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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 30, 1997
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: (248) 213-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange 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 18, 1997, COMPUTED BY REFERENCE TO
THE NASDAQ NATIONAL MARKET CLOSING PRICE ON SUCH DATE, WAS $64,300,390.
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF AUGUST
18, 1997 WAS 6,115,770.
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 1997 Annual Meeting of Shareholders to be held on October 29, 1997 (Part
III).
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As filed with the Securities and Exchange Commission on August 28, 1997.
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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 ("Processed Meats") and is one of the largest slaughterers
of hogs and sellers of related fresh pork products ("Fresh Meats") 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's Processed Meats division engages in the
production and sale of bacon, hot dogs and lunch meats, hams, smoked sausages
and turkey products. The Company markets its Processed Meats products under
premium and other proprietary brand labels including "Thorn Apple Valley(R)",
"Colonial(R)", "Corn King(R)", "Wilson Certified(R)" and "Cavanaugh Lakeview
Farms(R)", as well as under private labels with major supermarket chains and
other customers. Principal customers of the Company include food wholesalers,
supermarkets, food service operations and other manufacturers located throughout
the United States and in selected international markets.
The Company's business strategy is to increase revenue and enhance
profitability by (i) increasing the sales of the Company's higher margin premium
brand Processed Meats products while reducing the Company's reliance on sales of
lower margin private label products, (ii) continuing to improve production
efficiencies in the Company's Fresh Meats and Processed Meats production
facilities, (iii) developing and marketing new Processed Meats products,
including products targeted to health-conscious consumers, and (iv) increasing
overall sales volume through additional marketing strategies with an emphasis on
sales to international markets, including Russia, Korea and Mexico.
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
division and Fresh Meats division.
FISCAL % OF FISCAL % OF FISCAL % OF FISCAL % OF FISCAL % OF
1993 SALES 1994 SALES 1995 SALES 1996 SALES 1997 SALES
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(IN MILLIONS)
NET SALES (IN DOLLARS)
Processed Meats......... $386.7 53% $416.3 54% $415.4 56% $623.0 63% $598.0 63%
Fresh Meats............. $336.6 46% $349.1 45% $321.8 43% $355.0 36% $353.6 37%
PRODUCTS SHIPPED (IN LBS.)
Processed Meats......... 337.8 -- 351.7 -- 378.2 -- 507.7 -- 452.1 --
Fresh Meats............. 415.6 -- 419.6 -- 422.2 -- 394.6 -- 364.0 --
Due to market conditions, profit margins on sales of Processed Meats
products are usually more consistent than profit margins on sales of Fresh Meats
and by-products. Processed Meats manufacturers generally receive higher profit
margins on premium labeled items. In recent years, the Company has focused on
identifying emerging trends in consumer preferences and on developing Processed
Meats products in response to those trends, in an attempt to be a market leader
in emerging market segments that offer opportunities for increased sales volume
and higher profit margins than those associated with more mature and more
competitive market segments. For example, the Company has developed innovative
packaging concepts and products that are leaner and have lower fat contents
(such as the Company's premium deli-style sliced turkey ham, turkey breast and
cooked ham products) to appeal to consumers seeking products that are more
convenient to use and are healthier than existing product alternatives. The
Company believes that opportunities
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Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
exist to extend its current product lines into related Processed Meats products,
thereby leveraging its current premium brand names.
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 sausages,
hot dogs and bacon products are generally higher during the summer months.
PROCESSED MEATS PRODUCTS
The Processed Meats 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:
Product Category
FISCAL FISCAL FISCAL FISCAL FISCAL
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(IN MILLIONS OF POUNDS)
Bacon.................................................... 100.6 100.7 111.3 123.1 110.3
Hot dogs and lunch meats................................. 78.1 72.2 71.1 141.9 117.1
Hams..................................................... 67.2 74.1 85.4 125.9 113.4
Smoked sausages.......................................... 51.6 61.3 64.3 65.2 59.4
Turkey products.......................................... 23.9 24.3 25.2 27.0 24.9
Other.................................................... 16.4 19.1 20.9 24.6 27.0
----- ----- ----- ----- -----
Total............................................... 337.8 351.7 378.2 507.7 452.1
===== ===== ===== ===== =====
The Company's Processed Meats 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, however, are
determined by the corporate office. The Company's customer base is generally
comprised of wholesalers, large supermarket chains and food service operations.
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 meat products such
as hot dogs, lunch meats (such as bologna, salami and pickle loaf), corned beef
and smoked sausage, under brand names which include "Thorn Apple Valley(R),"
"Colonial(R)," "Wilson Certified(R)" and "Corn King(R)" 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 premium sliced lunch meats, spiral sliced hams, cooked
hams, deli hams and specialty boneless hams. These products are sold to
supermarket chains under various brand names, including "Thorn Apple Valley(R),"
"Colonial(R)" and "Cavanaugh Lakeview Farms(R)" 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(R)," "Colonial(R)" and other controlled
and private label brands.
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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 and to international markets
under brand names which include "Wilson Certified(R)," "Corn King(R)" and
"Colonial(R)" 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 boneless and bone-in hams, premium, double glazed spiral sliced hams and
premium sliced lunch meats such as turkey ham, turkey breast and cooked ham. The
Ponca City facility is a newly-constructed, 171,000 square foot processing plant
that was put into production in November 1995. Its products are sold to
supermarket chains under brand names which include "Thorn Apple Valley(R),"
"Wilson Certified(R)," "Corn King(R)," "Cavanaugh Lakeview Farms(R)" and
"Colonial(R)" and other controlled and private label brands.
During the fourth quarter of fiscal 1997, the Company decided to close its
Thorn Apple Valley-Council Bluffs division ("Council Bluffs"), which was engaged
in the production of a variety of boneless ham products. The production of these
products was moved primarily to the Company's Ponca City division.
FRESH MEATS PRODUCTS
The Thorn Apple Valley-Fresh Meats division of the Company, 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 3,044,000, 3,339,000 and 3,146,000
hogs were slaughtered by its Fresh Meats division in fiscal years 1997, 1996 and
1995, respectively. The Company's Utah division, which was closed during fiscal
1995, slaughtered approximately 274,000 hogs during fiscal year 1995.
Sales of products by the Fresh Meats division are ordinarily initiated and
completed by telephone between buyers and Fresh Meats 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 Meats operations. The profit
margins experienced by the Company and the fresh pork industry on sales of fresh
pork and by-products remained low during fiscal 1997. Fresh pork profit margins
continue to remain under pressure as a result of an industry-wide hog shortage
and continuing high prices for hogs. The Company is unable to predict at this
time when industry-wide profit margins will increase.
TRADEMARKS AND LICENSES
The Company owns or has the right to use over 80 various trademarks,
including those described above. The trademarks are valuable to the Company
because of the significant market advantage that name recognition provides in
the national and international retail markets 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 1997 approximately 17% of the Company's products were
marketed in Michigan. This percentage was 16% and 19% for fiscal 1996 and 1995,
respectively. The balance of the products were
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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 1997 totaled approximately $33,900,000. This total was $24,600,000
for fiscal 1996 and approximately $8,600,000 for fiscal 1995.
On a regular basis, the Company sells its Fresh Meats and Processed Meats
products to more than 1,000 customers. These customers consist primarily of
wholesalers, supermarket chains and, in the case of the Company's Fresh Meats
division, other producers of meat and poultry products. For fiscal 1997,
approximately 35% of the Company's sales were made to its 10 largest customers,
none of whom accounted for as much as 10% of the Company's sales. The Company
does not have any significant long-term sales commitments.
In servicing its customers, the Company utilizes two strategically located
distribution centers located in Edwardsville, Kansas and Detroit, Michigan. The
distribution centers' geographic locations allow the Company greater flexibility
in providing the highest level of service in meeting the needs of the Company's
customers. In addition to increasing the level of customer service, the
distribution centers have allowed the Company to increase its efficiencies
thereby reducing overall distribution costs.
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 production facilities. The Company also engages
the services of contract carriers, including Coast Refrigerated Trucking Co.,
Inc. and National Food Express, Inc., both wholly-owned subsidiaries of the
Company. The Company reorganized its transportation operations during fiscal
1997 in an effort to reduce overall trucking costs. As part of the
reorganization the Company closed Miller's Transport Inc., a contract carrier
which was a wholly-owned subsidiary. 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 71% of the total purchases of raw materials made by
the Company during fiscal 1997. 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 62% of the total hogs purchased by the Company in fiscal 1997 (see
"Purchase and Management Agreement" below for further discussion of this
agreement). The transportation of hogs to the Company's Fresh Meats processing
facility is primarily in tractor-trailers owned and operated by independent
contractors.
During fiscal 1997, Grand Rapids obtained 32% of all of the pork required
in its operations from the Company's Fresh Meats division, which constituted
approximately 16% of the cost of the total meat requirements of Grand Rapids.
Approximately 78% of the pork processed during fiscal 1997 at Smoked Meats was
obtained from the Company's Fresh Meats division, which constituted
approximately 67% of its total meat requirements. Approximately 19% of the pork
requirements of Ponca City was obtained from the Company's Fresh Meats division,
which comprised approximately 13% of its total meat requirements. The Company's
Dixie plant received approximately 56% of its pork requirements from the
Company's Fresh Meats division, which represented approximately 14% of its total
meat requirements. Approximately 66% of the pork bellies processed by Carolina
were obtained from the Company's Fresh Meats division.
The Company purchases poultry, beef and other meats required for its
Processed Meats products and other materials such as seasonings, smoking and
curing agents, sausage casings and packing materials from a number of
readily-available sources.
During the fourth quarter of fiscal 1997, the Company suspended a joint
production agreement (the "Production Agreement") with a major meat packing
company (the "Producer"), that was assumed in connection with the Wilson
acquisition. The suspension of the Production Agreement resulted in the planned
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
closing of a processed meats facility in Council Bluffs, Iowa, where the Company
had some of its boneless ham products produced. The Iowa plant had been operated
under the Production Agreement between the Company and 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 was obligated to produce at such facility on
an exclusive basis, all boneless ham products which the Company would have
required. In return, the Company had agreed to pay and/or reimburse the Producer
for all operating and fixed costs incurred at the facility. The Production
Agreement had an initial term expiring on June 6, 2001. Production of the
Company's boneless ham product lines will be transferred to the Company's Ponca
City plant. As a result of the suspension of the Production Agreement, the
Company recorded a one-time pre-tax restructuring charge to operations of $5.0
million; see Note 12 to the Notes to the Consolidated Financial Statements for
additional information relating to the fiscal 1997 restructuring charge.
Additionally in connection with the Wilson acquisition, the Company has
also assumed a supply agreement with the Producer which was also suspended in
connection with the suspension of the Production Agreement.
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 4,100 employees, approximately 900 of whom
are engaged in slaughtering and cutting hogs, approximately 2,300 of whom are
engaged in the production of the processed meat and poultry products, and
approximately 900 of whom are employed in administration, sales or
transportation.
The majority of the Company's production workers are employed under five
union contracts. These contracts are generally for a period of two to four years
and have various expiration dates through the second quarter of fiscal 2001. 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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Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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.
ITEM 2. PROPERTIES
The Company's principal plants, distribution centers and corporate
headquarters, all of which are owned by the Company (unless otherwise
indicated), are located as follows:
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION IN ACRES (SQ. FT.)
- -------- --------- --------- -----------
Detroit, Michigan Hog slaughtering and boning 3.2 218,000
operations
Ponca City, Oklahoma Producer of boneless and bone-in 42.0 171,000
hams, premium double-glazed spiral
sliced hams and premium sliced lunch
meats
Detroit, Michigan Producer of premium sliced lunch 4.8 150,000
meats, spiral sliced hams, cooked
hams, deli hams and specialty
boneless hams
Holly Ridge, North Carolina Producer of bacon products 179.0 150,000
Grand Rapids, Michigan Producer of hot dogs, lunch meats, 18.5 135,000
corned beef and smoked sausage
Forrest City, Arkansas Producer of hot dogs 11.3 70,000
Edwardsville, Kansas(1) Distribution center -- 60,000
Council Bluffs, Iowa(2) Producer of boneless ham -- 53,000
Detroit, Michigan(1)(3) Distribution center -- 50,000
Walker, Michigan Poultry boning and producer of pork 27.0 45,000
sausage and corned beef products
Southfield, Michigan(4) Corporate headquarters -- 34,000
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(1) The Company leases warehouse space in these facilities.
(2) This facility is owned by a third party. See "Business--Raw Materials." Also
see Note 12 to Notes to Consolidated Financial Statements related to the
Company's suspension of its production agreement.
(3) This facility is leased from a related party.
(4) The Company leases this office space.
In addition to the Company's plants, the Company owns and leases various
buildings in Michigan and North Carolina. These buildings are used for
maintenance, storage, certain manufacturing, distribution and other ancillary
services and truck garages.
The land on which each of these properties is 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 $5.0 million as of May 30, 1997. As of the date of this Annual
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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 18, 1997 there were 506 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.
1996 1997
----------------------------- -----------------------------
SALES PRICE SALES PRICE
FISCAL ---------------- DIVIDENDS ---------------- DIVIDENDS
QUARTER HIGH LOW PAID HIGH LOW PAID
- ------- ---- --- --------- ---- --- ---------
First................................... $23.50 $18.00 $0.7 $14.25 $ 8.75 --
Second.................................. 19.50 15.12 -- 15.75 11.31 --
Third................................... 17.75 14.00 -- 16.75 13.12 --
Fourth.................................. 15.75 10.25 -- 19.75 12.25 --
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Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED(1)
------------------------------------------------------------------------
MAY 28, 1993 MAY 27, 1994 MAY 26, 1995 MAY 31, 1996 MAY 30, 1997
------------ ------------ ------------ ------------ ------------
Net sales................ $729,909,723 $772,098,333 $744,542,466 $983,084,427 $955,793,588
Net income (loss)........ 13,862,567 14,083,373 5,254,886 (21,707,744) (3,166,241)
Net income (loss) per
common share(2)........ $2.36 $2.40 $.91 $(3.76) $(.53)
Total assets............. $143,948,845 $185,442,085 $204,296,365 $327,140,201 $302,786,457
Total long-term debt
(excluding current
portion)............... 8,844,391 27,936,985 35,464,669 159,808,923 150,128,541
Cash dividends per
share.................. $.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.
(2) Earnings (loss) 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 1, 1992.
For additional discussion of the differences in operating results in fiscal
1997 as compared to fiscal 1996, see "Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Results of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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, in addition to the supply and price of live hogs,
industry-wide slaughter levels, competition, the relative price of substitute
products, overall domestic retail demand and the level of exports. Negatively
affecting the Company and others in the slaughtering industry is the continuing
lack of market hogs available for slaughter compared with the industry's
slaughter capacity. The continued imbalance between the industry's slaughter
capacity and the availability of market hogs has created a situation in which
increases in raw material prices have outpaced increases in selling prices.
Although the Company does not expect profitability to improve in its Fresh Meats
operations in the near term, the Company believes that the recent high levels of
hog producer profitability will encourage additional hog production, which
should allow this industry segment to return to more profitable levels.
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Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
The following discussion analyzes material changes in the financial
information of the Company on a year to year basis.
RESULTS OF OPERATION
Fiscal 1997 as Compared to Fiscal 1996
(52 week fiscal year compared to 53 week fiscal year)
The Company's net loss for the fiscal year ended May 30, 1997 was $3.2
million compared with a net loss of $21.7 million in 1996. The fourth-quarter
and year-end net results include an after-tax restructuring charge of $3.3
million. The restructuring charge covers an estimate of future costs associated
with the suspension of a joint production agreement at a processing facility in
Council Bluffs, Iowa; see Note 12 of the Notes to the Consolidated Financial
Statements for additional information related to the restructuring charge. The
LIFO (last in, first out) method of valuing inventories had the effect after
taxes of increasing earnings by approximately $3.2 million compared with a
decrease to earnings of $8.9 million in fiscal 1996. The improvement in results
is primarily attributable to higher processed meat and fresh pork operating
margins.
Operating profits in the Processed Meats division improved significantly as
a result of higher margins, improved product mix, lower selling expenses and
improved plant operating efficiencies. Offsetting higher margins was a reduction
in sales tonnage attributable to the Company's planned elimination of
lower-margin product lines and its focus on maintaining reasonable profit
margins on high-volume commodity products. Operating profits in the Fresh Meats
division also improved primarily as a result of improved plant operating
efficiencies. Offsetting the improved plant efficiencies were lower
industry-wide fresh pork margins resulting from the continuing imbalance between
the industry's slaughter capacity and the availability of market hogs.
Net sales for fiscal 1997 decreased $27.3 million or 2.8 percent to $955.8
million from $983.1 million in the comparable prior year. Net sales in the
Company's Processed Meats operations decreased by 4.0% while net sales in the
Fresh Meats operations remained even compared to the prior year. Sales volume
decreased in the Company's Processed Meats operations and Fresh Meats operations
by 11.0% and 7.8%, respectively. Offsetting the lower sales volumes were
increases in Processed Meats and Fresh Meats average selling prices of 7.9% and
8.0%, respectively. The increases in average selling prices was primarily
attributable to the 15% increase in the cost of live hogs, the Company's primary
raw material.
Cost of goods sold (including delivery costs) decreased $63.3 million or
6.8% in fiscal 1997, as compared to fiscal 1996, primarily as a result of lower
sales volume. As a percentage of net sales, cost of goods sold decreased to
91.0% in fiscal year 1997 from 94.8% in fiscal 1996, principally as a result of
improved operating efficiencies in both the Company's Processed Meats and Fresh
Meats operations. Operationally, the Company's facilities continue to run very
efficiently on a direct-cost basis.
Selling expenses decreased $5.1 million or 13.5% from the comparable prior
year period, primarily as a result of lower promotional expenses and a reduction
in operating costs associated with the sales department's completion of its
integration of the Wilson sales function into the Company's business. As a
percentage of net sales, selling expenses decreased to 3.4% from 3.8%.
General and administrative expenses increased $.6 million, or 2.4%, mainly
as the result of general price and wage increases. As a percentage of net sales,
general and administrative expenses increased to 2.8% from 2.7%.
Net interest costs increased $3.3 million, or 38.5%. The increase is
attributable to an increase in interest expense related to increased borrowings
under the Company's revolving credit agreement, as a result of the Company's
fiscal 1996 operating losses and capital expenditures related to the Ponca City
facility construction and increased interest rates associated with the Company's
restructuring of its long-term revolving credit and private placement note
agreements in September, 1996.
9
11
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
The benefit for income taxes decreased $10.6 million, primarily due to the
decrease in pre-tax loss from operations of $29.2 million to a loss of $5.4
million from a loss of $34.6 million in the comparable prior year period,
resulting from the factors discussed above. The Company's effective tax benefit
rate increased to (41.4%) from (37.2%).
Loss per share of common stock decreased $3.23 from a loss of $3.76 to a
loss of $.53 per share for the comparable prior year period. The reduction in
losses resulted from the factors discussed above.
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 fiscal 1995 restructuring
charge. The decrease in profits was 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 Meats 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 Meats 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 Meats facility. The Fresh Meats facility's
inefficiencies were due in part to the operational difficulties encountered as a
result of the complexities of the plant's operations and the high rate of speed
at which the plant operates. In response, the Company began assembling a new
plant management team in September, 1995.
Net sales for fiscal 1996 increased by $238.5 million or 32.0%. Sales
volume and average selling prices in the Company's Processed Meats operations
increased by 34.2% and 11.8%, respectively. The Company's Processed Meats
operations sales volume increased primarily as a result of the Wilson
acquisition. The Company's Fresh Meats 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 Meats 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 Meats 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 Fresh Meats facility renovation, additional costs associated
with the Ponca City plant and lower margins in the Company's Fresh Meats
division. Although the Company believes that the Fresh Meats 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.
10
12
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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.
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.
The Company has historically maintained lines of credit in excess of the
cash needs of its business. At May 30, 1997, the Company had a revolving credit
agreement with four participating financial institutions whereby it could borrow
in the aggregate up to $81.6 million of which $62.9 million was drawn upon and
$1.75 million was used to support letters of credit. The line of credit bears
interest at or below the prime rate charged by major banks. Additionally, in
August 1997, the Company obtained a temporary $15.0 million seasonal line of
credit with the same four participating institutions which will be used to help
finance the Company's traditional holiday inventory buildup. This temporary
seasonal line of credit expires February 6, 1998.
At May 30, 1997, the Company had approximately $6.0 million in cash. Cash
provided by operations during the fifty-two weeks ended May 30, 1997 was
approximately $30.0 million. In addition, the Company obtained $3.0 million from
the sale of Common Stock to the Chairman of the Company's Board of Directors.
Cash available at the beginning of the year plus cash generated from operations
and acquired from financing activities was used principally to pay down
borrowings under the revolving credit agreement and other long-term debt of
$40.9 million and to fund net capital expenditures of $9.7 million. The
financing activities included the issuing of $17.25 million of Convertible
Subordinated Debentures due April 1, 2007. The debentures bear interest at a
fixed rate of 9% and are convertible into shares of the Company's Common Stock
at any time prior to maturity at a conversion price of $18.75 per share. Under
certain circumstances the debentures are redeemable at the Company's option. See
note 4D in the "Notes to Consolidated Financial Statements" included in this
Form 10-K for further discussion of the subordinated debt issue. The Company's
net working capital decreased to $56.2 million at May 30, 1997 from $59.0
million at May 31, 1996.
The Company's debt is secured by substantially all of the Company's assets.
In addition, the various loan agreements contain financial covenants with
respect to consolidated net worth and interest coverage ratio (as defined
therein). In addition, 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 entered into an Amendment Agreement effective in May 1997 (the
"Amendment Agreement") with its secured lenders to amend its various loan
agreements and note agreements to exclude
11
13
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
the $5.0 million restructuring charge taken with respect to the closing of the
Council Bluffs Facility from the computation of the various financial covenants
under such agreements. If the Amendment Agreement had not been entered into, the
Company would have been in default under such loan agreements and note
agreements as a result of such restructuring charge.
The Company anticipates net capital expenditures during fiscal 1998 of
approximately $8.0 million, which will be used to upgrade various machinery and
equipment with continued emphasis on projects that will further streamline
operations, for increased efficiencies and productivity gains. Management
believes that funds provided from operations and borrowings under available
lines of credit will permit it to continue to finance its current operations and
to further develop its business in accordance with its operating strategies.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Pages immediately following signature page)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
12
14
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Partially incorporated by reference pursuant to Rule 12b-23 from the
Company's 1997 Proxy Statement furnished in connection with the Company's Annual
Meeting of Shareholders to be held on October 29, 1997.
EXECUTIVE OFFICERS OF REGISTRANT
YEAR FIRST
BECAME
NAME AGE OFFICER POSITION
---- --- ---------- --------
Henry S Dorfman.............. 75 1959 Chairman of the Board
Joel Dorfman................. 46 1978 President and Chief Executive Officer
Louis Glazier................ 48 1980 Executive Vice President Finance and Administration
Keith Jahnke................. 43 1987 Executive Vice President Processed Meats
Edward Boan.................. 47 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.
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 1997
Proxy Statement furnished in connection with the Company's Annual Meeting of
Shareholders to be held on October 29, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference pursuant to Rule 12b-23 from the Company's 1997
Proxy Statement furnished in connection with the Company's Annual Meeting of
Shareholders to be held on October 29, 1997.
13
15
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Incorporated by reference pursuant to Rule 12b-23 from the Company's 1997
Proxy Statement furnished in connection with the Company's Annual Meeting of
Shareholders to be held on October 29, 1997.
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 30, 1997 and May 31, 1996
Consolidated Statements of Operation for the years ended May 30, 1997,
May 31, 1996 and
May 26, 1995
Consolidated Statements of Shareholders' Equity for the years ended May
30, 1997, May 31, 1996
and May 26, 1995
Consolidated Statements of Cash Flows for the years ended May 30, 1997,
May 31, 1996 and
May 26, 1995
and
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 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 30, 1997, May 31, 1996 and May 26, 1995
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 S-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.
14
16
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
(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.
(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.
15
17
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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.
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) 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(l) 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.
(m) 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)(m) 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.
(n) Marketing and Management Agreement dated November 2, 1994 by
and among Michigan Livestock Exchange, Indiana Livestock
Exchange and the Company.
Exhibit 10(n) 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.
(o) 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.
16
18
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
Exhibit 10(o) is incorporated herein by reference to
Exhibit 10(r) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, as
amended.
(p) 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.
Exhibit 10(p) 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 31, 1994, as
amended.
(q) 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.
Exhibit 10(q) 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 31, 1994, as
amended.
(r) 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.
Exhibit 10(r) 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 31, 1994, as
amended.
(s) 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.
Exhibit 10(s) 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 31, 1994, as
amended.
(t) Amendment to Reimbursement Agreement, dated as of September
11, 1996, between the Company and Old Kent Bank.
Exhibit 10(t) is incorporated herein by reference to
Exhibit 10(w) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(u) 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.
Exhibit 10(u) is incorporated herein by reference to
Exhibit 10(x) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(v) 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.
17
19
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
Exhibit 10(v) is incorporated herein by reference to
Exhibit 10(y) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(w) Senior Secured Seasonal Line of Credit, dated as of August
5, 1997, among the Company, the lenders party thereto, and
Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New
York Branch, as agent for the lenders.
(x) Amendment Agreement, dated as of August 8, 1997, among the
Company, the Banks (as defined therein), and the Noteholders
(as defined therein).
(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)
18
20
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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 August 28, 1997.
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 August 28, 1997.
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
19
21
COOPERS & LYBRAND LETTERHEAD
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 30, 1997 and May 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 30, 1997, 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.
Coopers & Lybrand L.L.P.
Detroit, Michigan
July 24, 1997
F-1
22
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 30, MAY 31,
1997 1996
------- -------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,028,698 $ 5,804,371
Short-term investments.................................... 500,000 627,560
Accounts receivable, net of allowance for doubtful
accounts (1997, $888,500; 1996, $621,800)............... 44,888,327 62,908,719
Inventories (Note 2)...................................... 65,115,331 56,263,210
Refundable income taxes................................... 11,490,330
Deferred income taxes (Note 5)............................ 2,727,000 2,199,000
Prepaid expenses and other current assets................. 7,683,296 6,724,994
------------ ------------
Total current assets............................... 126,942,652 146,018,184
------------ ------------
Property, plant and equipment:
Land...................................................... 1,276,933 1,519,976
Buildings and improvements................................ 67,692,480 61,640,117
Machinery and equipment................................... 158,207,873 155,911,312
Transportation equipment.................................. 7,056,966 7,498,075
Property under capital leases............................. 10,162,649 10,301,819
Construction in progress.................................. 3,245,764 4,475,987
------------ ------------
247,642,665 241,347,286
Less accumulated depreciation...................... 111,762,145 98,938,159
------------ ------------
135,880,520 142,409,127
------------ ------------
Other assets:
Intangible assets, net of accumulated amortization of
$1,678,600 and $839,300................................. 31,893,400 32,732,700
Other..................................................... 8,069,885 5,980,190
------------ ------------
Total other assets................................. 39,963,285 38,712,890
------------ ------------
$302,786,457 $327,140,201
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 41,111,001 $ 47,501,565
Notes payable, banks...................................... 14,700,000
Accrued liabilities (Note 3).............................. 23,661,536 21,954,784
Current portion of long-term debt (Note 4)................ 4,566,445 2,818,444
Income taxes.............................................. 1,425,403
------------ ------------
Total current liabilities.......................... 70,764,385 86,974,793
------------ ------------
Other noncurrent liabilities (Note 12)...................... 3,675,000
Long-term debt (Note 4)..................................... 150,128,541 159,808,923
Deferred income taxes (Note 5).............................. 1,138,000 3,631,000
------------ ------------
Total noncurrent liabilities....................... 154,941,541 163,439,923
------------ ------------
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 6,110,480 shares in 1997 and 5,786,129
shares in 1996.......................................... 611,048 578,613
Capital in excess of par value............................ 10,500,213 7,011,361
Retained earnings......................................... 65,969,270 69,135,511
------------ ------------
77,080,531 76,725,485
------------ ------------
$302,786,457 $327,140,201
============ ============
See notes to consolidated financial statements.
F-2
23
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED
----------------------------------------------
MAY 30, MAY 31, MAY 26
1997 1996 1995
------- ------- ------
Net sales......................................... $955,793,588 $ 983,084,427 $744,542,466
------------ -------------- ------------
Operating costs and expenses:
Cost of goods sold, including delivery costs.... 868,826,788 932,130,906 669,068,064
Selling......................................... 32,468,641 37,533,477 25,377,029
General and administrative...................... 27,141,392 26,515,629 22,911,735
Depreciation and amortization................... 17,449,390 15,378,777 9,830,100
Restructuring charge (Note 12).................. 5,000,000 7,857,319
------------ -------------- ------------
950,886,211 1,011,558,789 735,044,247
------------ -------------- ------------
Income (loss) from operations..................... 4,907,377 (28,474,362) 9,498,219
------------ -------------- ------------
Other expense (income):
Interest, net................................... 11,758,695 8,491,769 2,258,674
Other, net...................................... (1,445,077) (2,408,387) (960,341)
------------ -------------- ------------
10,313,618 6,083,382 1,298,333
------------ -------------- ------------
Income (loss) before income taxes................. (5,406,241) (34,557,744) 8,199,886
Provision (benefit) for income taxes (Note 5)..... (2,240,000) (12,850,000) 2,945,000
------------ -------------- ------------
Net income (loss)................................. $ (3,166,241) $ (21,707,744) $ 5,254,886
============ ============== ============
Earnings (loss) per share of common............. $ (0.53) $ (3.76) $ 0.91
============ ============== ============
See notes to consolidated financial statements.
F-3
24
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 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 6 and Note 7)............... 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 (Note 7).................. 15,482 1,548 240,290
--------- -------- ----------- -----------
Balance, May 31, 1996..................... 5,786,129 578,613 7,011,361 69,135,511
Net loss.................................. (3,166,241)
Newly issued shares of common stock (Note
10)..................................... 279,883 27,988 2,972,358
Shares issued under employee stock
purchase plan (Note 7).................. 16,968 1,697 176,950
Exercise of stock options, including
related tax benefits (Note 6)........... 27,500 2,750 339,544
--------- -------- ----------- -----------
Balance, May 30, 1997..................... 6,110,480 $611,048 $10,500,213 $65,969,270
========= ======== =========== ===========
See notes to consolidated financial statements.
F-4
25
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED
------------------------------------------
MAY 30, MAY 31, MAY 26,
1997 1996 1995
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (3,166,241) $(21,707,744) $ 5,254,886
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.............................................. 16,610,090 14,539,477 9,830,100
Loss on disposition of fixed assets included in
restructuring charge.................................... 6,915,646
Amortization of intangibles............................... 839,300 839,300
Deferred income taxes..................................... (3,021,000) 23,000 353,000
(Gain) loss on disposition of property, plant and
equipment............................................... 631,652 13,568 (15,451)
Provision for losses on accounts receivable............... 339,055 133,951 57,300
Gain on sale of long-term investments..................... (627,802)
(INCREASE) DECREASE IN ASSETS:
Accounts receivable....................................... 17,681,337 (13,260,829) 4,049,338
Inventories............................................... (8,852,121) (2,949,079) (1,020,608)
Refundable income taxes................................... 11,490,330 (10,124,099) (1,366,231)
Prepaid expenses and other assets......................... (2,920,437) (3,397,344) (2,425,749)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable.......................................... (6,390,564) 15,027,415 (1,496,234)
Accrued liabilities....................................... 1,706,752 (6,258,669) 1,512,038
Income taxes payable...................................... 1,425,403 (526,722)
Other noncurrent liabilities.............................. 3,675,000
------------ ------------ ------------
Total adjustments......................................... 33,214,797 (6,041,111) 15,866,427
------------ ------------ ------------
Net cash provided by (used in) operating activities....... 30,048,556 (27,748,855) 21,121,313
------------ ------------ ------------
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
Capital expenditures...................................... (11,602,699) (38,604,784) (43,367,769)
Proceeds from sale of property, plant and equipment....... 1,905,568 2,712,129 412,926
------------ ------------ ------------
Net cash used in investing activities..................... (9,697,131) (96,039,523) (42,954,843)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 17,250,000 122,500,000 8,000,000
Proceeds from common stock sold to company officer........ 3,000,346
Principal payments on long-term debt...................... (26,198,385) (6,215,552) (2,008,117)
Net borrowings (payments) under lines of credit........... (14,700,000) 8,740,000 5,960,000
Dividends paid............................................ (404,174) (1,610,575)
Proceeds from employee stock purchase plan................ 178,647 241,838
Purchase and retirement of common stock................... (3,390,704)
Proceeds from stock options exercised, including related
tax benefits............................................ 342,294 2,171,888
------------ ------------ ------------
Net cash provided by (used in) financing activities....... (20,127,098) 124,862,112 9,122,492
------------ ------------ ------------
Net increase (decrease) in cash........................... 224,327 1,073,734 (12,711,038)
Cash and cash equivalents, beginning of year.............. 5,804,371 4,730,637 17,441,675
------------ ------------ ------------
Cash and cash equivalents, end of year.................... $ 6,028,698 $ 5,804,371 $ 4,730,637
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized.................... $ 12,164,297 $ 8,324,648 $ 4,003,000
============ ============ ============
Income taxes paid (refunded), net....................... $(12,194,253) $ (2,858,701) $ 3,991,000
============ ============ ============
Noncash investing activities:
Capital lease obligations............................... $ 1,016,004 $ 256,852 $ 2,935,020
============ ============ ============
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
26
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS:
The Company is engaged in the production 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 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 fair value
less costs to sell. 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.
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 estimated future cash flows.
F-6
27
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
COMMODITY OPTIONS AND FORWARD CONTRACTS:
The Company uses a variety of commodity option and forward contracts in an
effort to minimize the potential adverse effects from raw material market price
level changes. Realized gains and losses are recognized currently in income and
expenses. Risk management and hedging activities are often utilized with forward
sales contracting, with forward raw material procurement and with margin
management. The majority of the Company's finished product sales are not hedged,
as they are manufactured from raw material procured from current production.
Hedging activities accounted for less than 5 percent of the total quantities of
annual processed meats tonnage sold.
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 1997, 1996 and 1995 were 6,002,786, 5,778,559 and 5,754,726
respectively.
The potential dilution from shares issuable under employee stock option
plans and convertible subordinated debentures are excluded from the computation
of the weighted average number of common shares outstanding since they are
either not material or antidilutive.
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," was issued in February 1997. Adoption of SFAS 128, effective for
reporting periods ending after December 15, 1997, is not expected to have a
material effect in reported earnings per share.
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 30, 1997 and May 26, 1995 are for 52-week periods.
RECLASSIFICATIONS:
Certain amounts from prior years have been reclassified to conform with the
current year presentations.
2. INVENTORIES:
1997 1996
---- ----
At lower of cost or market:
Supplies.................................................. $ 9,447,180 $ 9,559,537
Raw materials............................................. 21,911,451 23,518,145
Work in process........................................... 4,016,547 3,588,512
Finished goods............................................ 41,529,153 36,281,016
----------- -----------
76,904,331 72,947,210
Less LIFO reserve........................................... 11,789,000 16,684,000
----------- -----------
$65,115,331 $56,263,210
=========== ===========
The LIFO method of accounting for inventories had the effect (after income
taxes) of increasing net income by approximately $3,182,000 ($.53 per share) and
$1,282,000 ($.22 per share) for the years ended May 30, 1997 and May 26, 1995,
respectively, and decreasing net income by approximately $8,927,000 ($1.54 per
share) for the year ended May 31, 1996.
F-7
28
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
3. ACCRUED LIABILITIES:
Included within accrued liabilities are employee benefits representing
self-insured programs of $4,707,813 and $4,588,849 at May 30, 1997 and May 31,
1996, respectively.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
MAY 30, MAY 31
1997 1996
------- ------
A. Revolving credit agreement............................... $ 62,900,000 $ 80,000,000
B. Private placements notes................................. 59,453,846 65,500,000
C. Revenue bonds............................................ 9,455,225 10,629,449
D. Subordinated debentures.................................. 17,250,000
E. Obligations under capital leases......................... 4,559,213 5,143,814
F. Other note............................................... 1,076,702 1,354,104
------------ ------------
154,694,986 162,627,367
Less current portion..................................... 4,566,445 2,818,444
------------ ------------
$150,128,541 $159,808,923
============ ============
A. At May 30, 1997, the Company has a revolving credit agreement with four
participating banks, whereby it could borrow, in the aggregate, up to $81.6
million, bearing interest at variable rates ranging from below prime rate to the
prime rate charged by major banks. The commitments under the revolving credit
agreement expire on May 30, 1998. The commitment fee on the unused portion of
the facility is .25 percent per annum. The weighted average interest rate at May
30, 1997 was 7.63 percent. Unused lines of credit of $17.0 million were
available at May 30, 1997.
The Company has various agreements between the parties involved in the
revolving credit agreement, the private placement lenders (see note 4B) and the
limited obligation revenue bond lender (see note 4C), whereby it has granted, on
a pro-rata basis, a first lien on substantially all of the Company's assets.
These agreements contain financial covenants with respect to consolidated net
worth and consolidated earnings available for interest expense (as defined
therein). 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.
B. At May 30, 1997, the Company has three separate issues of long-term
notes in private placements to institutional investors. The first outstanding
issue, dated April 1, 1994, has an outstanding principal balance of $13,615,385,
bearing interest at a fixed rate of 7.45 percent per annum. The principal is due
in equal annual installments of $1,512,820 beginning April 1, 1998, and ending
April 1, 2005, with the remaining principal payable at maturity on April 21,
2006. The second outstanding issue, dated October 1, 1994, has an outstanding
principal balance of $7,261,538, bearing interest at a fixed rate of 9.42
percent per annum. The principal is due at maturity on October 1, 2003. The
third outstanding issue, dated on May 30, 1995, has an outstanding principal
balance of $38,576,923, bearing interest at a fixed rate of 8.58 percent per
annum. The principal is due in annual installments of $5,510,989 beginning May
15, 1999, and ending at maturity on May 15, 2005. Interest under all of the
above issues is payable on a monthly basis.
C. At May 30, 1997, the Company has three separate revenue bond issues. The
first outstanding issue, referred to as the industrial revenue bond, has an
outstanding principal balance of $1,937,500 with varying quarterly principal
payments due July 1, 1997 through January 1, 2000, and quarterly interest at
81.1 percent of the current prime rate (at May 30, 1997 the rate was 6.89
percent).
F-8
29
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
4. LONG-TERM DEBT -- CONTINUED
The second outstanding issue, which is referred to as the limited
obligation revenue bond, has an outstanding principal balance of $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 1997 averaged 4.31 percent.
The third outstanding issue, referred to as the economic development
revenue bond, has an outstanding principal balance of $2,017,725 with varying
monthly principal and interest payments through maturity on June 30, 2000,
bearing interest at a fixed rate of 6 percent per annum.
The first and third bond issues are collateralized by property, plant and
equipment. The second bond issue is collateralized by a $5,600,000 letter of
credit. The letter of credit is now secured by a first lien on substantially all
of the Company's assets as described above.
The Company's industrial revenue and economic revenue bond agreements
contain restrictive covenants that include the maintenance of a minimum level of
consolidated tangible net worth, as defined, and of certain financial ratios.
D. On March 25, 1997, the Company completed a public offering of
$17,250,000 of Convertible Subordinated Debentures due April 1, 2007, bearing
interest at a fixed rate of 9 percent per annum. Interest is payable
semi-annually on April 1 and October 1, commencing on October 1, 1997, with
interest accruing from the date of issuance. The Debentures are convertible into
shares of the Company's Common Stock at any time prior to maturity, at a
conversion price of $18.75 per share. Accordingly, each $1,000 principal amount
of Debentures is convertible into 53.33 shares of Common Stock, for an aggregate
of 920,000 shares, representing approximately 13.1 percent of the outstanding
Common Stock after including the converted shares. The Debentures are redeemable
at the Company's option, at any time in whole or in part, except that the
Debentures may not be redeemed prior to April 1, 2000, unless the closing sale
price of the Common Stock equals or exceeds 140 percent of the then current
conversion price for any 20 consecutive trading days.
The Debentures are subordinated to all existing and future senior
indebtedness of the Company. Although the Debentures are cross-defaulted with
the Company's existing secured indebtedness, the Debentures do not require the
Company to comply with any other financial covenants.
E. The Company has obligations under capital leases bearing interest at
fixed 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:
1997 1996
---- ----
Machinery and equipment........................... $10,162,649 $10,301,819
Less accumulated amortization..................... 3,866,704 3,408,120
----------- -----------
$ 6,295,945 $ 6,893,699
=========== ===========
Future minimum rentals for property under capital leases mature through the
year 2001, with a present value of total minimum lease obligation of $4,559,213.
F. The Company has a note bearing interest at a fixed rate of 7 percent per
annum. Principal and interest are due quarterly through the date of maturity on
September 13, 2000. The note is secured by a second lien on certain property,
plant and equipment.
F-9
30
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
4. LONG-TERM DEBT -- CONTINUED
The aggregate maturities of long-term debt (excluding obligations under
capital leases) during the five years subsequent to May 30, 1997 are: 1998;
$3,069,025, 1999; $71,588,163, 2000; $8,600,116, 2001; $7,258,870, and 2002;
$7,023,809.
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.
5. INCOME TAXES:
The Company's provision (benefit) for income taxes was as follows:
1997 1996 1995
---- ---- ----
Currently payable (benefit):
Federal...................................... $ 781,000 $ (9,939,000) $2,259,000
State and local.............................. 333,000
----------- ------------ ----------
Total currently payable (benefit)............ 781,000 (9,939,000) 2,592,000
Deferred:
Federal and state............................ (3,021,000) (2,911,000) 353,000
----------- ------------ ----------
Total provision (benefit).................... $(2,240,000) $(12,850,000) $2,945,000
=========== ============ ==========
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 30,
1997 and May 31, 1996 are as follows:
1997 1996
------------------------------ ------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
Depreciation............................. $7,875,000 $5,799,000
Employee benefit plans................... $ 1,765,000 $1,721,000
Bad debt expense......................... 333,000 235,000
Capital leases........................... 73,000 215,000
Restructuring charge..................... 1,875,000
Estimated losses on assets held for
disposal............................... 197,000 375,000
Amortization of intangibles.............. 1,049,000 525,000
Credit carryforward...................... 5,089,000 3,170,000
Tax benefit of net operating loss
carryforward........................... 1,617,000
All other................................ 103,000 393,000 39,000 433,000
----------- ---------- ---------- ----------
Total deferred taxes................ $10,979,000 $9,390,000 $5,540,000 $6,972,000
=========== ========== ========== ==========
F-10
31
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
5. INCOME TAXES -- CONTINUED
A reconciliation of the provision for income taxes is shown below:
1997 1996 1995
----------------- -------------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Federal income tax (benefit) at
statutory rate...................... $(1,892,000) (35) ($12,095,000) (35) $2,870,000 35
State and local income taxes, net of
federal income tax benefit.......... 232,000 3
Lower tax rate attributable to foreign
sales corporation................... (55,000) (1) (110,000) (138,000) (2)
Nondeductible expenses................ 138,000 3
Utilization of tax credits............ (465,000) (9) (873,000) (2.5)
Other................................. 34,000 1 228,000 (19,000)
----------- --- ------------ ----- ---------- --
$(2,240,000) (41) $(12,850,000) (37.5) $2,945,000 36
=========== === ============ ===== ========== ==
The credit carryforward of $5,089,000 for which the tax benefit has been
recognized, consists of general business credits of $2,739,000 which expire
between the years 2008 and 2011 and alternative minimum tax credit carryforwards
of $2,350,000, which can be carried forward indefinitely. The NOL carryforward
of $4,621,000 on a pre-tax basis will expire in the year 2013.
6. STOCK OPTION PLANS:
The Company's 1996 Employee Stock Option Plan authorized the Company's
Stock Option Committee to grant options for up to 600,000 shares of the
Company's common stock to present or prospective employees. At May 30, 1997,
there were 54,500 options granted but not exercised at $10.25 per share and
545,500 shares remained to be granted under the 1996 Plan.
At May 30, 1997, there were 674,800 options granted but not exercised at
prices of $10.25, $17.00, $23.00 and $26.00 per share and 141,000 options
granted but not exercised at prices of $2.56 and $19.67 per share under the 1990
and 1982 Employee Stock Option Plans, respectively. Under the 1990 and 1982
plans no shares remain to be granted.
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. Under all plans, the exercise
price of each option equals the market price of the Company's common stock on
the date of grant. Under all plans, the options granted are immediately
exercisable.
F-11
32
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
6. STOCK OPTION PLANS -- CONTINUED
The following is a summary of options granted under the plans:
1997 1996 1995
-------------------------- -------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES OPTION PRICES SHARES OPTION PRICES SHARES OPTION PRICES
------ ---------------- ------ ---------------- ------ ----------------
Balance, beginning... 646,300 $18.91 484,550 $19.76 465,000 $17.00
Exercised............ (27,500) $10.25 -- -- (100,200) $16.67
Canceled or
terminated......... (16,000) $16.02 (33,750) $20.16 (50,750) $21.50
Granted.............. 267,500 $10.25 195,500 $17.00 170,500 $26.00
------- ------- --------
Balance, ending...... 870,300 $16.57 646,300 $18.91 484,550 $19.76
======= ======= ========
At May 30, 1997, under all plans, the range of exercise prices on
outstanding options is $2.56 to $26.00 per share with a weighted average
remaining contractual life of 7.3 years.
At May 30, 1997, there were 46 participants in the 1996 Employee Stock
Option Plan, 28 participants in the 1990 Employee Stock Option Plan, and 11
participants in the 1982 Employee Stock Option Plan.
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, the Company
will continue to apply APB Opinion 25 and related interpretations in accounting
for its stock option plans and, accordingly, does not recognize compensation
cost. If compensation cost for stock option grants had been determined based on
the fair value method as prescribed by SFAS No. 123, net loss and loss per share
would have been increased to the pro forma amounts indicated in the table below:
1997 1996
---- ----
Reported net loss........................................... $(3,166,241) $(21,707,744)
Pro forma net loss, using SFAS No. 123...................... $(4,022,228) $(22,728,410)
Loss per share:
Reported.................................................. $(.53) $(3.76)
Pro forma, using SFAS No. 123............................. $(.67) (3.93)
Weighted-average fair value of options granted.............. $4.92 $8.03
The fair value of each option grant was estimated using the Black-Scholes
valuation model. Under the model the annualized assumptions used for options
granted in fiscal years 1997 and 1996, respectively, was as follows: Risk-free
interest rates of 6.32 and 5.79 percent, dividend yields equal to zero percent
and a volatility factor for the expected market price of the Company's common
stock of 45 percent. The weighted-average expected life of options for the 1997
and 1996 grants is five years.
7. STOCK PURCHASE PLAN:
The Company has an Employee Stock Purchase Plan ("Plan") where employees
may subscribe, through payroll withholdings, to purchase shares of the Company's
common stock at a discount. The discounted price is equal to 85 percent of the
average market value of the common stock. The average market value is computed
using the closing prices at the beginning and end of each calendar quarter.
Employees may not purchase, under the Plan, in excess of $25,000 in any one
year. Under the Plan, the Company is authorized to issue up to 400,000 shares of
its common stock, of which 363,105 have not been issued.
F-12
33
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
7. STOCK PURCHASE PLAN -- CONTINUED
Transactions under the Employee Stock Purchase Plan are summarized as
follows:
NUMBER OF
SHARES ISSUE PRICE RANGE
--------- -----------------
Shares issued during the year ended May 30, 1997............ 16,968 $ 9.56 - $12.54
Shares issued during the year ended May 31, 1996............ 15,482 $12.32 - $17.85
Shares issued during the year ended May 26, 1995............ 4,445 $19.97 - $22.09
8. 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 1997, 1996 and 1995 includes the following
benefit and cost components:
1997 1996 1995
---- ---- ----
Service cost......................................... $ 387,204 $ 346,101 $ 332,840
Interest cost........................................ 780,947 711,024 645,329
Actual return on plan assets......................... (990,090) (1,474,259) (885,195)
Net amortization and deferral........................ 131,169 738,998 250,402
--------- ----------- ---------
Net periodic pension cost............................ $ 309,230 $ 321,864 $ 343,376
========= =========== =========
As of May 30, 1997 and May 31, 1996, the funded status of the defined
benefit plans, using the actuarial present value of the benefit obligation, is
as follows:
1997 1996
---- ----
Vested benefit obligation................................... $10,126,657 $ 9,209,690
Projected and accumulated benefit obligation................ 10,698,129 9,750,990
Plan assets at fair value................................... 11,504,526 10,367,441
----------- -----------
Projected benefit obligation less than assets............... (806,397) (616,451)
Unrecognized net gain....................................... 137,192 186,085
Unrecognized net transition asset........................... 176,704 204,515
Unrecognized prior service cost............................. (42,396) (46,993)
----------- -----------
Prepaid pension cost........................................ $ (534,897) $ (272,844)
=========== ===========
Actuarial assumptions used for 1997, 1996 and 1995 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 $134,000, $206,000 and $207,000 in 1997, 1996 and 1995,
respectively.
F-13
34
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
9. 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. Rent expense
under all operating leases amounted to approximately $7,792,000, $8,203,000 and
$6,817,000 for the years ended 1997, 1996 and 1995, respectively. Total future
minimum rentals under noncancelable operating leases as of May 30, 1997,
including those discussed below are:
YEAR ENDING AMOUNT
----------- ------
1998...................................................... $6,610,000
1999...................................................... 4,614,000
2000...................................................... 2,280,000
2001...................................................... 1,223,000
2002...................................................... 1,025,000
Thereafter................................................ 1,840,000
The Company maintains inventory at a freezer warehouse that is 75 percent
owned by an officer and director of the Company. 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 December
1997. Freezer warehouse rent expense amounted to $882,000 for the years ended
1997, 1996 and 1995. Storage and handling expenses paid to this freezer
warehouse amounted to approximately $1,482,000, $1,218,000 and $973,000 for the
years ended 1997, 1996 and 1995, respectively.
LETTERS OF CREDIT:
At May 30, 1997, the Company had outstanding letters of credit totaling
approximately $9,500,000 which serve as collateral for the limited obligation
revenue bond issue, as discussed in Note 4, and various self-insured agreements.
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. In
consideration the Company will pay MLE $83,333 per month as a facilities use and
management fee. The MLE supplied approximately 62 percent of the total hogs
purchased by the Company in fiscal 1997. 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.
10. COMMON STOCK ISSUED:
The Company sold to its Chairman of the Board of Directors, who is also a
significant shareholder of the Company, 279,883 newly issued shares of the
Company's common stock for an approximate purchase price of $3.0 million. This
sale was in accordance with the long-term debt agreements entered into on
September 11, 1996.
F-14
35
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
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. No
amounts have been 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.
12. RESTRUCTURING CHARGES:
FISCAL 1997:
During the fourth quarter of fiscal 1997, the Company recorded a one-time,
pre-tax restructuring charge to operations of $5.0 million for an estimate of
future costs associated with the suspension of a joint production agreement. The
suspension of the Production Agreement resulted in the planned closing of a
processed meats facility in Council Bluffs, Iowa, where the Company had some of
its boneless ham products produced. The Iowa plant had been operated under the
Production Agreement between the Company and another major meat packing company
(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 was obligated to produce at
such facility, on an exclusive basis, all boneless ham products which the
Company would have required. In return, the Company had 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. The Production Agreement had an initial term
expiring on June 6, 2001. Production of the Company's boneless ham product lines
will be consolidated with its new Ponca City plant operations. The restructuring
charge includes $4.6 million related to future annual contractual obligations
and $.4 million relates to other costs and carrying charges associated with the
shutdown, for which the long-term portion has been included in other noncurrent
liabilities.
FISCAL 1995:
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. 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-15
36
Year Ended
Form 10-K THORN APPLE VALLEY, INC. AND SUBSIDIARIES May 30, 1997
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- -------- ---------- ---------- ---------
ADDITIONS
----------------------
CHARGED CHARGED TO
BALANCE AT TO OTHER BALANCE
BEGINNING COST AND ACCOUNTS-- (A) AT END
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS OF PERIOD
-------------- ---------- -------- ---------- ---------- ---------
Allowance for doubtful accounts:
Year ended May 30, 1997............... $621,800 $356,055 $ 89,355 $888,500
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
Note A. Write-off of uncollectible accounts, net of recoveries.
F-16
37
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(3) (a) Restated Articles of Incorporation Exhibit (3)(a) is
incorporated herein by reference to Exhibit 3.1 to the
Company's Form S-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.
(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.
38
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(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.
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.
39
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(l) 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(l) 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.
(m) 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)(m) 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.
(n) Marketing and Management Agreement dated November 2, 1994 by
and among Michigan Livestock Exchange, Indiana Livestock
Exchange and the Company.
Exhibit 10(n) 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.
(o) 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.
Exhibit 10(o) is incorporated herein by reference to
Exhibit 10(r) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, as
amended.
(p) 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.
Exhibit 10(p) 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 31, 1994, as
amended.
(q) 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.
Exhibit 10(q) 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 31, 1994, as
amended.
(r) 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.
Exhibit 10(r) 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 31, 1994, as
amended.
40
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(s) 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.
Exhibit 10(s) 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 31, 1994, as
amended.
(t) Amendment to Reimbursement Agreement, dated as of September
11, 1996, between the Company and Old Kent Bank.
Exhibit 10(t) is incorporated herein by reference to
Exhibit 10(w) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(u) 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.
Exhibit 10(u) is incorporated herein by reference to
Exhibit 10(x) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(v) 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.
Exhibit 10(v) is incorporated herein by reference to
Exhibit 10(y) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(w) Senior Secured Seasonal Line of Credit, dated as of August
5, 1997, among the Company, the lenders party thereto, and
Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New
York Branch, as agent for the lenders.
(x) Amendment Agreement, dated as of August 8, 1997, among the
Company, the Banks (as defined therein), and the Noteholders
(as defined therein).
(21) Subsidiaries of the registrant.
(23) Consent of Coopers & Lybrand LLP.
(27) Financial Data Schedule.