1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended May 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6566
THORN APPLE VALLEY, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1964066
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26999 CENTRAL PARK BOULEVARD, SUITE 300, SOUTHFIELD, MICHIGAN 48076
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 213-1000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this Form 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD
BY NON-AFFILIATES OF THE REGISTRANT AS OF AUGUST 16, 1996, COMPUTED BY
REFERENCE TO THE NASDAQ NATIONAL MARKET CLOSING PRICE ON SUCH DATE, WAS
$40,853,509.
The number of outstanding shares of Registrant's common stock as of
August 16, 1996 was 5,790,804.
The following document (or portion thereof) has been incorporated by
reference in this Annual Report on Form 10-K: The definitive Proxy Statement
for the 1996 Annual Meeting of Shareholders to be held on October 28, 1996
(Part III).
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As filed with the Securities and Exchange Commission on September 13, 1996.
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
PART I
ITEM 1. BUSINESS
GENERAL
Thorn Apple Valley, Inc. (sometimes referred to hereinafter
collectively with its subsidiaries as the "Company") is a major producer of
processed meat and poultry products and is one of the largest slaughterers of
hogs in the United States. The Company was originally incorporated in 1959 as
a Michigan corporation. It reincorporated in Delaware in 1971 and
reincorporated in Michigan in 1977. The Company is engaged in the manufacture
and sale of bacon, hot dogs and lunch meats, hams, smoked sausages and turkey
products, as well as the slaughtering of hogs and the related sale of fresh
pork products. The Company markets its products under premium and other
proprietary brand labels including "Thorn Apple Valley," "Wilson Certified,"
"Corn King," "Colonial," "Triple M," "Royal Crown," "Olde Virginie" and
"Cavanaugh Lakeview Farms" and under customer-owned private labels. The Company
sells its products principally to wholesalers, supermarkets and other
manufacturers throughout the United States and in selected international
markets.
WILSON ACQUISITION
On May 30, 1995, the Company purchased certain assets from Foodbrands
America, Inc. and its subsidiaries ("Foodbrands"). The Company acquired
substantially all of Foodbrands' Wilson Retail Division ("Wilson") assets used
by Wilson in its business of producing and marketing retail meat products. The
acquired assets included three manufacturing facilities, machinery and
equipment, current assets and certain trademarks and tradenames. The aggregate
purchase price for the assets acquired and the assumption of certain
liabilities was approximately $64.6 million. During the five year period
following the date of the acquisition, Foodbrands has the right to receive from
the Company up to an additional $10 million in accordance with an Earnout
Agreement, in the event of increases in the market price of the Company's
Common Stock. During fiscal 1996, no amount was paid to Foodbrands under the
Earnout Agreement.
The Wilson acquisition was accounted for using the purchase method.
The tradenames and trademarks acquired are being amortized over their estimated
useful lives which was determined to be 40 years. The results of operations of
the Company for the fifty-three week period ending May 31, 1996, reflect a full
year of operations related to the acquired Wilson assets. Subsequent to the
Wilson acquisition, the Company closed two of the acquired plants which did not
fit with the Company's strategic objectives.
PRODUCTS, OPERATIONS AND MARKETING
The Company is engaged in a single segment business with two principal
product categories: processed meat and poultry products and fresh pork. The
following table shows for the fiscal periods indicated the net sales and
approximate pounds of products shipped for the Company's processed meats
operations and fresh pork operations.
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Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
Fiscal % of Fiscal % of Fiscal % of Fiscal % of Fiscal % of
1992 Sales 1993 Sales 1994 Sales 1995 Sales 1996 Sales
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
(in millions)
Net sales (in dollars)
- ----------------------
Processed meat products $368.4 50% $386.7 53% $416.3 54% $415.4 56% $623.0 63%
Fresh pork products 365.7 49% 336.6 46% 349.1 45% 321.8 43% $355.0 36%
Products shipped (in lbs.)
- --------------------------
Processed meat products 320.3 - 337.8 - 351.7 - 378.2 - 507.7 -
Fresh pork products 458.8 - 415.6 - 419.6 - 422.2 - 394.6 -
Due to market conditions, profit margins on sales of processed meat
and poultry products are usually more consistent than profit margins on sales
of fresh meats and by-products. Processed meat and poultry manufacturers
generally receive higher profit margins on premium labeled items. The
Company's emphasis in its sales and marketing programs is to expand sales of
higher margin products and develop new packaging concepts and product
innovations that will appeal to consumers.
The Company experiences some seasonality in its business.
Specifically, the Company's sales of smoked and spiral sliced hams are
typically at their highest levels during the Christmas and Easter holiday
seasons as a result of increased consumer demand. In order to accommodate the
increased holiday sales, the Company typically builds substantial inventories
of hams in anticipation of its future holiday business. Also, the Company's
sales of skinless smoked sausage, hot dogs and bacon products are generally
higher during the summer months.
PROCESSED MEAT PRODUCTS
The processed meat products operations of the Company's business
involve the production and sale of consumer- brand labeled, packaged meat and
poultry products, such as bacon, hot dogs and lunch meats, hams, smoked
sausages and turkey products. Shipments by category of these products for the
five most recent fiscal years were as follows:
Fiscal Fiscal Fiscal Fiscal Fiscal
Product Category 1992 1993 1994 1995 1996
- ---------------- ---- ---- ---- ---- ----
(in millions of pounds)
Bacon . . . . . . . . . . . . . . . . 99.7 100 .6 100.7 111.3 123.1
Hot dogs and lunch meats . . . . . . 75.7 78.1 72.2 71.1 141.9
Hams . . . . . . . . . . . . . . . . 62.7 67.2 74.1 85.4 125.9
Smoked sausages . . . . . . . . . . . 45.1 51.6 61.3 64.3 65.2
Turkey products . . . . . . . . . . . 17.4 23.9 24.3 25.2 27.0
Other . . . . . . . . . . . . . . . . 19.7 16.4 19.1 20.9 24.6
----- ------ ----- ----- -----
Total . . . . . . . . . . . . . . . . 320.3 337.8 351.7 378.2 507.7
The Company's processed meat products sales division, which has
regional offices, markets the Company's consumer packaged meat and poultry
products using a national sales force which calls on the Company's various
customers. Price lists, product availability, marketing programs and payment
terms,
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
however, are determined by the corporate office. The Company's customer base is
generally comprised of wholesalers or large supermarket chains.
The Thorn Apple Valley-Grand Rapids division of the Company ("Grand
Rapids"), which is located in Grand Rapids, Michigan, is engaged in the
production and sale of approximately 50 varieties of packaged, table-ready meat
products such as hot dogs, lunch meats, corned beef and smoked sausage, under
brand names which include "Thorn Apple Valley," "Herrud" and "Colonial" and
other controlled and private label brands.
The Thorn Apple Valley-Deli & Smoked Meats division of the Company
("Smoked Meats"), which is located in Detroit, Michigan, is primarily engaged
in the production and sale of smoked hams, spiral sliced hams, cooked hams,
smoked loins, turkey breasts, deli products and related items. These products
are sold to supermarket chains under various brand names, including "Thorn
Apple Valley," "Herrud," "Royal Crown," "Colonial," "Olde Virginie" and
"Cavanaugh Lakeview Farms" and other controlled and private label brands.
The Thorn Apple Valley-Carolina division of the Company ("Carolina"),
which is located in Holly Ridge, North Carolina, produces bacon and related
by-products. These items are sold principally to supermarket chains under
brand names which include "Thorn Apple Valley," "Herrud," "Holly Ridge Farm,"
"Colonial" and "Olde Virginie" and other controlled and private label brands.
The Thorn Apple Valley-Dixie division of the Company ("Dixie"), which
is located in Forrest City, Arkansas, is primarily engaged in the
production of hot dogs. The products are sold to supermarket chains under
brand names which include "Wilson," "Corn King" and "Colonial" and other
controlled and private label brands.
The Thorn Apple Valley-Ponca City division of the Company ("Ponca
City"), which is located in Ponca City, Oklahoma, is primarily engaged in
the production of bone-in hams, spiral sliced hams, lunch meats and gourmet
meat products. The Ponca City facility is a newly-constructed processing plant
that was put into production in October 1995. Its products are sold to
supermarket chains under brand names which include "Thorn Apple Valley,"
"Wilson," "Corn King," "Olde Virginie," "Cavanaugh Lakeview Farms" and
"Colonial" and other controlled and private label brands.
During fiscal 1996, the Company closed its Thorn Apply
Valley-Concordia division ("Concordia") and its Thorn Apple Valley-Shreveport
division ("Shreveport"). The Concordia division had produced boneless hams and
related smoked meat products and the Shreveport division had produced specialty
products such as natural casing hot dogs. The production of these products was
moved primarily to the Company's Council Bluffs and Smoked Meats divisions.
The Thorn Apple Valley-Council Bluffs division of the Company
("Council Bluffs") is located in Council Bluffs, Iowa, is primarily engaged
in the production of a variety of boneless ham products. The Council Bluffs
facility is operated and managed by a major meat packing company pursuant to a
production agreement. See "Raw Materials" below for further discussion of such
production agreement.
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Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
FRESH PORK PRODUCTS
The Thorn Apple Valley-Frederick division of the Company
("Frederick"), which is located in Detroit, Michigan, is engaged in the
slaughtering and cutting of hogs and the sale of primal cuts of fresh pork
products, including hams, shoulders, loins, ribs, butts and pork bellies, and
of related by-products, such as edible renderings and meat trimmings.
Approximately 3,339,000, 3,146,000 and 2,891,000 hogs were slaughtered by
Frederick in fiscal years 1996, 1995 and 1994, respectively. The Company's
Utah division, which was closed during fiscal 1995, slaughtered approximately
274,000 and 339,000 hogs during fiscal years 1995 and 1994, respectively.
Sales of products by the Frederick division are ordinarily initiated
and completed by telephone between buyers and Frederick sales personnel. Sales
are also made through brokers located throughout the United States and abroad.
Customers for primal cuts and trimmings are generally wholesalers, supermarket
chains, and outside processors. Most edible offal items are cleaned, boxed and
frozen for storage until delivery to the customer. Fat trimmings and some
inedible items are sold to renderers. The Company also further processes some
of its primal cuts into higher margin boneless products.
The supply of hogs, plant operating efficiencies, industry slaughter
capacity, prevailing prices for competing meat products and consumer demand all
affect the profitability of the Company's fresh pork operations. The profit
margins experienced by the Company and the fresh pork industry on sales of
fresh pork and by-products were lower during fiscal 1996 than the margins
experienced by the Company and the industry in recent years. The lower margins
resulted from increased costs to produce fresh pork products caused by
operating inefficiencies at the Company's Frederick facility (which resulted
from an extensive plant renovation project). The Company believes that it has
remedied most of the significant operating inefficiencies at the Frederick
facility.
TRADEMARKS AND LICENSES
The Company owns or has the right to use over 80 various trademarks,
including those described above and certain trademarks purchased from
Foodbrands. The trademarks are valuable to the Company because of the
significant market advantage that name recognition provides in the retail
market served by the Company. Most of the trademarks used by the Company are
registered with the appropriate administrative offices, and the Company intends
to renew each such registration as long as the related trademark is used with
respect to a current line of products.
DISTRIBUTION AND CUSTOMERS
During fiscal 1996 approximately 16% of the Company's products were
marketed in Michigan. This percentage was approximately 19% and 20% for fiscal
1995 and 1994, respectively. The balance of the products were marketed in each
of these years primarily in 46 other states, Washington, D.C., Canada and to
Pacific Rim countries. Sales to customers in foreign countries during fiscal
1996 totaled approximately $14,900,000. This total was approximately
$9,300,000 for fiscal 1995 and approximately $11,200,000 for fiscal 1994.
On a regular basis, the Company sells its fresh pork and manufactured
products to more than 1,000 customers. These customers consist primarily of
wholesalers, supermarket chains and, in the case of the Company's fresh pork
operations, other manufacturers of meat and poultry products. For fiscal 1996,
approximately 33% of the Company's sales were made to its 10 largest customers,
none of whom
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
accounted for as much as 10% of the Company's sales. The Company does not have
any significant long-term sales commitments except for the sale of its inedible
rendering materials. See "Business-Long Term Royalty Agreement".
In April 1996, the Company opened a new distribution center in
Edwardsville, Kansas and closed a small distribution center in Clearfield,
Utah. The Company believes that this new distribution center, combined with
the Company's distribution center in Detroit, Michigan, will enable the Company
to provide a higher level of service to the Company's customers.
The Company owns and operates a fleet of refrigerated tractor-trailers
and additional trailers which are used for transporting a portion of its
products to customers and to the Company's manufacturing facilities. The
Company also engages the services of contract carriers, including Coast
Refrigerated Trucking Co., Inc., National Food Express, Inc. and Miller's
Transport Inc., all wholly-owned subsidiaries of the Company. Products are
shipped to supermarket chains, wholesalers and other meat processors. In
addition to its own delivery equipment, the Company utilizes non-affiliated
carriers or has customers make their own arrangements for delivery.
RAW MATERIALS
The Company's primary raw material is live hogs. The purchase of hogs
accounted for approximately 72% of the total purchases of raw materials made by
the Company during fiscal 1996. Purchases of live hogs are through a network
of buying stations, selected brokers and direct from hog producers mainly in
the states of Michigan, Ohio, Indiana and Illinois and in Ontario, Canada.
Pursuant to an agreement with Michigan Livestock Exchange ("MLE"), MLE supplied
approximately 65% of the total hogs purchased by the Company in fiscal 1996
(see "Purchase and Management Agreement" for further discussion of this
agreement). The transportation of hogs to the Frederick facility is primarily
in tractor- trailers owned and operated by independent contractors.
During fiscal 1996, Grand Rapids obtained 24% of all of the pork
required in its operations from Frederick, which constituted approximately 14%
of the cost of the total meat requirements of Grand Rapids. Approximately 68%
of the pork processed during fiscal 1996 at Smoked Meats was obtained from
Frederick, which constituted approximately 49% of its total meat requirements.
Approximately 38% of the pork requirements of Ponca City was obtained from
Frederick, which comprised approximately 22% of its total meat requirements.
The Company's Dixie plant received approximately 13% of its pork requirements
from Frederick, which represented approximately 3% of its total meat
requirements. Approximately 53% of the pork bellies processed by Carolina were
obtained from Frederick.
The Company purchases poultry, beef and other meats required for its
processed meat products and other materials such as seasonings, smoking and
curing agents, sausage casings and packaging materials from a number of
readily-available sources.
In connection with the Wilson acquisition, the Company assumed a
production agreement (the "Production Agreement") with a major meat packing
company (the "Producer"). Pursuant to the Production Agreement, the Producer
constructed a ham production facility and the Company furnished all of the
production equipment to be used in such facility. In addition, the Producer is
obligated to produce at such facility, on an exclusive basis, all boneless ham
products which the Company may require. In return, the Company has agreed to
pay and/or reimburse the Producer for all operating and fixed costs incurred at
the facility and to pay the Producer a fee of approximately $1,375,000 per year
during the term
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
of the agreement and any extensions thereof. The Production Agreement has an
initial term (the "Initial Term") expiring on June 6, 2001 and may be renewed
by the Company for up to five successive three year terms (the "Option
Periods"). If the Company fails to renew the Production Agreement for each of
the five Option Periods, or if the Company terminates or breaches the
Production Agreement, the Company will be obligated to pay the $1,375,000
annual fee for the remainder of the Initial Term, if any, and an annual payment
of approximately $408,000 for each remaining year of each of the five Option
Periods. In such event, the Producer must use its best efforts to utilize the
vacated facility to mitigate costs to the Company.
In addition to the Production Agreement, the Company has also assumed
a supply agreement with the Producer. The Company has agreed to purchase and
the Producer has agreed to supply 400,000 pounds of boneless ham muscles on a
weekly basis at a pricing formula equal to or more favorable than prices
obtainable from other competitive suppliers. The term of such supply agreement
runs concurrent with the term of the Production Agreement described above.
COMPETITION
The meat packing and manufacturing industry is highly competitive.
The Company competes with large national, regional and local companies, some of
which have substantially greater sales volume, brand name recognition and
financial resources than the Company. Competition is encountered both in the
procurement of raw materials and in the sale of products. The Company's
products also compete with other meat, fish and poultry products. Competition
exists mainly with respect to product quality, name recognition, price and
service.
EMPLOYEES
The Company has approximately 4,000 employees, approximately 850 of
whom are engaged in slaughtering and cutting hogs, approximately 2,400 of whom
are engaged in the production of the processed meat and poultry products, and
approximately 750 of whom are employed in administration, sales or
transportation.
The majority of the Company's production workers are employed under
four union contracts. These contracts are generally for a period of two to four
years and have various expiration dates through the third quarter of fiscal
2000. The Company has historically maintained good labor relations. The
unexpired portions of the existing agreements contain no significant labor cost
increases.
REGULATION
Like other participants in the meat and poultry processing industry,
the Company is subject to various laws and regulations relating to the
construction and maintenance of facilities, production standards and pollution
control administered by federal, state and other government entities, including
the Environmental Protection Agency and corresponding state agencies such as
the Michigan Department of Natural Resources, the United States Department of
Agriculture, and the Occupational Safety and Health Administration. All of the
Company's existing fresh pork and processed meat and poultry products plants
are federally inspected by the United States Department of Agriculture under
the Federal Meat Inspection Act. The Company believes that it is in compliance
with all health, environmental and other laws and regulations in all material
respects and that continued compliance with existing standards will not have a
material effect on the Company's results of operations or financial condition.
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
LONG-TERM ROYALTY AGREEMENT
In December 1988, the Company sold substantially all of the assets of
its wholly owned subsidiary, Wayne By- Products Company, to an unrelated third
party. In connection with the sale of these assets, the Company entered into
an agreement requiring the Company to sell all its inedible rendering materials
to such third party through 1998. The Company believes that the terms and
conditions of the agreement are at least as favorable as are available from
others in the industry.
PURCHASE AND MANAGEMENT AGREEMENT
In November 1994, the Company entered into a 10 year agreement with
MLE. Under the terms of the agreement, MLE manages the Company's hog buying
stations and provides the Company with hogs in accordance with the Company's
quantity and quality specifications at MLE's hog costs plus certain expenses.
In consideration, the Company pays MLE $83,333 per month as a facilities and
use management fee. In accordance with the agreement, the Company has
purchased $2.0 million of preferred stock of MLE that pays a 6% dividend. The
Company has classified the investment in MLE in other long-term assets on its
consolidated balance sheet.
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Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
ITEM 2. PROPERTIES
The Company's principal plants, all of which are owned by the Company,
are located as follows:
Approximate
Land Area Floor Space
Location Operation Acres (Sq. Ft.)
-------- --------- ----------- ---------------
Detroit, Michigan Hog slaughtering and boning 3.2 218,000
operations
Detroit, Michigan Manufacture of smoked and 4.8 150,000
cooked hams, spiral sliced
hams, turkey products,
deli products and related
items
Grand Rapids, Michigan Manufacture of hot dogs, lunch 18.5 135,000
meats and smoked sausages
Holly Ridge, Manufacture of bacon products 179.0 150,000
North Carolina
Walker, Michigan Poultry boning and manufacture 27.0 45,000
of pork sausage and corned
beef products
Concordia, Missouri* Manufacture of boneless hams 17.2 45,000
and other related smoked meat
products
Forrest City, Arkansas Manufacture of hot dogs 11.3 70,000
Shreveport, Louisiana* Manufacture of specialty 3.6 30,400
products such as natural
casing hot dogs
Ponca City, Oklahoma Manufacture of bone-in hams, 42.0 171,000
spiral sliced hams, lunch
meats and gourmet meat
products
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* The Company closed these facilities during fiscal 1996.
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Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
In addition to the Company's plants, the Company owns and leases
various buildings in Michigan, North Carolina and Kansas. These buildings are
used for maintenance, storage, certain manufacturing, distribution and other
ancillary services, truck garages and as corporate headquarters.
The land on which each of these properties are located (excluding the
leased properties) is owned by the Company. The properties described above were
subject to mortgages collateralizing outstanding indebtedness in the aggregate
amount of approximately $6.5 million as of May 31, 1996. As of the date of
this Annual Report on Form 10-K, substantially all of the Company's assets are
subject to liens. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition."
The Company believes its plants and equipment are in good repair and
suitable for the present operation of its business. The production facilities
of the plants are being utilized on either a one-shift or two-shift basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various ordinary or routine litigation
incidental to its business, none of which, in the opinion of management, is
expected to have a material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED SECURITY MATTERS
As of August 16, 1996 there were 533 shareholders of record of the
Company.
The shares of the Company's Common Stock are traded in the
over-the-counter market and their price is quoted on the Nasdaq National Market
under the symbol "TAVI." The table below sets forth the range of the highest
and the lowest sales prices and the cash dividends paid for the past two
fiscal years.
In October 1995, the Company's Board of Directors discontinued the
payment of dividends on the Company's Common Stock in order to conserve cash
for future operations. Since such date, the Company entered into agreements
with various lenders which restrict the Company's ability to pay dividends.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation--Financial Condition" below. The Company has no current plans of
paying dividends on its Common Stock.
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Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
1996 1995
--------------------------------------- -------------------------------------------
Sales Price Sales Price
------------------ --------------------
Fiscal Dividends Dividends
Quarter High Low Paid High Low Paid
------- ---- --- ---- ---- --- ----
First $23.50 $18.00 $.07 $25.25 $22.00 $.07
Second $19.50 $15.12 - $30.25 $23.00 $.07
Third $17.75 $14.00 - $30.00 $20.00 $.07
Fourth $15.75 $10.25 - $20.00 $16.62 $.07
ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year Ended(1)
-----------------------------------------------------------------------------------------
May 29, 1992 May 28, 1993 May 27, 1994 May 26, 1995 May 31, 1996
------------ ------------ ------------ ------------ ------------
Net sales $739,733,073 $729,909,723 $772,098,333 $744,542,466 $983,084,427
Net income
(loss) $ 21,054,846 $ 13,862,567 $ 14,083,373 $ 5,254,886 $(21,707,744)
Net income (loss)
per common
share $ 3.75 $ 2.36 $ 2.40 $ .91 $ (3.76)
Total assets $132,599,976 $143,948,845 $185,442,085 $204,296,365 $325,616,203
Total long-term
debt (excluding
current portion) $ 15,068,920 $ 8,844,391 $ 27,936,985 $ 35,464,669 $159,808,923
Cash dividends
per share $ .08 $ .20 $ .27 $ .28 $ .07
(1) The Company's fiscal year consists of the 52- or 53-week period ending on
the last Friday in May of each year. Fiscal 1996 was a 53-week fiscal
year and all other years presented in this table were 52-week fiscal
years. Earnings per share figures have been restated for all periods
presented to reflect a three-for-two stock split, effected as a 50% stock
dividend paid on December 23, 1992 to all shareholders of record of the
Company as of the close of business on December l, 1992. The increases
in net sales, total assets and long-term debt from fiscal 1995 to fiscal
1996 are primarily the result of the Wilson acquisition. For additional
discussion of the differences in operating results in fiscal 1996 as
compared to fiscal 1995, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Results of Operations."
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Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Profitability in the hog slaughter industry is affected by the cost
and supply of hogs and pork product selling prices. The slaughtering industry
has generally been characterized by relatively narrow profit margins and a
trend toward larger, higher volume plants in order to reduce per unit costs.
Processed meat and poultry processors generally receive higher profit margins
on premium labeled items than on fresh pork and by-products.
Hog prices represent the principal production cost of pork
slaughterers and are an important element in the cost of certain processed meat
products as well. Hog prices and hog supply are determined by constantly
changing market forces. The ability of hog slaughterers and processors to
maintain satisfactory margins may be affected by market factors over which such
industry participants have limited control, including industry-wide slaughter
levels, competition, the relative price of substitute products, overall
domestic retail demand and the level of exports.
The following discussion analyzes material changes in the financial
information of the Company on a year to year basis.
RESULTS OF OPERATIONS
Fiscal 1996 as Compared to Fiscal 1995
--------------------------------------
(53 week fiscal year compared to 52 week fiscal year)
The Company's net loss for the fiscal year ended May 31, 1996 was
$21.7 million compared with net income of $5.3 million in fiscal 1995. The
Company's fiscal 1995 net income was negatively impacted by a restructuring
charge of approximately $5.0 million; see Note 12 to the Notes to the
Consolidated Financial Statements for additional information on the prior
year's restructuring charge. The decrease in profits is primarily attributable
to lower fresh pork and processed meat profit margins and higher overhead costs
in both the fresh and processed meat divisions. The LIFO (last in, first out)
method of accounting for inventories had the effect after taxes of decreasing
earnings for fiscal 1996 by approximately $8.9 million compared with an
increase to earnings of approximately $1.3 million in fiscal 1995.
Operating profits for the processed meat division were negatively
impacted by increased overhead costs associated with the manufacturing
facilities acquired as part of the Wilson acquisition, along with the start-up
costs associated with the Ponca City facility. The profit margins experienced
by the fresh pork division were lower during fiscal 1996 than the margins
experienced by the Company in recent years due to adverse industry pricing
conditions and inefficiencies at the Company's fresh pork plant. The fresh
pork plant's inefficiencies were due in part to the operational difficulties
encountered as a result of the complexities of the plant's operations and high
rate of speed at which the plant operates. In response, the Company began
assembling a new plant management team in September, 1995. While much work
remains to be done at the plant, the new management team has improved the
plant's revenues and reduced its costs of operations, bringing the plant closer
to realizing the benefits that had been planned.
11
13
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
Net sales for fiscal 1996 increased by $238.5 million or 32.0%. Sales
volume and average selling prices in the Company's processed meat operations
increased by 34.2% and 11.8%, respectively. The Company's processed meat
operations sales volume increased primarily as a result of the Wilson
acquisition. The Company's fresh pork operation's net sales increased by
10.3%, due to an increase in average selling prices of 18.0%, offset in part by
a decrease in sales tonnage of 6.5%. The increase in average selling prices
was significantly less than the increase of approximately 25.7% in the cost of
live hogs, the Company's primary raw material. The Company's fresh pork sales
volume was down primarily due to the closing, during fiscal 1995, of the
Company's Tri-Miller facility and to an increase in fresh pork being retained
for use in the Company's processed meat operations.
Cost of goods sold (including delivery costs) increased by $263.0
million in fiscal 1996, or 39.3%, as compared to fiscal 1995, principally as a
result of the increase in sales volume related to the Wilson acquisition and as
a result of the increased cost of live hogs referred to above. As a percentage
of net sales, costs of goods sold increased from 89.8% in fiscal 1995 to 94.8%
in fiscal 1996, primarily as a result of overhead costs associated with the
integrated Wilson business and higher overhead costs associated with the
recently completed Frederick facility renovation, additional costs associated
with the Ponca City plant and lower margins in the Company's fresh pork
division. Although the Company believes that the Frederick and Ponca City
plants are now operating at acceptable levels, the Company is unable to predict
at this time if or when industry fresh pork margins will return to more
profitable levels.
Selling expenses increased by $12.2 million in fiscal 1996, or 47.9%,
as compared to fiscal 1995, principally as a result of the additional sales
employees, sales offices, and promotional programs associated with the Wilson
acquisition. As a percentage of net sales, selling expenses increased to 3.8%
in fiscal 1996 from 3.4% in fiscal 1995, mainly due to the factors discussed
above.
General and administrative expenses increased $3.6 million in fiscal
1996, or 15.7%, as compared to fiscal 1995. The increase is primarily due to
additional costs associated with the Wilson acquisition. As a percentage of
net sales, general and administrative expenses decreased to 2.7% in fiscal 1996
from 3.1% in fiscal 1995.
Interest expense increased $6.2 million in fiscal 1996, or 276.0%, as
compared to fiscal 1995. The increase is attributable to the significant
increase in long-term debt associated with the Wilson acquisition. In
addition, borrowings under the Company's revolving credit agreement were
significantly higher than prior year levels due to the Company's operating
losses, and to capital requirements associated with the construction of the
Ponca City plant.
The provision for income taxes decreased by $15.8 million in fiscal
1996, primarily due to the decrease in pre- tax income from operations of $42.8
million to a pre-tax loss of $34.6 million from pre-tax income of $8.2 million
in the comparable prior period, resulting from the factors discussed above.
The Company's effective tax rate decreased to (37.2%) in fiscal 1996 from 35.9%
in fiscal 1995.
Earnings per share of common stock decreased by $4.67 per share to a
net loss of $3.76 per share in fiscal 1996, due to decreased profitability
resulting from the factors discussed above.
12
14
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
Fiscal 1995 as Compared to Fiscal 1994
--------------------------------------
(52 week fiscal year compared to 52 week fiscal year)
The Company's net income for fiscal 1995 decreased 62.7% to $5.3
million, as compared with net income of $14.1 million in fiscal 1994. The
Company accrued a restructuring charge primarily related to the closing of the
Company's Tri-Miller Packing facility in Hyrum, Utah. The restructuring charge
negatively impacted net income by approximately $5.0 million. (See Note 12 to
the Notes to the Consolidated Financial Statements for additional information
on the restructuring charge). The LIFO (last-in, first-out) method of
accounting for inventories had the effect after taxes of increasing earnings
for fiscal 1995 and fiscal 1994 by $1,282,000 and $538,000, respectively.
The Company's results (exclusive of the restructuring charge) during
1995 were negatively impacted from decreased operating margins in both the
manufactured and fresh pork operations. The manufactured products operations
margins decreased primarily from continued competitive industry pressures. The
fresh pork operations margins decreased as a result of higher operating costs
associated with the renovation and expansion project combined with continued
competitive industry margin pressures. The implementation of a very innovative
and complex processing floor at our main slaughter facility has been
significantly more involved and difficult than the Company anticipated. The
Company has worked through many of the problems and is presently building sales
and production levels to decrease per unit operating costs.
Net sales in fiscal 1995 decreased $27.6 million or 3.6%, as compared
with fiscal 1994 levels. The decrease was due primarily to decreases of 7.2%
and 8.3% in manufactured and fresh pork average selling prices, respectively.
Offsetting the lower average selling prices were increases of 7.5% and .6% in
manufactured and fresh pork tonnage shipped, respectively. The decrease in
selling prices was the result of a decrease in raw material costs combined with
increased competitive pressure on our manufactured products pricing structure.
The increases in the manufactured products unit volume was the result of the
continued emphasis on expanding the distribution of these products.
Cost of goods sold (including delivery costs) decreased $24.7 million
or 3.6%. The decrease was primarily the result of the decrease of
approximately 17.5% in the average cost of live hogs purchased which was
partially offset by additional costs associated with the increase in unit
volume. As a percentage of net sales, cost of goods sold remained at 89.9% for
fiscal 1995, as in fiscal 1994.
Selling expenses increased in fiscal 1995 by $1.2 million or 5.1%, as
a result of increased marketing expenditures to enhance the distribution of the
Company's products to more retail stores, particularly, in the southwestern and
western regions of the United States. As a percentage of net sales, selling
expenses increased to 3.4% in fiscal 1995 from 3.1% in fiscal 1994.
General and administrative expenses increased slightly by $.6 million
or 2.6% primarily due to inflationary cost increases. As a percentage of net
sales, general and administrative expenses increased to 3.1% from 2.9%.
Interest expense increased $.1 million or 5.0%, as a result of an
increase in the Company's average outstanding borrowings. The increase in debt
was primarily the result of increased long-term borrowings resulting from the
increase in capital expenditures.
13
15
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
FINANCIAL CONDITION
The Company's business is characterized by high unit sales volume and
rapid turnover of inventories and accounts receivable. The demand for seasonal
borrowings usually peaks in early December when ham inventories and accounts
receivable are at their highest levels. These borrowings are generally repaid
in January when the accounts receivable generated by the sales of these hams
are collected.
Concurrent with the Wilson acquisition, on May 30, 1995 the Company
replaced its existing lines of credit with an $80 million unsecured revolving
credit agreement with four financial institutions. The commitments under the
revolving credit agreement expire on May 30, 1998. In early 1996, the Company
obtained a temporary additional $20 million line of credit from the four
participating institutions. At May 31, 1996, $5.3 million of the $100 million
in aggregate credit lines was unused. The lines of credit bore interest at
rates no higher than the prime rate. As part of the loan restructuring
described below, the four financial institutions agreed to replace the
temporary additional line of credit with a new seasonal line of credit expiring
January 31, 1997. The Company uses the lines of credit to fund working capital
needs.
At May 31, 1996, the Company had outstanding balances on three
separate issues of unsecured notes in private placements to institutional
investors. The first outstanding issue, issued on April 1, 1994, was in the
principal amount of $15,000,000 and bore interest at a fixed rate of 6.45% per
annum. The principal on the first issue is due in equal annual installments of
$1,666,666 beginning April 1, 1998, and ending April 1, 2005, with the
remaining principal payable at maturity on April 26, 2006. The second
outstanding issue, issued on October 1, 1994, was in the principal amount of
$8,000,000 and bore interest at a fixed rate of 8.42% per annum. The principal
on the second issue is due at maturity on October 1, 2003. Interest on the
first two issues is payable semi-annually on the first day of April and October
of each year. The third outstanding issue, issued on May 30, 1995, concurrent
with the Wilson acquisition, was in the principal amount of $42,500,000 and
bore interest at a fixed rate of 7.58% per annum. The principal on the third
issue is due in annual installments of $6,071,429 beginning May 15, 1999, and
ending May 15, 2004, with the remaining principal payable at maturity on May
15, 2005. Interest is payable semi-annually on the fifteenth day of May and
November of each year.
On May 31, 1996, the Company was in non-compliance with certain
financial covenants relating to its unsecured revolving credit agreement, its
private placement note agreements and a $5.5 million limited obligation revenue
bond agreement. On September 11, 1996 the Company entered into agreements with
the participating lenders to restructure the Company's revolving credit and note
agreement facilities and the Company's limited obligation revenue bond
agreement. As part of that restructuring, the lenders waived past
non-compliances with financial covenants and covenants were modified on a
going-forward basis. The following is a description of the significant changes
in the terms of the Company's borrowing agreements:
1. Under the revolving credit agreement the $80 million credit
limit has been increased to $90 million and the interest under
such agreement will be payable on a monthly basis at an
interest rate equal to prime plus one quarter percent.
2. The interest rate on the private placement note agreements has
been increased by two percentage points and accrued interest
is now required to be paid on a monthly basis.
14
16
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
3. A $20 million short-term line of credit has been provided,
which expires on January 31, 1997, and bears interest at an
interest rate equal to prime plus two percent and which is
secured by a first lien on substantially all of the Company's
assets.
4. The Company has granted a second lien on substantially all of
the Company's assets which is shared on a pro-rata basis by
the $90 million revolving credit lenders, the $65.5 million
private placement note lenders and the $5.5 million limited
obligation lender.
5. The Chairman of the Board of Directors of the Company, who is
also a significant shareholder of the Company, has purchased
approximately $3.0 million of the Company's newly-issued
common stock from the Company at a price per share determined
by the average closing price of the Company's common stock for
the 20 trading days preceding the stock purchase. The
proceeds of such stock purchase will be used for working
capital needs.
6. Under the agreements, the Company is obligated to pursue and
obtain by April 30, 1997 a minimum of $15 million in
subordinated debt financing through private placement. If
such financing is obtained, of which there can be no
assurance, the proceeds from the subordinated debt issue will
be used to reduce the outstanding balance of the private
placement notes, revolving credit notes and limited obligation
revenue bonds.
7. The agreements contain financial covenants with respect to
consolidated net worth (as defined therein) and interest
coverage. The Company is also required to achieve a
prescribed level of consolidated earnings available for
interest expense. In addition, among other things, the
agreements limit borrowings, capital expenditures and
investments, and do not allow the payment of cash dividends
or repurchase of the Company's common stock.
The Company's two other revenue bond agreements contain restrictive
covenants that include the maintenance of a minimum level of consolidated net
worth (as defined therein) and of certain financial ratios. At May 31, 1996,
the Company was not in compliance with certain covenants contained in one of
its other revenue bond agreements and the Company has obtained unconditional
waivers of those violations from its lender through July 1, 1997.
Cash used in operations in fiscal 1996 was $26.4 million compared with
cash provided from operations of $21.7 million in fiscal 1995. In addition,
the Company obtained $122.5 million from both the issuance of long-term notes
and from borrowings under the Company's long-term revolving credit agreement.
The Company also obtained a net $8.7 million under its short-term lines of
credit. Cash available at the beginning of the year plus cash acquired from
financing activities was used principally to fund the Wilson acquisition
(assets acquired and the assumption of certain liabilities) of $64.6 million,
to fund capital investments, exclusive of the Wilson acquisition, of $38.6
million, to pay down net long-term debt of $6.2 million, to pay down borrowings
from officers of $1.3 million and to pay dividends of $.4 million.
15
17
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
With the opening of the Company's Ponca City plant during the second
quarter, and some limited reconfiguring of some other facilities, the Company
closed two of the acquired Wilson operating facilities. Notification of the
plant closures was done in compliance with the federal Worker Adjustment and
Retraining Notification ("WARN") Act. The Company is presently leasing one of
the closed facilities and is actively marketing the other facility for sale.
The Company does not expect the final disposition of these facilities to have a
material adverse effect on its financial condition or results of operations.
The Company anticipates net capital expenditures during fiscal 1997 of
approximately $8.2 million, which will be used primarily to maintain and
upgrade equipment in the ordinary course of business. Management intends to
use funds provided from operations and borrowings under available lines of
credit to finance its current operations.
OTHER
The Company believes that the impact of inflation and changing prices
would not significantly affect the Company's net income reported on a
historical cost basis. This belief is based on the following:
1. Substantially all of the Company's inventories are stated on a
LIFO basis.
2. Any increase in depreciation expense as a result of increased
cost to replace property, plant and equipment is generally
offset by productivity gains and cost savings due to improved
efficiency resulting from technological improvements.
During calendar 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" and SFAS No. 123 "Accounting for Stock-
Based Compensation." Both SFAS 121 and 123 are effective for fiscal years
commencing after December 15, 1995. The Company will adopt both SFAS No. 121
and 123 in the fiscal year beginning on June 1, 1996. The impact of these
pronouncements is not expected to be material to the Company's financial
position or results of operations. (See Note 1 to the Notes to the
Consolidated Financial Statements for additional information on the new SFAS
pronouncements).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Pages immediately following signature page)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
18
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Partially incorporated by reference pursuant to Rule 12b-23 from the
Company's 1996 Proxy Statement furnished in connection with the Company's
Annual Meeting of Shareholders to be held on October 28, 1996.
EXECUTIVE OFFICERS OF REGISTRANT
Year First
Became
Name Age Officer Position
---- --- ------- --------
Henry S Dorfman 74 1959 Chairman of the Board
Joel Dorfman 45 1978 President and Chief Executive Officer
Louis Glazier 47 1980 Executive Vice President Finance and Administration
Keith Jahnke 42 1987 Executive Vice President Processed Meats
Edward Boan 46 1987 Executive Vice President Pork and Human Resources
The following is a brief account of the business experience of each of
the above-named persons during the past five years:
Henry S Dorfman, a founder of the Company, has served as Chairman of
the Board since 1959. Mr. Dorfman also served as Chief Executive Officer of
the Company from 1959 to 1994.
Joel Dorfman has served as President of the Company since 1985 and
Chief Executive Officer of the Company since 1995. Mr. Dorfman has also been a
director of the Company since 1978. Mr. Dorfman also served as Chief Operating
Officer of the Company from 1985 to 1994. Joel Dorfman is the son of Henry S
Dorfman.
Louis Glazier has been Executive Vice President Finance and
Administration of the Company since 1988. Mr. Glazier has also been a
director of the Company since 1988.
Keith Jahnke has been Executive Vice President Processed Meats since
May 1996. Mr. Jahnke also served as Executive Vice President Sales and
Marketing for the Company from 1987 to May 1996.
17
19
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
Edward Boan became Vice President of Human Resources in 1985. In
1987, he also became General Manager and Vice President Fresh Pork. In 1991,
Mr. Boan became Executive Vice President Pork and Human Resources.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference pursuant to Rule 12b-23 from the Company's
1996 Proxy Statement furnished in connection with the Company's Annual Meeting
of Shareholders to be held on October 28, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference pursuant to Rule 12b-23 from the Company's
1996 Proxy Statement furnished in connection with the Company's Annual Meeting
of Shareholders to be held on October 28, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Incorporated by reference pursuant to Rule 12b-23 from the Company's
1996 Proxy Statement furnished in connection with the Company's Annual Meeting
of Shareholders to be held on October 28, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
14(a)(1) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at May 31, 1996 and May 26, 1995
Consolidated Statements of Operations for the years ended
May 31, 1996, May 26, 1995 and May 27, 1994
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 1996, May 26, 1995 and May 27, 1994
Consolidated Statements of Cash Flows for the years ended
May 31, 1996, May 26, 1995, and May 27, 1994
Notes to Consolidated Financial Statements
Financial statements of subsidiaries of the Company
have been omitted because the Company is an operating company
and all material subsidiaries are wholly-owned and are not
indebted to any person other than the parent or the
consolidated subsidiaries in an amount which is material to
the total consolidated assets except indebtedness incurred in
18
20
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
the ordinary course of business which is not overdue and which
matures within one year from the date of its creation.
14(a)(2) Financial Statement Schedule
Report of Independent Accountants on Financial Statement
Schedules (included in report of independent accountants on
financial statements) of Coopers & Lybrand L.L.P.
II - Valuation and qualifying accounts and reserves for
the years ended May 31, 1996, May 26, 1995 and May
27, 1994
Schedules other than those referred to are omitted
for the reason that they are not required or are not
applicable.
14(a)(3) Exhibits
(3)(a) Restated Articles of Incorporation Exhibit (3)(a)
is incorporated herein by reference to Exhibit 3.1
to the Company's Form 5-2 Registration Statement,
Registration No. 33-43287.
(b) Amendment to Restated Articles of Incorporation
Exhibit (3)(b) is incorporated herein by reference
to Exhibit (3)(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 28, 1993.
(c) By-laws, as amended to date Exhibit (3)(c) is
incorporated herein by reference to Exhibit (3)(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended May 29, 1981.
(10) Material Contracts
(a) Bond Purchase Agreement, dated as of July 1, 1984,
among The Onslow County Industrial Facilities and
Pollution Control Financing Authority, Branch
Banking and Trust Company and the Company.
Exhibit (10)(a) is incorporated herein by
reference to Exhibit (10)(f) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(b) Loan Agreement, dated as of July 1, 1984, between
The Onslow County Industrial Facilities and
Pollution Control Financing Authority and the
Company.
Exhibit (10)(b) is incorporated herein by
reference to Exhibit (10)(g) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
19
21
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
(c) Promissory Note in the principal amount of
$6,000,000, dated July 1, 1984, from the Company
payable to The Onslow County Industrial Facilities
and Pollution Control Financing Authority.
Exhibit (10)(c) is incorporated herein by
reference to Exhibit (10)(h) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(d) Security Agreement, dated as of July 1, 1984,
between Branch Banking and Trust Company and the
Company.
Exhibit (10)(d) is incorporated herein by
reference to Exhibit (10)(i) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(e) Guaranty Agreement, dated as of July 1, 1984, from
the Company to Branch Banking and Trust Company.
Exhibit (10)(e) is incorporated herein by
reference to Exhibit (10)(j) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(f) Note Agreement dated as of April 1, 1994 by and
between the Company and Allstate Life Insurance
Company relating to $15,000,000 principal amount
6.45% Senior Notes due April 21, 2006.
Exhibit (10)(f) is incorporated herein by
reference to Exhibit (10)(ee) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 27, 1994.
(g) Loan Agreement dated as of December 1, 1993 by and
between Michigan Strategic Fund and the Company
relating to $5,500,000 Adjustable Rate Demand
Limited Obligation Revenue Bonds.
Exhibit (10)(g) is incorporated herein by
reference to Exhibit (10)(ff) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 27, 1994.
(h) Reimbursement Agreement dated as of December 1,
1993 by and between the Company and Old Kent Bank
relating to $5,500,000 Adjustable Rate Demand
Limited Obligation Revenue Bonds.
Exhibit (10)(h) is incorporated herein by
reference to Exhibit (10)(gg) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 27, 1994.
(i) Asset Purchase Agreement, dated as of April 29,
1995, by and among the Company and Doskocil
Companies Incorporated and Wilson Foods
Corporation, Concordia Foods Corporation, Dixie
Foods Company and Shreveport Foods Company.
20
22
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
Exhibit (10)(i) is incorporated herein by
reference to Exhibit 2.1 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30, 1995.
(j) First Amendment to Asset Purchase Agreement, dated
as of May 26, 1995, by and among the Company,
Foodbrands America, Inc., successor by merger to
Doskocil Companies Incorporated, Wilson Foods
Corporation, Concordia Foods Corporation, Dixie
Foods Company and Shreveport Foods Company.
Exhibit (10)(j) is incorporated herein by
reference to Exhibit 2.2 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30, 1995.
(k) Noncompete Agreement, dated May 30, 1995, by
Foodbrands America, Inc., Wilson Foods Corporation,
Concordia Foods Corporation, Dixie Foods Company
and Shreveport Foods Company in favor of the
Company.
Exhibit (10)(k) is incorporated herein by
reference to Exhibit 10.1 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30, 1995.
(l) Supply Agreement, dated May 30, 1995, by and among
Wilson Foods Corporation and Foodbrands America,
Inc., Dixie Foods Company and the Company.
Exhibit (10)(l) is incorporated herein by
reference to Exhibit 10.2 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30, 1995.
(m) Transition Service Agreement, dated May 30, 1995,
by and between Foodbrands America, Inc. and the
Company.
Exhibit (10)(m) is incorporated herein by
reference to Exhibit 10.3 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30, 1995.
(n) Credit Agreement, dated as of May 30, 1995, among
Cooperatieve Centrale Raiffeisen- Boerenleen Bank
B.A., Old Kent Bank, National City Bank, Harris
Trust and Savings Bank and the Company.
Exhibit 10(n) is incorporated herein by
reference to Exhibit 10(s) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 26, 1995, as amended.
(o) Note Agreement, dated as of October 1, 1994, by and
between the Company and Allstate Life Insurance
Company relating to $8,000,000 principal amount
8.42% Senior Notes due October 1, 2003.
Exhibit 10(o) is incorporated herein by
reference to Exhibit 10(t) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 26, 1994, as amended.
21
23
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
(p) Note Agreement, dated as of May 15, 1995, among the
Company, Allstate Life Insurance Company, Principal
Mutual Life Insurance Company and Great-West Life &
Annuity Insurance Company.
Exhibit 10(p) is incorporated herein by
reference to Exhibit 10(u) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 26, 1994, as amended.
(q) Marketing and Management Agreement dated November
2, 1994 by and among Michigan Livestock Exchange,
Indiana Livestock Exchange and the Company.
Exhibit 10(q) is incorporated herein by
reference to Exhibit 10(v) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 26, 1994, as amended.
(r) Amended and Restated Credit Agreement, dated as of
September 11, 1996, among the Company, the lenders
party thereto, and Cooperatieve Centrale
Raiffeisen-Boerenleen Bank B.A., New York Branch,
as agent for the lenders.
(s) Senior Secured Seasonal Line of Credit Agreement,
dated as of September 11, 1996, among the Company,
the lenders party thereto, and Cooperatieve
Centrale Raiffeisen-Boerenleen Bank B.A., New York
Branch, as agent for the lenders.
(t) Amendment Agreement, dated as of September 11,
1996, between the Company and Allstate Life
Insurance Company relating to $15,000,000 principal
amount note due April 21, 2006.
(u) Amendment Agreement, dated as of September 11,
1996, between the Company and Allstate Life
Insurance Company relating to $8,000,000 principal
amount note due October 1, 2003.
22
24
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
(v) Amendment Agreement, dated as of September 11,
1996, among the Company, Allstate Life Insurance
Company, Principal Mutual Life Insurance Company
and Great-West Life & Annuity Insurance Company.
(w) Amendment to Reimbursement Agreement, dated as of
September 11, 1996, between the Company and Old
Kent Bank.
(x) Intercreditor Agreement, dated as of September 11,
1996 among Cooperatieve Centrale
Raiffeisen-Boerenleen Bank B.A., New York Branch,
as Credit Agent, Seasonal Agent and Collateral
Agent, and the lenders party thereto, as
acknowledged and agreed to by the Company and its
subsidiaries.
(y) Security Agreement, dated as of September 11, 1996,
among the Company, the subsidiaries of the Company
party thereto, and Cooperatieve Centrale
Raiffeisen-Boerenleen Bank B.A., New York Branch,
as Collateral Agent and Credit Agent.
(21) Subsidiaries of the registrant.
(23) Consent of Coopers & Lybrand LLP.
(27) Financial Data Schedule.
14(b) The Company did not file any reports on Form 8-K during
the last quarter of the fiscal year covered by this
Report.
14(d)(5) Schedules (Pages following signature page)
23
25
Report of Independent Accountants
To the Board of Directors and Shareholders
Thorn Apple Valley, Inc.
Southfield, Michigan
We have audited the consolidated financial statements and the financial
statement schedule of Thorn Apple Valley, Inc. and Subsidiaries listed in item
14(a) of this Form 10-K. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule 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 consolidated financial position of Thorn Apple
Valley, Inc. and Subsidiaries as of May 31, 1996 and May 26, 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Detroit, Michigan
August 26, 1996, except as to the information presented
as a subsequent event in Note 6, for which the date is
September 12, 1996
F-1
26
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, May 26,
1996 1995
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,809,559 $ 4,730,637
Short-term investments 627,560 531,064
Accounts receivable, net of
allowance for doubtful accounts
(1996, $621,800; 1995, $789,100) 62,371,990 40,083,861
Inventories (Note 2) 56,263,210 44,800,792
Refundable income taxes 11,490,330 1,366,231
Deferred income taxes (Note 7) 2,199,000 2,499,000
Prepaid expenses and other current assets 5,732,537 4,073,817
------------ ------------
Total current assets 144,494,186 98,085,402
------------ ------------
Property, plant and equipment:
Land 1,519,976 1,139,439
Buildings and improvements 61,640,117 37,694,988
Machinery and equipment 155,911,312 117,712,476
Transportation equipment 7,498,075 7,529,516
Property under capital leases 10,301,819 7,428,634
Construction in progress 4,475,987 22,206,233
------------ ------------
241,347,286 193,711,286
Less accumulated depreciation 98,938,159 95,643,621
------------ ------------
142,409,127 98,067,665
------------ ------------
Other assets:
Intangible assets, net of accumulated amortization of $839,300 32,732,700
Other 5,980,190 8,143,298
------------ ------------
Total other assets 38,712,890 8,143,298
------------ ------------
$325,616,203 $204,296,365
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,970,024 $ 32,474,150
Notes payable, banks (Note 3) 14,700,000 5,960,000
Notes payable, officer (Note 4) 121,366 1,415,241
Accrued liabilities (Note 5) 20,840,961 23,378,430
Current portion of long-term debt (Note 6) 2,818,444 3,100,310
------------ ------------
Total current liabilities 85,450,795 66,328,131
------------ ------------
Long-term debt (Note 6) 159,808,923 35,464,669
------------ ------------
Deferred income taxes (Note 7) 3,631,000 3,908,000
------------ ------------
Shareholders' equity:
Preferred stock: $1 par value; authorized 200,000 shares; issued none
Common nonvoting stock: $.10 par value; authorized 20,000,000 shares; issued none
Common voting stock: $.10 par value; authorized 20,000,000 shares; issued 5,786,129
shares in 1996 and 5,770,647 shares in 1995 578,613 577,065
Capital in excess of par value 7,011,361 6,771,071
Retained earnings 69,135,511 91,247,429
------------ ------------
76,725,485 98,595,565
------------ ------------
$325,616,203 $204,296,365
============ ============
See notes to consolidated financial statements.
F-2
27
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended
----------------------------------------------
May 31, May 26, May 27,
1996 1995 1994
------------- ------------ ------------
Net sales $ 983,084,427 $744,542,466 $772,098,333
------------- ------------ ------------
Operating costs and expenses:
Cost of goods sold, including delivery costs 932,130,906 669,068,064 693,784,481
Selling 37,533,477 25,377,029 24,155,852
General and administrative 26,515,629 22,911,735 22,339,197
Depreciation and amortization 15,378,777 9,830,100 8,262,515
Restructuring charge (Note 12) 7,857,319
------------- ------------ ------------
1,011,558,789 735,044,247 748,542,045
------------- ------------ ------------
Income (loss) from operations (28,474,362) 9,498,219 23,556,288
------------- ------------ ------------
Other expense (income):
Interest, net 8,491,769 2,258,674 2,151,359
Other, net (2,408,387) (960,341) (895,444)
------------- ------------ ------------
6,083,382 1,298,333 1,255,915
------------- ------------ ------------
Income (loss) before income taxes (34,557,744) 8,199,886 22,300,373
Provision (benefit) for income taxes (Note 7) (12,850,000) 2,945,000 8,217,000
------------- ------------ ------------
Net income (loss) ($21,707,744) $5,254,886 $14,083,373
============= ============ ============
Earnings (loss) per share of common stock ($3.76) $0.91 $2.40
============= ============ ============
See notes to consolidated financial statements.
F-3
28
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Capital in
--------------------- Excess of Retained
Shares Amount Par Value Earnings
--------- -------- ---------- -----------
Balance, May 28, 1993 5,920,106 $592,011 $7,405,250 $78,311,895
Net income 14,083,373
Cash dividends, $.27 per share (1,584,003)
Exercise of stock options including
related tax benefits (Note 8) 9,500 950 133,039
Purchase and retirement of common stock (126,533) (12,654) (2,759,791)
--------- -------- ---------- -----------
Balance, May 27, 1994 5,803,073 580,307 4,778,498 90,811,265
Net income 5,254,886
Cash dividends, $.28 per share (1,610,575)
Exercise of stock options including related tax
benefits and other stock plans (Note 8) 104,645 10,465 2,161,423
Purchase and retirement of common stock (137,071) (13,707) (168,850) (3,208,147)
--------- -------- ---------- -----------
Balance, May 26, 1995 5,770,647 577,065 6,771,071 91,247,429
Net loss (21,707,744)
Cash dividends, $.07 per share (404,174)
Shares issued under employee stock purchase
plan 15,482 1,548 240,290
--------- -------- ---------- -----------
Balance, May 31, 1996 5,786,129 $578,613 $7,011,361 $69,135,511
========= ======== ========== ===========
See notes to consolidated financial statements.
F-4
29
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended
-----------------------------------------------------
May 31, May 26, May 27,
1996 1995 1994
------------ ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(21,707,744) $5,254,886 $14,083,373
------------ ---------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 14,539,477 9,830,100 8,262,515
Restructuring charge 6,915,646
Amortization of intangibles 839,300
Deferred income taxes 23,000 353,000 656,000
(Gain) loss on disposition of property, plant and equipment 13,568 (15,451) (813)
Provision for losses on accounts receivable 133,951 57,300 (100,500)
Gain on sale of long-term investments (627,802)
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (12,724,100) 4,049,338 (6,800,467)
Inventories (2,949,079) (1,020,608) (5,610,119)
Refundable income taxes (10,124,099) (1,366,231) 528,574
Prepaid expenses and other assets (2,404,887) (2,425,749) (362,919)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable 14,495,874 (1,496,234) 7,289,671
Accrued liabilities (5,957,251) 2,094,826 3,452,205
Income taxes payable (526,722) 526,722
------------ ---------- -----------
Total adjustments (4,742,048) 16,449,215 7,840,869
------------ ---------- -----------
Net cash provided by (used in) operating activities (26,449,792) 21,704,101 21,924,242
------------ ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of Wilson, net of cash acquired (Note 11) (64,630,873)
Proceeds from sale of long-term investments 4,484,005
Proceeds from sale of property, plant and equipment 2,712,129 412,926 2,311,269
Capital expenditures (38,604,784) (43,367,769) (30,197,956)
------------ ---------- -----------
Net cash used in investing activities (96,039,523) (42,954,843) (27,886,687)
------------ ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 122,500,000 8,000,000 20,500,000
Principal payments on long-term debt (6,215,552) (2,008,117) (1,940,256)
Net borrowings under lines of credit 8,740,000 5,960,000
Net borrowings from (payments to) officers (1,293,875) (582,788) 387,406
Dividends paid (404,174) (1,610,575) (1,584,003)
Proceeds from employee stock purchase plan 241,838
Purchase and retirement of common stock (3,390,704) (2,772,445)
Proceeds from stock options exercised including related
tax benefits 2,171,888 133,989
------------ ---------- -----------
Net cash provided by financing activities 123,568,237 8,539,704 14,724,691
------------ ---------- -----------
Net increase (decrease) in cash 1,078,922 (12,711,038) 8,762,246
Cash and cash equivalents, beginning of year 4,730,637 17,441,675 8,679,429
------------ ---------- -----------
Cash and cash equivalents, end of year $ 5,809,559 $4,730,637 $17,441,675
============ ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized $ 10,877,142 $4,003,000 $ 2,336,000
============ ========== ===========
Income taxes paid (refunded), net $ (2,858,701) $3,991,000 $ 6,207,000
============ ========== ===========
Noncash investing activities:
Capital lease obligations $ 256,852 $2,935,020 $ 895,578
============ ========== ===========
ACQUISITION:
The Company purchased substantially all of the assets of Wilson (Note 11)
In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 75,571,743
Cash paid (64,630,873)
------------
Liabilities assumed $ 10,940,870
============
See notes to consolidated financial statements.
F-5
30
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
1. Summary of significant accounting policies:
Nature of operations:
The Company is engaged in the manufacture and sale of bacon,
hot dogs, lunch meats, hams, smoked sausage and
turkey products, as well as the slaughtering of hogs
and the sale of related fresh meat products. The
Company sells its products principally to
wholesalers, supermarkets and other manufacturers
throughout the United States and in selected
international markets.
Principles of consolidation:
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant
intercompany accounts and transactions have been
eliminated.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that
affect the 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.
Cash and cash equivalents:
Cash and cash equivalents include cash on hand, demand
deposits and short-term investments with a maturity
of three months or less at the date of acquisition.
Short-term investments:
Short-term investments are those with a maturity in excess of
three months at the date of acquisition and are
valued at cost, which approximates market.
Inventories:
Substantially all inventories are stated at the lower of
last-in, first-out ("LIFO") cost or market.
Property, plant and equipment:
Property, plant and equipment are stated at cost. Upon
retirement or disposal of property, plant and
equipment, the cost and accumulated depreciation are
removed from the accounts, and any gain or loss is
included in other income. Depreciation is computed
for financial reporting purposes generally on the
straight-line basis over the estimated useful lives
of the assets. The cost of repairs and maintenance
is charged against results of operations as incurred.
Inactive assets held for sale are recorded at the
lower of net book value (cost less accumulated
depreciation) or net realizable value. The Company
capitalized interest incurred on debt during the
course of major projects which approximated
$1,092,000 and $1,048,000 during fiscal 1996 and
1995, respectively.
F-6
31
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
1. Summary of significant accounting policies (continued):
Intangible assets:
The Company's intangible assets consist of trademarks and
tradenames and are amortized on a straight- line
basis over their estimated useful lives determined,
to be 40 years. Intangible assets are periodically
reviewed for impairment based on an assessment of
future operations.
Impairment of long-lived assets:
In March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which requires that carrying values of
long-lived assets and certain identifiable intangible
assets be evaluated based on the future (undiscounted
and without interest charges) cash flows expected to
be realized from the use of the asset and its
eventual disposition. If the sum of the expected
future cash flows from an asset is less than the
carrying value, an impairment loss must be
recognized. SFAS No. 121 is effective for fiscal
years commencing after December 15, 1995. The
Company will adopt SFAS No. 121 in the fiscal year
beginning on June 1, 1996, the impact is not expected
to be material to the Company's financial position or
results of operations.
Commodity options and forward contracts:
The Company has a variety of commodity option and forward
contracts. Realized gains and losses are recognized
currently in income and expenses. The Company
utilizes price risk management activities and hedging
procedures in an effort to minimize the potential
adverse effects from raw material market price level
changes. Risk management and hedging activities are
often utilized with forward sales contracting, with
forward raw material procurement and with margin
management. Hedging approaches are typically used to
protect margins on forward sales obligations and for
freezer inventories. The majority of the Company's
finished product sales are not hedged as they are
manufactured from raw material procured from current
production.
Earnings per share of common stock:
Earnings per share of common stock are based on the weighted
average number of common shares outstanding during
each year. The weighted average number of shares for
1996, 1995 and 1994 were 5,778,559, 5,754,726 and
5,877,789, respectively.
The potential dilution from shares issuable under employee
stock option plans is excluded from the computation
of the weighted average number of common shares
outstanding since it is not material.
Accounting for stock-based compensation:
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock- Based
Compensation." The Statement requires the Company
either to recognize an expense for stock compensation
in the financial statements using a fair-value-based
method or to continue to measure compensation expense
using the intrinsic value method prescribed in
Accounting Principles Board Opinion("APBO") No. 25,
"Accounting for Stock Issued to Employees," with
additional pro forma footnote disclosure regarding
the impact on net earnings and net earnings per share
as if the fair-value-based method of accounting had
been applied. SFAS No. 123 is effective for fiscal
years commencing after December 15, 1995. The
Company will adopt SFAS No. 123 in the fiscal year
beginning June 1, 1996.
F-7
32
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
1. Summary of significant accounting policies (continued):
Fiscal year:
The Company's fiscal year is reported on a 52/53-week period
which ends on the last Friday in May. Fiscal year
ended May 31, 1996 is a 53-week period. Fiscal years
ended May 26, 1995 and May 27, 1994 are for 52-week
periods.
Reclassifications:
Certain amounts from prior years have been reclassified to
conform with the current year presentations.
2. Inventories:
1996 1995
------------ -----------
At lower of cost or market:
Supplies $ 9,559,537 $ 6,824,152
Raw materials 23,518,145 11,389,564
Work in process 3,588,512 4,914,163
Finished goods 36,281,016 24,622,913
----------- -----------
72,947,210 47,750,792
Less LIFO reserve 16,684,000 2,950,000
----------- ------------
$56,263,210 $44,800,792
=========== ===========
The LIFO method of accounting for inventories had the effect
(after income taxes) of decreasing net income by approximately
$8,927,000 ($1.54 per share) for the year ended May 31, 1996 and
increasing net income by approximately $1,282,000 ($.22 per
share) and $538,000 ($.09 per share) for the years ended May 26,
1995 and May 27, 1994, respectively.
3. Lines of credit and short-term borrowings:
At May 31, 1996, the Company had $20 million in temporary unsecured
lines of credit with four participating banks, of which
$5,300,000 was unused. The temporary, short-term lines, with
interest at the prime rate of 8.25% at May 31, 1996, were used
to fund working capital needs and were set to expire on May 31,
1996, however, the financial institutions have agreed as part of
the debt amendments to replace these short-term lines with a new
seasonal line of credit expiring January 31, 1997 (see Note 6
for further discussion of long-term debt amendments).
4. Notes payable, officer, and other related party transactions:
Notes payable, officer, are due on demand, with interest payable
monthly at approximately 1 percent below the prime rate.
Interest expense on the notes payable, officer, amounted to
approximately $76,600, $226,400 and $150,600 for the years ended
1996, 1995 and 1994, respectively.
Accounts receivable include a noninterest-bearing note receivable
from a trust that has purchased life insurance policies for
certain officers and other employees. The balance of the note
was approximately $804,000 and $1,700,000 at May 31, 1996 and
May 26, 1995, respectively.
The Company leased its previous sales division office building from
entities controlled by certain officers/shareholders of the
Company. During 1996, 1995 and 1994, the Company paid rent of
approximately $165,500, $174,600 and $174,600, respectively, for
the use of this location.
F-8
33
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
4. Notes payable, officer, and other related party transactions
(continued):
The Company maintains inventory at a freezer warehouse that is
75 percent owned by an officer and director of the Company.
Storage and handling expenses paid to this freezer warehouse
amounted to approximately $2,076,000, $2,311,000 and $1,071,000
for the years ended 1996, 1995 and 1994, respectively.
Additionally, the Company rents a portion of the freezer
warehouse for use as a distribution center. Currently, the
Company is operating under a one year lease option that expires
in January 1997. Freezer warehouse rent expense amounted to
$882,000 for the years ended 1996, 1995 and 1994.
5. Accrued liabilities:
Included within accrued liabilities are employee benefits representing
self insured programs of $4,588,849 and $3,842,068
at May 31, 1996 and May 26, 1995, respectively.
6. Long-term debt:
Long-term debt consists of the following:
1996 1995
------------ -----------
A. Revolving credit agreement $80,000,000
B. Private placements notes 65,500,000 $23,000,000
C. Revenue bonds 10,629,449 9,785,733
D. Obligations under capital leases 5,143,814 4,096,304
E. Other note 1,354,104 1,682,942
------------ -----------
162,627,367 38,564,979
Less current portion 2,818,444 3,100,310
------------ -----------
$159,808,923 $35,464,669
============ ===========
A. The unsecured revolving credit agreement is with four financial
institutions at variable interest rates no higher than the prime
rate or its equivalent. The commitments under the revolving credit
agreement expire on May 30, 1998, but may be extended annually for
successive one-year periods with the consent of the financial
institutions. The commitment fee on the unused portion of the
facility is .25 percent per annum. The weighted average interest
rate at May 31, 1996 was 6.60 percent.
B. At May 31, 1996, the outstanding balance consisted of three separate
issues of unsecured notes in private placements to institutional
investors. The first outstanding issue, issued on April 1, 1994,
was in the principal amount of $15,000,000 and bore interest at a
fixed rate of 6.45 percent per annum. The principal on the first
issue is due in equal annual installments of $1,666,666 beginning
April 1, 1998, and ending April 1, 2005, with the remaining
principal payable at maturity on April 26, 2006. The second
outstanding issue, issued on October 1, 1994, was in the principal
amount of $8,000,000 and bore interest at a fixed rate of 8.42
percent per annum. The principal on the second issue is due at
maturity on October 1, 2003. Interest on the first two issues is
payable semi-annually on the first day of April and October of
each year. The third outstanding issue, issued on May 30, 1995,
was in the principal amount of $42,500,000, and bore interest at a
fixed rate of 7.58 percent per annum. The principal on the third
issue is due in annual installments of $6,071,429 beginning May 15,
1999, and ending May 15, 2004, with the remaining principal payable
at maturity on May 15, 2005. Interest is payable semi-annually on
the fifteenth day of May and November of each year.
F-9
34
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
6. Long-term debt (continued):
C. At May 31, 1996, the outstanding principal balance of the revenue
bonds consisted of three separate bond issues. The first
outstanding issue, referred to as the industrial revenue bond,
is at $2,550,000 with varying quarterly principal payments due
July 1, 1996 through January 1, 2000, and quarterly interest at
81.1042 percent of the current prime rate (at May 31, 1996 the
interest rate was 6.69 percent).
The second outstanding issue, which is referred to as the limited
obligation revenue bond, is at $5,500,000 with monthly interest
payments at a variable rate and the principal due at maturity
on December 1, 2005. The variable rate of interest paid on the
second issue during the month of May 1996, averaged 4.21
percent.
The third outstanding issue referred to as the economic
development revenue bond, is at $2,579,449 with varying monthly
principal and interest at 6 percent per annum through maturity
on June 30, 2000.
The first and third issues are collateralized by property, plant
and equipment, while the second bond issue is collateralized by
a $5,600,000 letter of credit.
D. The obligations under capital leases are at fixed interest rates
ranging from 5.5 percent to 11 percent and are collateralized
by property, plant and equipment.
Property under capital leases consists of the following:
1996 1995
------------ ------------
Machinery and equipment $10,301,819 $7,428,634
Less accumulated amortization 3,408,120 2,752,543
----------- ----------
$ 6,893,699 $4,676,091
=========== ==========
Future minimum rentals for property under capital leases are as follows:
Year Ending Amount
----------- ----------
1997 $1,768,780
1998 1,684,065
1999 1,601,654
2000 647,424
2001 161,811
----------
Total minimum lease obligation 5,863,734
Less interest 719,920
----------
Present value of total minimum lease obligation $5,143,814
==========
E. The note is secured by a second lien on certain property, plant
and equipment. Principal and interest are due quarterly
through the date of maturity on September 13, 2000. The
interest is at a fixed rate of 7 percent per annum.
The aggregate maturities of long-term debt (excluding obligations under capital
leases) during the five years subsequent to May 31, 1996 are: 1997,
$1,390,889, 1998, $3,222,871, 1999, $83,331,020, 2000, $3,242,973, and 2001,
$1,962,465.
F-10
35
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
6. Long-term debt (continued):
The fair value of the Company's long-term debt approximates the carrying
amount based on the current rates offered to the Company on similar debt.
Subsequent event-long-term debt amendments:
On May 31, 1996, the Company was in non-compliance with certain financial
covenants relating to its unsecured revolving credit agreement, its
private placement note agreements and a $5.5 million limited obligation
revenue bond agreement. On September 11, 1996 the Company entered into
agreements with the participating lenders to restructure the Company's
revolving credit and note agreement facilities and the Company's limited
obligation revenue bond agreement. As part of that restructuring, the
lenders waived past non-compliances with financial covenants and covenants
were modified on a going-forward basis. The following is a description of
the significant changes in the terms of the Company's borrowing
agreements:
1. Under the revolving credit agreement the $80 million credit
limit has been increased to $90 million and the interest
under such agreement will be payable on a monthly basis at
an interest rate equal to prime plus one quarter percent.
2. The interest rate on the private placement note agreements
has been increased by two percentage points and accrued
interest is now required to be paid on a monthly basis.
3. A $20 million short-term line of credit has been provided,
which expires on January 31, 1997, and bears interest at an
interest rate equal to prime plus two percent and which is
secured by a first lien on substantially all of the
Company's assets.
4. The Company has granted a second lien on substantially all
of the Company's assets which is shared on a pro-rata basis
by the $90 million revolving credit lenders, the $65.5
million private placement note lenders and the $5.5 million
limited obligation lender.
5. The Chairman of the Board of Directors of the Company, who
is also a significant shareholder of the Company, has
purchased approximately $3.0 million of the Company's
newly-issued common stock from the Company at a price per
share determined by the average closing price of the
Company's common stock for the 20 trading days preceding the
stock purchase. The proceeds of such stock purchase will be
used for working capital needs.
6. Under the agreements, the Company is obligated to pursue and
obtain by April 30, 1997 a minimum of $15 million in
subordinated debt financing through private placement. If
such financing is obtained, of which there can be no
assurance, the proceeds from the subordinated debt issue
will be used to reduce the outstanding balance of the
private placement notes, revolving credit notes and limited
obligation revenue bonds.
7. The agreements contain financial covenants with respect to
consolidated net worth (as defined therein) and interest
coverage. The Company is also required to achieve a
prescribed level of consolidated earnings available for
interest expense. In addition, among other things, the
agreements limit borrowings, capital expenditures and
investments, and do not allow the payment of cash dividends
or repurchase of the Company's common stock.
The Company's two other revenue bond agreements contain restrictive
covenants that include the maintenance of a minimum level of consolidated
net worth (as defined therein) and of certain financial ratios. At May
31, 1996, the Company was not in compliance with certain covenants
contained in one of its other revenue bond agreements and the Company has
obtained unconditional waivers of those violations from its lender through
July 1, 1997.
F-11
36
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
7. Income taxes:
The Company's provision (benefit) for income taxes was as follows:
1996 1995 1994
------------ ---------- ----------
Currently payable (benefit):
Federal $(9,939,000) $2,259,000 $6,874,000
State and local 333,000 638,000
------------ ---------- ----------
Total currently payable (benefit) (9,939,000) 2,592,000 7,512,000
Deferred:
Federal and state (2,911,000) 353,000 705,000
------------ ---------- ----------
Total provision $(12,850,000) $2,945,000 $8,217,000
============ ========== ==========
Deferred income taxes reflect the estimated future tax effect of
temporary differences between the amounts of assets and
liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The components of deferred
income tax assets and liabilities as of May 31, 1996 and May 26, 1995
are as follows:
1996 1995
---------------------------------- ---------------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
---------- ----------- ---------- ----------
Depreciation $5,799,195 $3,449,100
Employee benefit plans $1,720,818 $1,440,776
Bad debt expense 234,635 297,373
Capital leases 214,970 183,794
Restructuring charge 916,901
Estimated losses on assets
held for disposal 375,000
Amortization of intangibles 524,563
Credit carryforward 3,169,895
All other 39,512 433,132 33,062 464,218
---------- ----------- ---------- ----------
Total deferred taxes $5,539,860 $ 6,971,860 $2,688,112 $4,097,112
========== =========== ========== ==========
A reconciliation of the provision for income taxes is shown below:
1996 1995 1994
------------------------ ------------------- --------------------
Amount % Amount % Amount %
------------ ----- ---------- -- ---------- --
Federal income tax (benefit)
at statutory rate $(12,095,000) (35) $2,870,000 35 $7,805,000 35
State and local income taxes, net
of federal income tax benefit 232,000 3 445,000 2
Lower tax rate attributable to
foreign sales corporation (110,000) (138,000) (2) (202,000) (1)
Utilization of tax credits (873,000) (2.5)
Other 228,000 (19,000) 169,000 1
------------ ----- ---------- -- ---------- --
$(12,850,000) (37.5) $2,945,000 36 $8,217,000 37
============ ===== ========== == ========== ==
The credit carryforward of $3,169,895, for which the tax benefit has been
recognized, consists of general business credits of $1,552,729, which
expire between the years 2008 and 2011, and alternative minimum tax
credit carryforwards of $1,617,166, which can be carried forward
indefinitely.
F-12
37
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
8. Stock option plans:
The Company's 1990 Employee Stock Option Plan authorizes the Company's
Stock Option Committee to grant options for up to 787,500 shares of the
Company's common stock to present or prospective employees. At May 31,
1996, 505,300 options were granted but not exercised and 213,000 shares
remain to be granted under the 1990 Plan. At May 31, 1996, there were
141,000 options granted but not exercised under the 1982 Employee Stock
Option Plan. The Company's Stock Option Committee may designate any
requirements regarding option price, waiting period or an exercise date
for options granted under the Plans, except that incentive stock options
may not be exercised at less than the fair market value of the stock on
the date of grant, and no option may remain outstanding for more than 10
years.
The following is a summary of options granted under the Plans:
1996 1995 1994
------------------------- ---------------------------- -------------------------
Option Option Option
Shares Price Shares Price Shares Price
------ --------------- -------- --------------- ------ ---------------
Balance, beginning 484,550 $ 2.56 - $26.00 465,000 $ 2.56 - $23.00 315,000 $ 2.56 - $23.00
Exercised (100,200) $ 2.56 - $26.00 (9,500) $ 2.56 - $17.00
Canceled or terminated (33,750) $17.00 - $26.00 (50,750) $17.00 - $26.00
Granted 195,500 $17.00 170,500 $26.00 159,500 $17.00
------- ------- -------
Balance, ending 646,300 $ 2.56 - $26.00 484,550 $ 2.56 - $26.00 465,000 $ 2.56 - $23.00
======= ======= =======
At May 31, 1996, there were 11 participants in the 1982 Employee Stock
Option Plan and 30 participants in the 1990 Employee Stock Option Plan.
9. Pension plans:
The Company and its subsidiaries have several defined benefit pension plans
covering substantially all of their nonsalaried employees. Benefits
under these plans are based on the employee's years of service, and the
benefit obligations are based upon the employee's expected date of
retirement. Plan assets are invested in corporate and government bonds,
common stocks and a bank money market fund. The Company's general
funding policy is to contribute amounts deductible for federal income tax
purposes.
Net periodic pension cost for 1996, 1995 and 1994 includes the following
benefit and cost components:
1996 1995 1994
--------- -------- --------
Service cost $ 346,101 $332,840 $320,182
Interest cost 711,024 645,329 597,299
Actual return on plan assets (1,474,259) (885,195) (282,059)
Net amortization and deferral 738,998 250,402 (328,786)
--------- -------- --------
Net periodic pension cost $ 321,864 $343,376 $306,636
========= ======== ========
As of May 31, 1996 and May 26, 1995, the funded status of the defined
benefit plans, using the actuarial present value of the benefit
obligation, is as follows:
F-13
38
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
9. Pension plans (continued):
1996 1995
---------- ----------
Vested benefit obligation $9,209,690 $8,338,358
Projected and accumulated
benefit obligation $9,750,990 $8,863,460
Plan assets at fair value 10,367,441 8,627,451
---------- ----------
Projected benefit obligation
(less than) greater than assets (616,451) 236,009
Unrecognized net gain (loss) 186,085 (365,170)
Unrecognized net transition asset 204,515 232,326
Unrecognized prior service cost (46,993) (51,592)
---------- ----------
(Prepaid) accrued pension cost $ (272,844) $ 51,573
========== ==========
Actuarial assumptions used for 1996, 1995 and 1994 are:
Discount rate 8%
Expected rate of return on plan assets 8%
The Company also makes contributions to union-sponsored, multi-employer
plans in accordance with negotiated labor contracts. Information on the
actuarial present value of accumulated plan benefits and net assets
available for benefits relating to these plans is not available.
Contributions to all such plans were approximately $206,000, $207,000 and
$169,000 in 1996, 1995 and 1994, respectively.
10. Commitments:
Operating leases:
The Company leases transportation, manufacturing equipment and office space
under several operating leases expiring through 2005. The majority of
the leases contain purchase options at stated amounts or fair market
value. The Company also leases various office space, as well as freezer
storage space at a freezer warehouse (Note 4). Rent expense under all
operating leases amounted to approximately $8,203,000, $6,817,000 and
$5,338,000 for the years ended 1996, 1995 and 1994, respectively. Total
future minimum rentals under noncancelable operating leases as of May 31,
1996, including those discussed in Note 4, are:
Year Ending Amount
----------- --------
1997 $7,643,000
1998 6,061,000
1999 4,450,000
2000 2,018,000
2001 800,000
Thereafter 2,239,000
Letters of credit:
At May 31, 1996, the Company had outstanding letters of credit totaling
approximately $8,040,000 which serve as collateral for an industrial
revenue bond issue, as discussed in Note 6, and various self-insured
agreements.
F-14
39
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
10. Commitments (continued):
Purchase and management agreement:
In November, 1994 the Company entered into a 10-year agreement with
Michigan Livestock Exchange ("MLE"). Under the terms of the agreement,
MLE has agreed to manage and operate the Company's hog buying stations
and to provide the Company with hogs in accordance with the Company's
quantity and quality specifications at MLE's hog costs plus certain
operating expenses. The MLE supplied approximately 65% of the total hogs
purchased by the Company in fiscal 1996. In consideration the Company
will pay MLE $83,333 per month as a facilities use and management fee.
In accordance with the agreement, the Company has purchased $2.0 million
of preferred stock of MLE that pays a 6 percent dividend. The Company
has classified the investment in MLE in other long-term assets on its
consolidated balance sheet.
Ham purchase and production agreement:
In connection with the Wilson acquisition (see Note 11 to the Notes to the
Consolidated Financial Statements for further discussion related to the
acquisition), the Company assumed a production agreement (the
"Production Agreement") with a major meat packing company (the
"Producer"). Pursuant to the Production Agreement, the Producer
constructed a ham production facility and the Company furnished all of
the production equipment to be used in such facility. In addition, the
Producer is obligated to produce at such facility, on an exclusive basis,
all boneless ham products which the Company may require. In return, the
Company has agreed to pay and/or reimburse the Producer for all operating
and fixed costs incurred at the facility and to pay the Producer a fee of
approximately $1,375,000 per year during the term of the agreement and
any extensions thereof. The Production Agreement has an initial term
(the "Initial Term") expiring on June 6, 2001 and may be renewed by the
Company for up to five successive three year terms (the "Option
Periods"). If the Company fails to renew the Production Agreement for
each of the five Option Periods, or if the Company terminates or breaches
the Production Agreement, the Company will be obligated to pay the
$1,375,000 annual fee for the remainder of the Initial Term, if any, and
an annual payment of approximately $408,000 for each remaining year of
the five Option Periods. In such event, the Producer must use its best
efforts to utilize the vacated facility to mitigate costs to the Company.
In addition to the Production Agreement, the Company has also assumed a
supply agreement with the Producer. The Company has agreed to purchase
and the Producer has agreed to supply 400,000 pounds of boneless ham
muscles on a weekly basis at a pricing formula equal to or more favorable
than prices obtainable from other competitive suppliers. The term of
such supply agreement runs concurrent with the term of the Production
Agreement described above.
F-15
40
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
11. Acquisition:
On May 30, 1995, the Company purchased certain assets from Foodbrands
America, Inc. and its subsidiaries ("Foodbrands"). The Company acquired
substantially all of Foodbrands' Retail Division ("Wilson") assets used
by Wilson in its business of producing and marketing retail meat
products. The aggregate purchase price for the assets acquired and the
assumption of certain liabilities was approximately $64.6 million.
During the next five years, Foodbrands has the right to receive from the
Company up to an additional $10 million in accordance with what is being
referred to as an Earnout Agreement, in the event of increases in the
market price of the Company's common stock. During fiscal 1996, no
amount was paid to Foodbrands under the Earnout Agreement. The
acquisition has been accounted for by the purchase method. The acquired
assets included three manufacturing facilities, machinery and equipment,
current assets, certain trademarks and tradenames. The tradename and
trademarks acquired will be amortized to expense over their estimated
useful lives, determined to be 40 years. The results of operations of
the Company for the 53 week period ending May 31, 1996 reflect a full
year of operation related to the acquired Wilson assets.
The following unaudited, pro forma, condensed, combined financial
information assumes the acquisition occurred at the beginning of fiscal
1995. The results do not purport to be indicative of what would have
occurred had the acquisition been made at the beginning of fiscal 1995,
or of the results which may occur in the future.
Fiscal Year Ended
May 26, 1995
(In thousands, except per share data) (Unaudited)
------------------------------------- -----------------
Net sales $965,780
Income from operations $11,192
Net income $2,377
Earnings per share $0.41
12. Restructuring charges:
During the fourth quarter of fiscal 1995, the Company recorded a one-time,
pre-tax restructuring charge to operations of $7.9 million. The Company
closed its Tri-Miller Packing facility in Hyrum, Utah, in an effort to
eliminate duplicate facilities and excess personnel. The closing reduced
ongoing manufacturing costs and was made possible by the expansion of the
Company's Grand Rapids, Michigan, facility. Under the restructuring
plan, the Company identified approximately 400 employees, both production
and management, that were terminated. The shut down of this facility was
substantially completed by the end of May 1995. The restructuring charge
included $5.5 million related to the write-down of plant and equipment
that were sold. Another $1.4 million included other costs related to
shutdown of the Tri-Miller facility, which also included employee
severance payments. The remaining $1.0 million related to the write-down
of real property and equipment to estimated realizable value associated
with the relocation to a new corporate headquarters building and of the
Company's spiral sliced ham operation to the newly constructed production
facility in Ponca City, Oklahoma.
F-16
41
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on September 13, 1996.
THORN APPLE VALLEY, INC.
(Registrant)
By: /s/ Louis Glazier
----------------------------------
Louis Glazier
Executive Vice President
Finance and Administration
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on September 13, 1996.
Signature Capacity
- --------- --------
Director
- -----------------------------------------------
John C. Canepa
/s/ Henry S Dorfman Director
- -----------------------------------------------
Henry S Dorfman
/s/ Joel Dorfman President and Director
- ----------------------------------------------- (principal executive officer)
Joel Dorfman
Director
- -----------------------------------------------
Burton D. Farbman
/s/ Louis Glazier Executive Vice President Finance
- ----------------------------------------------- and Administration and Director
Louis Glazier (principal financial and
accounting officer)
/s/ Moniek Milberger Director
- -----------------------------------------------
Moniek Milberger
/s/ Seymour Roberts Director
- -----------------------------------------------
Seymour Roberts
42
SCHEDULE II
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER ACCOUNTS- (A) AT END
Classification of period EXPENSES DESCRIBE DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
Year ended May 31, 1996 $789,100 $ 38,673 $205,973 $621,800
Year ended May 26, 1995 $731,800 $293,810 $236,510 $789,100
Year ended May 27, 1994 $832,300 $321,868 $422,368 $731,800
Note A. Write-off of uncollectible accounts, net of recoveries.
43
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
INDEX TO EXHIBITS
Exhibit No. Page
----------- ----
(3) (a) Restated Articles of Incorporation
(b) Amendment to Restated Articles of Incorporation
(c) By-laws, as amended to date
(10) Material Contracts
(a) Bond Purchase Agreement, dated as of July l, 1984, among The Onslow County Industrial Facilities and
Pollution Control Financing Authority, Branch Banking and Trust Company and the Company.
(b) Loan Agreement, dated as of July 1, 1984, between The Onslow County Industrial Facilities and
Pollution Control Financing Authority and the Company.
(c) Promissory Note in the principal amount of $6,000,000, dated July 1, 1984, from the Company payable
to The Onslow County Industrial Facilities and Pollution Control Financing Authority.
(d) Security Agreement, dated as of July 1, 1984, between Branch Banking and Trust Company and the
Company.
(e) Guaranty Agreement, dated as of July 1,1984, from the Company to Branch Banking and Trust Company.
(f) Note Agreement dated as of April 1, 1994 by and between the Company and Allstate Life Insurance
Company relating to $15,000,000 principal amount 6.45% Senior Notes due April 21, 2006.
(g) Loan Agreement dated as of December 1, 1993 by and between Michigan Strategic Fund and the Company
relating to $5,500,000 Adjustable Rate Demand Limited Obligation Revenue Bonds.
(h) Reimbursement Agreement dated as of December 1, 1993 by and between the Company and Old Kent Bank and
Trust Company relating to $5,500,000 Adjustable Rate Demand Limited Obligation Revenue Bonds.
(i) Asset Purchase Agreement, dated as of April 29, 1995, by and among the Company and Doskocil Companies
Incorporated and Wilson Foods Corporation, Concordia Foods Corporation, Dixie Foods Company and
Shreveport Foods Company.
(j) First Amendment to Asset Purchase Agreement, dated as of May 26, 1995, by and among the Company,
Foodbrands America, Inc., successor by merger to Doskocil Companies Incorporated, Wilson Foods
Corporation, Concordia Foods
44
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
Corporation, Dixie Foods Company and Shreveport Foods Company.
(k) Noncompete Agreement, dated May 30, 1995, by Foodbrands America, Inc., Wilson Foods Corporation,
Concordia Foods Corporation, Dixie Foods Company and Shreveport Foods Company in favor of the
Company.
(l) Supply Agreement, dated May 30, 1995, by and among Wilson Foods Corporation and Foodbrands America,
Inc., Dixie Foods Company and the Company.
(m) Transition Service Agreement, dated May 30, 1995, by and between Foodbrands America, Inc. and the
Company.
(n) Credit Agreement, dated as of May 30, 1995, among Cooperatieve Centrale Raiffeisen-Boerenleen Bank,
B.A., Old Kent Bank & Trust Co., National City Bank, Harris Trust and Savings Bank and the Company.
(o) Note Agreement, dated as of October 1, 1994, by and between the Company and Allstate Life Insurance
Company relating to $8,000,000 principal amount 8.42% Senior Notes due October 1, 2003.
(p) Note Agreement, dated as of May 15, 1995, among the Company, Allstate Life Insurance Company,
Principal Mutual Life Insurance Company and Great-West Life & Annuity Insurance Company.
(q) Marketing and Management Agreement dated November 2, 1994 by and among Michigan Livestock Exchange,
Indiana Livestock Exchange and the Company.
45
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 31, 1996
(r) Amended and Restated Credit Agreement, dated as of September 11, 1996, among the Company, the lenders
party thereto, and Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New York Branch,
as agent for the lenders.
(s) Senior Secured Seasonal Line of Credit Agreement, dated as of September 11, 1996, among the Company,
the lenders party thereto, and Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New York
Branch, as agent for the lenders.
(t) Amendment Agreement, dated as of September 11, 1996, between the Company and Allstate Life
Insurance Company relating to $15,000,000 principal amount note due April 21, 2006.
(u) Amendment Agreement, dated as of September 11, 1996, between the Company and Allstate Life
Insurance Company relating to $8,000,000 principal amount note due October 1, 2003.
(v) Amendment Agreement, dated as of September 11, 1996, among the Company, Allstate Life Insurance
Company, Principal Mutual Life Insurance Company and Great-West Life & Annuity Insurance Company.
(w) Amendment to Reimbursement Agreement, dated as of September 11, 1996, between the Company and Old
Kent Bank.
(x) Intercreditor Agreement, dated as of September 11, 1996 among Cooperatieve Centrale Raiffeisen-Boerenleen
Bank B.A., New York Branch, as Credit Agent, Seasonal Agent and Collateral Agent, and the lenders party
thereto, as acknowledged and agreed to by the Company and its subsidiaries.
(y) Security Agreement, dated as of September 11, 1996, among the Company, the subsidiaries of the Company
party thereto, and Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New York Branch, as Collateral
Agent and Credit Agent.
(21) Subsidiaries of the registrant.
(23) Consent of Coopers & Lybrand LLP.
(27) Financial Data Schedule.