited-life entities that
are consolidated in the financial statements. Adoption of the
pronouncement did not have a significant impact on the Company's
financial statements.
On January 12, 2004, the FASB issued FASB Staff Position No. FAS 106-1,
Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 ("FSP 106-1").
FSP 106-1 permits employers that sponsor postretirement benefit plans that
provide prescription drug benefits to retirees to make a one-time election
to defer accounting impact, if any, of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (the "Act"), which was enacted
into law on December 8, 2003. The Company has elected to defer recognition
of the provisions of the Act as permitted by FSP 106-1 due to uncertainties
regarding some of the new Medicare provisions and a lack of authoritative
accounting guidance regarding certain matters. Changes to previously
reported information may be required depending on the transition guidance
issued in future authoritative guidance.
Reclassifications-Certain reclassifications have been made to prior year
amounts to conform to the current year presentation.
2. LONG-TERM DEBT
Long-term debt at December 27, 2003 and December 28, 2002 consists of the
following:
2003 2002
Notes payable to GA/KY Fundco LLC under a term loan
agreement, variable interest rate (2.92% at December
27, 2003 and 3.69% at December 28, 2002) commencing
April 30, 2002, maturing on April 19, 2007. $ 54,563 $ 63,380
Note payable to GA/KY Fundco LLC under a revolving
Credit agreement, variable interest rate (2.92% at
December 27, 2003 and 3.36% at December 28, 2002)
commencing April 30, 2002, maturing on April 30, 2007 0 12,000
Note payable to Equity Group-Georgia Division LLC, a
related party, variable interest rate (2.89% at
December 27, 2003 and 3.36% at December 28, 2002),
due on demand. 15,500 4,000
Note payable to Cagle Foods Credit, L.L.C., a
related party, 6.5% fixed interest rate, due
on demand. 875 0
Note payable to Cagle Foods Credit, L.L.C., a
related party, 9.25 % fixed interest rate, due
on demand. 601 0
-------- --------
Total 71,539 79,380
Current portion of long-term debt
Related party debt-due on demand 7,500 7,500
16,976 4,000
-------- --------
Total long-term debt $ 47,063 $ 67,880
On April 30, 2002, GA/KY Fundco LLC ("Fundco") (a 50%-owned subsidiary)
executed a loan agreement for a $105 million term loan facility and a $30
million revolving loan facility at variable interest rates on behalf of the
Company and Equity Group-Georgia Division LLC ("Equity GA"), formerly Cagle
Foods JV, L.L.C., a related party. This loan is guaranteed by the Company
and Equity GA. The proceeds were used to repay the Company's and Equity
GA's existing term loan of $53.7 million and revolving loans of $17 million
and purchase all of the Cagle's, Inc. joint venture interests in Equity GA.
Fundco was established in 1997 as a 50%-owned subsidiary of both the Company
and Equity GA. Fundco is a special purpose entity set up for borrowing of
funds from a group of banks to fund the capital needs of the Company and
Equity GA. All borrowing terms entered into by Fundco are the same borrowing
terms passed down to the Company and Equity GA. Fundco has no other
operations. At December 27, 2003, Equity GA had $22.9 million outstanding
for the term loan facility and none for the revolving loan facility. The
debt is secured by substantially all of the Company's' assets.
Aggregate maturities of long-term debt during the years subsequent to
December 27, 2003 are as follows:
For the fiscal year
2004 $ 24,476
2005 8,000
2006 8,000
2007 31,063
--------
$ 71,539
The Company incurred approximately $2,207 in loan origination costs
related to the term loan and revolver, which is being amortized on a
straight-line basis over the term of the loan, five years. Amortization
expense related to the loan origination costs was $462 in 2003.
In 2003 and 2002, the Company paid approximately $2,750 and $4,324 in
interest expense, respectively.
On December 31, 1997, Fundco, on behalf of the Company and Equity GA,
entered into two interest rate swap agreements, which matured December 31,
2002. The swaps effectively fixed the rate on original notional amounts of
$58.5 million at rates of 5.98% and 6%, plus a spread based on the
Company's debt-to-cash-flow ratio. These notional amounts changed based
on amounts outstanding under the Company's term and revolving loan
agreements. Under the terms of the agreements, the Company made payments
at fixed rates and receives payments at variable rates based on the three-
month London InterBank Offered Rate ("LIBOR"). Approximately $12 in
unrealized losses exist on these agreements at December 28, 2002, the
Company's share of which is $8 and Equity GA's share is $4.
On January 15, 2003, Fundco entered two new interest rate collars on
behalf of the Company and Equity GA. The collars allow Fundco to incur a
floating rate of interest on the outstanding notional amount between a
specified range. The collar swaps floating three-month LIBOR for fixed
rates whenever the floating rate exceeds the cap rate (4%) or falls below
the floor rate (1.5%). Each contract originated with a notional amount of
$28,350. The notional amounts amortize over a three-year term in
proportion to the underlying Fundco term loan. The collars differ in that
one has a conventional cap which may trigger payments on a period-by-period
basis, while the other has a cumulative cap which will only trigger payments
when the sum of all floating rate payments exceed interest at the cap rate
over the life of the contract. As of the date of this report it is highly
probable that the underlying loan for which these derivative contracts were
entered will be terminated in the near term. For this reason, the collars
are not given hedge accounting and changes in their market values are
reflected in other income and expenses of the Company in the amount of $97.
At December 27, 2003 Fundco had an unused standby letter of credit
available to the Company amounting to $4,760.
3. RELATED PARTY TRANSACTIONS
Sales to the Company's owners (Executive Holdings L.P. through its common
ownership affiliate Keystone Foods LLC and Cagle's, Inc.) represented 80%
and 89% of net sales during 2003 and 2002, respectively. The Company
currently sells deboned chicken at cost plus $.03 per eviscerated pound.
Executive Holdings L.P. and Cagle's Inc. both charge the Company
administrative fees based on the Company's volume of production. These
fees totaled $2,430 and $2,264 in 2003 and 2002, respectively.
Sales, expenses, and balances with related parties for 2003 and 2002 are
summarized as follows:
Executive
Holdings Franklin Cagle's,
L.P. Equipment Equity GA Credit Inc.
2003
Net sales $ 172,580 $ - $ 561 $ - $ 21
Purchases 5,973
Interest income (expense) 14 (300) (91)
Balance at year-end:
Net A/R, (A/P) 4,547 (58) (56)
Notes receivable
Notes payable 15,500 1,476
Executive
Holdings Franklin Cagle's,
L.P. Equipment Equity GA Credit Inc.
2002
Net sales $ 153,866 $ - $ 1,388 $ - $ -
Purchases 494
Interest income (expense) 37 (93)
Balance at year-end:
Net A/R, (A/P) 13,353 2 (54) (522) (7)
Notes receivable 523
Notes payable 4,000
The Company entered into a loan agreement with Franklin Poultry Equipment
LLC ("Franklin Equipment") to advance $1.6 million in funds to finance
operations. Franklin Equipment is a joint venture between Cagle's, Inc.
and Executive Holdings L.P., whose primary purpose is to supply independent
farmers equipment necessary for production of chickens owned by the Company.
This loan bears interest at a rate of 7% per annum. The balance at December
28, 2002 was $523 and the loan was repaid in February and October 2003.
In 2003, Cagle Foods Credit, L.L.C. ("Credit"), a related party,
transferred two foreclosed consumer loans and the related real estate that
collateralized the loans to the Company. The Company acquired this real
estate from Credit for the book value and issued notes payable as
consideration for this acquisition. The real estate collateral is recorded
in other assets at the loan values which approximate fair market value and
are held for resale. The balance of the notes payable at December 27, 2003
were $875 (6.5% fixed rate interest) and $601 (9.25% fixed rate interest).
4. COMMITMENTS
In 2003, the Company entered into a five year industrial power agreement
with South Kentucky Rural Electric Cooperative Corporation (the "Co-op").
Under the terms of this agreement, the Co-op has agreed to provide the
substation and other facilities costing approximately $518 to supply the
Company with its power requirements. The cost of these facilities will be
recovered through rates over the life of the contract.
Additionally in 2003, the Company entered into a five year emergency backup
service agreement with the Co-op. Under the terms of this agreement, the
Co-op has agreed to provide the backup generators and associated equipment
and facilities costing approximately $608 to provide backup electric to the
Company in the event of a power interruption. The Company has agreed to pay
an annual facilities charge of $114 for the availability of this service.
The Company leases machinery and equipment under operating leases. Rent
expense was $2,649 and $1,635 in 2003 and 2002, respectively.
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at December 27, 2003:
For the fiscal year
2004 $ 2,855
2005 2,855
2006 2,733
2007 1,720
2008 843
Thereafter 318
--------
$ 11,324
5. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Effective December 1995, Cagle's, Inc., Executive Holdings L.P., and Equity
GA formed Credit. Each Company made capital contributions of $3. Effective
July 1, 1998, the Company became a member of Credit, at which time the
Company made a capital contribution of $14. Currently, the Company owns 25%
of Credit along with Equity GA (25%) and Executive Holdings L.P. (50%).
Credit was formed for the purpose of financing the facilities of the
Company's and Equity GA's contract growers. The investment is being
accounted for under the equity method. The undistributed income from this
affiliate allocated to the Company was $269 and $306 in 2003 and 2002,
respectively. The Company received distributions of $118 and $155 in 2003
and 2002, respectively.
On April 30, 2002, Credit executed a loan agreement for a $25.3 million
revolving loan facility at variable interest rates. The Company and Equity
GA have guaranteed the borrowings under the loan agreement. Credit has
received advances of approximately $21.7 million on the revolving loan
facilities as of December 27, 2003. The revolving loan facility is due
in monthly installments. Credit is required to make a final balloon
payment in April 2007.
Credit has consumer loans receivable of approximately $20.8 million and
$25.1 million at December 27, 2003 and December 28, 2002, respectively.
Credit has total assets of approximately $24.4 million and $26.0 million
and total liabilities of approximately $22.6 million and $25.0 million as
of December 27, 2003 and December 28, 2002, respectively, and net income
of approximately $1,076 and $1,225 for 2003 and 2002, respectively.
6. BENEFIT PLANS
The Company contributes to a 401(k) retirement plan for employees who meet
the eligibility requirements. Under the plan, the Company contributes up
to 2% of participating employees' salaries. Amounts contributed by the
Company to the 401(k) plan totaled $95 in 2003 and $89 in 2002. During
2003, the Company introduced a defined contribution plan for certain
employees not covered by collective bargaining agreements. Contributions
are made on the basis of a percentage of each employee's salary and
pension expense for 2003 was $227.
In November 2002, the Company revised its benefits program to provide
certain health care benefits for retired employees. Substantially, all of
the Companies' domestic employees may become eligible for varying levels of
benefits if they reach normal retirement age while working for the Company.
The Companies' accumulated postretirement benefit obligation, which is
unfunded, is $328 and $212 at December 27, 2003 and December 28, 2002,
respectively. The accrued postretirement benefit cost recognized in the
accompanying balance sheets is $113 and $20 at December 27, 2003 and
December 28, 2002, respectively. No retiree benefit payments were paid,
2003 or 2002.
Actuarial assumptions used to determine the liability for postretirement
plans other than pensions included a discount rate of 6.25% at December
27, 2003 and 6.75% at December 28, 2002.
For measurement purposes, an average 5.5% annual increase in the per capita
cost of covered health care benefits was assumed for 2003.
The net periodic postretirement benefit costs were $93 and $20 for 2003
and 2002, respectively.
7. CONTINGENCIES
The Company is a party to various lawsuits in the ordinary course of doing
business. The Company intends to defend these matters vigorously. The
outcome of such lawsuits cannot presently be determined, but in the opinion
of management, the aggregate liability, if any, arising from such
litigation will not have a material adverse effect on the accompanying
financial statements.
8. SUBSEQUENT EVENT
As described in Note 1, the Company is owned 70% by Executive Holdings
L.P., which is affiliated with Keystone Foods LLC and various other
entities through common ownership. On April 2, 2004, the Company became
subject to an agreement under which the Company and various other entities
affiliated by common ownership with Keystone Food LLC would be merged into
one entity and an unrelated third party would obtain a controlling equity
interest in that entity. The agreement is subject to regulatory approval
and satisfaction of the conditions agreed to by the parties. Following
that merger, it is likely that borrowing agreements outstanding at December
27, 2003 would be replaced by new agreements entered into by the postmerger
entity. The accompanying financial statements do not reflect any adjustments
that might result from the merger or repayment of debt.
