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EXHIBIT 13
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company has presented information in its Consolidated Statements of
Operations in a manner which delineates the results of those operations
designated as Remaining Operations and of those operations designated as
Divested Operations. Net sales from Remaining Operations are further classified
into three categories: (i) Branded Specialty Products, which include historical
sales of the Company's four nationally branded products -- International
Delight(R), Second Nature(R), Naturally Yours(TM) and Lactaid(R); (ii) Other
Specialty Products, which includes all sales of the Company's specialty foods
business other than Branded Specialty Products; and (iii) Velda and Other,
which includes sales of the Company's regional dairy located in Florida (Velda
Farms) and sales of the Company's other miscellaneous operations.
Throughout the following discussions, the results of operations for the
two-month period ended February 28, 1991 and the ten- month period ended
December 31, 1991 have been combined when compared to other annual periods in
order to provide meaningful comparisons.
The Company sold its Texas novelty/ice cream operation in July 1991 and
closed its Missouri novelty/ice cream operation in October 1991. The Company
completed the sales of its Maryland regional dairy (Embassy) and ice cream
(East Coast Ice Cream) operations in July 1992. The Company acquired Favorite
Foods Inc. ("Favorite") on March 31, 1993. Favorite is a cultured products and
ultrapasteurized processor headquartered in Fullerton, California which
recorded approximately $31 million in sales during the nine months ended
December 31, 1993. The results of operations for each respective period
presented includes such operations only for the periods that such operations
were owned or open for business, as the case may be.
On January 6, 1994, the Company announced a restructuring plan to sharpen
its focus on the faster-growing value-added segments of its core specialty food
products business, while reorganizing its operations to be more efficient. The
plan, which resulted in a $9 million charge in the fourth quarter, includes
provisions for reductions in workforce, relocation of the manufacturing for
certain product lines to gain operating efficiencies, and the abandonment of
other product lines. The charge also included $1.9 million representing the
excess of the book value of operating assets sold in 1991 and 1992 over their
estimated realizable value. The $9 million charge includes noncash expenses of
$4.4 million and future cash expenses of $4.6 million. Most of the cash
expenditures will occur during 1994. Management believes this plan, which is
already being implemented, will result in cost reductions in 1994 in the $5
million range.
The Company has also suspended the payment of the current nominal
dividend on its common stock immediately following the $.0375 per share payment
to holders of record as of December 31, 1993.
The Company also announced that on January 5, 1994, it had signed a
letter of intent to sell the stock of its wholly owned subsidiary, Velda Farms
Inc. ("Velda") for $48 million, of which $45 million is expected to be in cash
at closing. A gain is expected on the sale. When the sale is consummated, the
Company will have completed its divestiture of regional dairies and these
operations will be treated as discontinued operations. There can be no
assurance that this sale will be consummated or that the net proceeds will be
realized.
1993 COMPARED TO 1992
Net sales for the year ended December 31, 1993 totaled $396.7 million, a
decrease of $14.0 million (or 3.4%) from sales during 1992. The following
table reflects net sales by product category for each year:
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Year Ended Year Ended
Product Categories December 31, December 31,
------------------ 1992 1993
---------- -----------
(Dollars in Thousands)
Branded products . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,401 $ 82,556
Other specialty products . . . . . . . . . . . . . . . . . . . . . . . 162,819 191,883
Velda and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,126 122,229
---------- -----------
Remaining operations . . . . . . . . . . . . . . . . . . . . . . 351,346 396,668
Divested operations . . . . . . . . . . . . . . . . . . . . . . . . . . 59,285 -
---------- -----------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 410,631 $ 396,668
========== ===========
Net sales of branded products increased 22.5% to $82.6 million in
1993 from $67.4 million in 1992 reflecting volume increases in International
Delight, Lactaid and Naturally Yours. Second Nature volumes declined slightly
year to year. Net sales of other specialty products increased to $191.9
million in 1993 from $162.8 million in 1992 primarily as the result of the
acquisition of Favorite Foods on March 31, 1993. Volumes of specialty products
prior to the Favorite acquisition increased slightly year to year. Net sales
in the Velda and other category rose 0.9% reflecting relatively little change
in sales volumes period to period.
Net sales from Divested Operations were $59.3 million in 1992. These
sales include the Company's former regional dairy in Maryland (Embassy) and the
Company's former novelty/ice cream operation in Maryland (East Coast Ice
Cream), both of which were sold in July 1992.
Gross profit totaled $93.7 million or 23.6% of net sales during 1993
compared to $100.9 million or 24.6% of net sales in 1992. The gross profit
decrease was due to reduced margins in the Company's branded and other
specialty products categories resulting primarily from increased raw material
and overhead costs which could not be entirely recouped through pricing
improvements.
Operating expenses were $84.9 million or 21.4% of net sales in 1993
(including $9.0 million in restructuring and other charges) compared to $82.0
million (including other charges of $3.2 million) or 20.0% of net sales in
1992. Operating expenses before these charges were $75.9 million or 19.1% in
1993 compared to $78.7 million or 19.2% in 1992. Distribution expenses
declined as a percentage of net sales due to the shift away from regional dairy
operations. Selling expenses rose as a percentage of net sales primarily as a
result of increased advertising and promotion activities related to increased
sales of branded products. General and administrative expenses declined
slightly.
The Company's operating income for 1993 was $8.8 million, which includes
$10.7 million relating to Remaining Operations, a decline of $10.1 million from
1992. The decline in operating income was the result of the increase in
restructuring and other charges and the decrease in gross profit margins. Prior
to restructuring and other charges, the Company's operating income declined
from $22.1 million in 1992 to $17.8 million in 1993.
Interest expense declined 31.0% from $9.3 million in 1992 to $6.4 million
in 1993 primarily as the result of decreased indebtedness levels and lower
average borrowing costs during 1993.
The Company's net profit for 1993 of $.8 million compares to a net loss
in 1992 of $10.7 million. Included in the net loss for 1992, the Company
recorded an extraordinary loss of $5.7 million on the purchase of subordinated
debentures at a premium and charged $14.5 million of previously incurred
financing costs to expense as a result of refinancing its senior debt agreement
during 1992.
1992 COMPARED TO 1991.
Net sales for the year ended December 31, 1992 totaled $410.6 million, a
decrease of $68.9 million (or 14.4%) from sales during 1991. The following
table reflects net sales by product category for each year:
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Product Categories Combined Year Ended
------------------ 1991 December 31,
Periods 1992
---------- -----------
(Dollars in Thousands)
Branded products . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,610 $ 67,401
Other specialty products . . . . . . . . . . . . . . . . . . . . . . . 160,725 162,819
Velda and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,402 121,126
---------- -----------
Remaining operations . . . . . . . . . . . . . . . . . . . . . . 319,737 351,346
Divested operations . . . . . . . . . . . . . . . . . . . . . . . . . . 159,722 59,285
---------- -----------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 479,459 $ 410,631
========== ===========
Net sales of branded specialty products increased by 51.1%, to $67.4
million in 1992 from $44.6 million in 1991. This improvement was accomplished
primarily through increased sales volume of International Delight and Second
Nature. Net sales of other specialty products increased to $162.8 million in
1992 from $160.7 million in 1991, primarily as the result of increased sales
volume for cultured products. Net sales in the Velda and other category
increased 5.9% to $121.1 million in 1992 from $114.4 million in 1991, as a
result of both price increases that reflected higher bulk milk costs and
increased sales volumes.
Net sales from Divested Operations declined by 62.9% to $59.3 million in
1992 from $159.7 million in 1991 primarily as a result of the divestitures
described above. Sales from Divested Operations during 1992 include the
Company's regional dairy in Maryland (Embassy) and the Company's novelty/ice
cream operation in Maryland (East Coast Ice Cream) both of which were divested
in July 1992.
Gross profit totaled $100.9 million or 24.6% of net sales during 1992
compared to $118.1 million or 24.6% of net sales from Remaining Operations for
1991. Gross profit from Remaining Operations was $86.4 million or 24.6% of net
sales from Remaining Operations during 1992 compared to approximately $78.1
million or 24.4% of net sales from Remaining Operations for 1991. This gross
profit increase was the result of increased sales in all segments of the
Company's Remaining Operations. Gross margins for Remaining Operations
increased slightly over 1991 as a result of margin increases in the branded
products, offset by margin declines in Velda and certain other specialty
product categories.
Operating expenses were $82.0 million or 20.0% of net sales in 1992
compared to $99.1 million or 20.7% of net sales in 1991. Both years included
plant closing costs and other charges. As adjusted for these charges, operating
expenses were $78.7 million or 19.2% of net sales during 1992 while operating
expenses were $97.6 million or 20.4% of net sales for 1991. Distribution
expenses declined as a percent of net sales due to a shift away from regional
dairy operations that have higher distribution expenses. Selling expenses
increased as a percent of net sales primarily as the result of increased
advertising and promotional activities related to the sales of branded
specialty products. General and administrative expenses rose slightly as a
percentage of sales due to the allocation of relatively fixed corporate
overhead costs across a significantly lower net sales base.
The Company's operating income for 1992 was $18.9 million, a slight
decrease from 1991 operating income of $19.0 million. Operating income from
Remaining Operations was $21.0 million or 6.0% of net sales from Remaining
Operations for 1992 compared to operating income from Remaining Operations of
approximately $20.5 million or 6.4% of net sales for 1991. The Company's
increased operating income from Remaining Operations resulted from significant
sales gains in branded specialty food products, offset by the lower gross
margins at Velda Farms as compared to 1991, and increases in selling and
administrative expenses.
Interest expense declined by 45.3% to $9.3 million in 1992 from $17.1
million in 1991 as a result of the significant reduction in the Company's
indebtedness accomplished by using the net proceeds of the Company's public
stock offering and the divestitures. Interest rates on the Company's senior
floating rate debt also declined during 1992, which further reduced interest
expense for 1992 when compared to 1991.
The Company recorded a net loss for 1992 of $10.7 million compared to net
income of $57.7 million in 1991. The Company's 1991 net income included a
benefit of $58.1 million resulting from an extraordinary gain on the purchase
of subordinated debt at a discount. Included in the net loss for 1992, the
Company recorded an extraordinary loss of $5.7 million on the purchase of
subordinated debt at a premium and charged $14.5 million of previously incurred
financing costs to
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expense as a result of refinancing its senior debt agreement in 1992. The
Company expects its 1993 federal income tax obligation to be substantially
eliminated as a result of its net operating losses.
EARNINGS PER SHARE
The weighted average common shares outstanding has increased from
12,128,343 in 1992 to 15,011,607 in 1993, primarily as the result of the
Company's initial public offering in April 1992. Prior to the offering, fewer
shares were outstanding thereby lowering the average for 1992.
LIQUIDITY AND CAPITAL RESOURCES
In 1993, the Company generated cash of $16.7 million from its operating
activities, which, coupled with $41.7 million received from the issuance of
debt and reduced cash balances of $.5 million, was used to acquire Favorite
Foods for $30.0 million, to repay debt of $18.2 million, fund capital and other
expenditures of $8.6 million and pay dividends of $2.1 million on its common
stock
The Company announced on January 6, 1994, that it had signed a letter of
intent to sell the stock of its wholly owned subsidiary, Velda, for $48
million, of which $45 million is expected to be in cash at closing. The
current estimate of net cash proceeds after payment of expenses and taxes due
upon the sale is approximately $39.0 million. The current Senior Credit
Agreement requires that 50% of the proceeds be applied to the outstanding term
loan as a mandatory prepayment, 25% of such payment to be applied to the final
maturities of the term loan and 75% of such payment to be applied pro rata
across all remaining maturities. The Company expects that upon receipt of such
proceeds, it will seek an amendment to its existing Senior Credit Agreement to,
at a minimum, adjust the remaining amortization schedule of the term loan.
There can be no assurance that this sale will be consumated or that the
estimated net proceeds will be realized.
The Company believes that, taking into account this potential
divestiture, cash generated from its operations, together with borrowings under
the Revolver will provide the cash necessary to fund the Company's operations,
cash restructuring expenditures, debt service and capital expenditures for the
foreseeable future. The Company estimates that prior to the potential Velda
transaction, it would require cash of $26.8 million during 1994 to fund $4.6
million in cash restructuring expenses, $6.0 million in capital spending,
approximately $14.7 million in senior bank debt reduction, $.5 million for
common stock dividends and $1.0 million for expected working capital increases;
funding would be obtained from operations and short term borrowings, if
necessary. At December 31, 1993, the Company had approximately $8.1 million of
unused borrowing capacity under the Revolver. The Company discontinued the
payment of its common stock dividend following the payment of its quarterly
dividend of $.0375 per common share to holders of record as of December 31,
1993.
Due to the recording of the restructuring and other charges, it was
necessary for the Company to obtain a waiver of the net worth covenant as of
December 31, 1993. The Company was in compliance with all other financial
covenants as of that date. As previously stated, the Company intends to amend
its Senior Credit Agreement upon completion of the sale of Velda at which time
it intends to reset future financial covenants. If the Velda transaction is
not completed, certain covenants may require future amendment or waiver.
The Company's consolidated balance sheet includes significant goodwill
and intangible assets as a result of its financial restructuring on March 1,
1991, and the subsequent acquisition of Favorite. The Company continually
evaluates whether events and circumstances indicate the remaining estimated
useful life of goodwill warrants revision or that the remaining balance of
goodwill may not be recoverable. To make this evaluation the Company uses an
estimate of undiscounted net income over the remaining life of the goodwill.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
The Morningstar Group Inc.:
We have audited the accompanying consolidated balance sheets of The
Morningstar Group Inc. (a Delaware corporation) and subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for The Morningstar Group Inc.
and subsidiaries for the years ended December 31, 1993 and 1992 and for the ten
months ended December 31, 1991, and for the Predecessor Company for the two
months ended February 28, 1991. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Morningstar
Group Inc. and subsidiaries as of December 31, 1993 and 1992, and the results
of operations and cash flows for The Morningstar Group Inc. and subsidiaries
for the years ended December 31, 1993 and 1992 and for the ten months ended
December 31, 1991 and for the Predecessor Company for the two months ended
February 28, 1991, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Dallas, Texas,
February 11, 1994
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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, December 31,
ASSETS 1992 1993
------ -------------- --------------
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,851 $ 3,343
Receivables, net of allowance for doubtful accounts of $419
and $1,147, respectively . . . . . . . . . . . . . . . . . . . . . . . 30,587 36,621
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,784 15,127
Prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,986 9,966
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . 52,208 65,057
PROPERTY, PLANT AND EQUIPMENT:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,435 9,765
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . 17,925 22,557
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 29,682 37,807
-------------- --------------
Gross property, plant and equipment . . . . . . . . . . . . . 54,042 70,129
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . (8,979) (13,882)
-------------- --------------
Net property, plant and equipment . . . . . . . . . . . . . . 45,063 56,247
INTANGIBLE AND OTHER ASSETS:
Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . 2,340 3,177
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,801 90,114
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . 2,771 3,099
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,802 2,778
-------------- --------------
Total intangible and other assets . . . . . . . . . . . . . . 90,714 99,168
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 187,985 $ 220,472
============== ==============
The accompanying notes are an integral part of these consolidated statements.
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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1992 1993
------------------------------------ --------------- ---------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,248 $ 24,417
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,336 19,434
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . 10,167 14,750
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 41,751 58,601
LONG-TERM DEBT (net of current maturities) . . . . . . . . . . . . . . . . . . 86,329 105,425
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 4,126 1,913
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . .
STOCKHOLDERS' EQUITY :
Common stock, $.01 par value, 50,000,000 shares authorized;
14,258,012 in 1992 and 14,287,212 in 1993 issued and outstanding . . . . . 143 143
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . 69,467 69,541
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,831) (15,151)
-------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 55,779 54,533
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . $ 187,985 $ 220,472
============== ==============
The accompanying notes are an integral part of these consolidated statements.
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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Predecessor Successor
------------- ----------------------------------------------
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------ ------------ ------------ ------------
NET SALES:
Remaining operations . . . . . . . . . . . . $ 48,795 $ 270,942 $ 351,346 $ 396,668
Divested operations . . . . . . . . . . . . 24,403 135,319 59,285 -
------------ ------------ ------------ ------------
Total net sales . . . . . . . . . . 73,198 406,261 410,631 396,668
COST OF GOODS SOLD . . . . . . . . . . . . . . 55,186 306,134 309,769 302,987
------------ ------------ ------------ ------------
GROSS PROFIT:
Remaining operations . . . . . . . . . . . 12,302 65,809 86,444 93,681
Divested operations . . . . . . . . . . . 5,710 34,318 14,418 -
------------ ------------ ------------ ------------
Total gross profit . . . . . . . . . 18,012 100,127 100,862 93,681
OPERATING COSTS AND EXPENSES:
Distribution . . . . . . . . . . . . . . . . 9,242 47,095 40,505 35,576
Selling . . . . . . . . . . . . . . . . . . 3,228 15,271 18,350 21,660
General and administrative . . . . . . . . . 4,021 18,764 19,875 18,679
Restructuring and other charges . . . . . . - 1,500 3,227 9,000
------------ ------------ ------------ ------------
Total operating costs and expenses . 16,491 82,630 81,957 84,915
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS):
Remaining operations . . . . . . . . . . . . 2,631 17,884 20,955 10,666
Divested operations . . . . . . . . . . . . (1,110) (387) (2,050) (1,900)
------------ ------------ ------------ ------------
Total operating income . . . . . . . 1,521 17,497 18,905 8,766
INTEREST EXPENSE . . . . . . . . . . . . . . . 2,403 14,647 9,320 6,429
AMORTIZATION AND WRITE-OFF OF DEFERRED
FINANCING COSTS . . . . . . . . . . . . . . . 716 2,990 1,391 747
REFINANCING CHARGES . . . . . . . . . . . . . . - - 14,521 -
OTHER INCOME . . . . . . . . . . . . . . . . . (505) (2,217) (1,355) (1,279)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . (1,093) 2,077 (4,972) 2,869
PROVISION FOR INCOME TAXES . . . . . . . . . . - 1,350 27 1,885
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM . . . . . . . . . . . . . . . . . . . . (1,093) 727 (4,999) 984
EXTRAORDINARY ITEM . . . . . . . . . . . . . . 58,115 (a) - (5,676)(b) (164)(c)
------------ ------------ ------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . 57,022 727 (10,675) 820
LESS: DIVIDENDS ON PREFERRED STOCK . . . . . . - 1,875 939 -
------------ ------------ ------------ ------------
NET INCOME (LOSS) TO COMMON
STOCKHOLDERS . . . . . . . . . . . . . . . . $ 57,022 $ (1,148) $ (11,614) $ 820
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) before extraordinary item . $ (.12) $ (.15) $ (.49) $ .06
Extraordinary gain (loss) . . . . . . . . . 6.57 - (.47) (.01)
------------ ------------ ------------ ------------
Earnings (loss) . . . . . . . . . . . . . . $ 6.45 $ (.15) $ (.96) $ .05
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . 8,843,301 7,825,473 12,128,343 15,011,607
____________________________________
(a) Gain on purchase of senior subordinated debentures, net of applicable
taxes of $904,000.
(b) Loss on purchase of senior subordinated debentures, net of applicable
taxes of $0.
(c) Loss on purchase of senior subordinated debentures, net of applicable tax
benefit of $71,000.
The accompanying notes are an integral part of these consolidated statements.
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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
Common Stock and
Additional Paid-in-Capital
---------------------------------
Preferred Single Retained
Stock Class A Class B Class Deficit Total
---------- ---------- ---------- --------- --------- ----------
PREDECESSOR:
Balance, January 1, 1991 . . . . . . . . $ 17,307 $ 6,587 $ 2,372 $ - $(78,600) $ (52,334)
Net Income . . . . . . . . . . . . . . . - - - - 57,022 57,022
---------- ---------- ---------- --------- --------- ----------
Balance, February 28, 1991 . . . . . . . $ 17,307 $ 6,587 $ 2,372 $ - $(21,578) $ 4,688
========== ========== ========== ========= ========= ==========
SUCCESSOR:
Balance March 1, 1991 . . . . . . . . . $ - $ - $ - $ - $ - $ -
Issuance of common stock, March 1, 1991 - 15,421 2,815 - - 18,236
Dividends on redeemable preferred stock
($3.125 per share) . . . . . . . . . - - - - (1,875) (1,875)
Net Income . . . . . . . . . . . . . . . - - - - 727 727
---------- ---------- ---------- --------- --------- ----------
Balance, December 31, 1991 . . . . . . . - 15,421 2,815 - (1,148) 17,088
Dividends on redeemable preferred stock - - - - (939) (939)
($1.565 per share)
Conversion to single class of stock . . - (15,421) (2,815) 18,236 - -
Issuance of common stock . . . . . . . . - - - 50,281 - 50,281
Vesting of stock options . . . . . . . . - - - 1,093 - 1,093
Cash dividends on common stock . . . . . - - - - (1,069) (1,069)
($.075 per share)
Net Loss . . . . . . . . . . . . . . . . - - - - (10,675) (10,675)
---------- ---------- ---------- --------- --------- ----------
Balance, December 31, 1992 . . . . . . . - - - 69,610 (13,831) 55,779
Issuance of common stock . . . . . . . . - - - 74 - 74
Cash dividends on common stock . . . . . - - - - (2,140) (2,140)
($.15 per share)
Net Income . . . . . . . . . . . . . . . - - - - 820 820
---------- ---------- ---------- --------- --------- ----------
Balance, December 31, 1993 . . . . . . . $ - $ - $ - $ 69,684 $(15,151) $ 54,533
========== ========== ========== ========= ========= ==========
The accompanying notes are an integral part of these consolidated statements.
17
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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Predecessor Successor
------------- -------------------------------------------------
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------- ------------- ------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from customers . . . . . . . $ 75,152 $ 414,400 $ 403,815 $ 396,095
Interest received . . . . . . . . . . . . 4 108 194 238
Income tax refund . . . . . . . . . . . . - - - 6
Cash paid to suppliers and employees . . . (72,300) (373,615) (379,730) (372,949)
Interest paid . . . . . . . . . . . . . . (11,350) (14,575) (9,276) (6,240)
Income taxes paid . . . . . . . . . . . . - (678) (547) (453)
------------- ------------- ------------- --------------
Net cash provided by (used in) operating
activities . . . . . . . . . . . (8,494) 25,640 14,456 16,697
CASH FLOWS FROM INVESTING ACTIVITIES:
Divestiture (acquisition) of the Company
and subsidiaries:
Working capital . . . . . . . . . . . . 28,922 (27,782) 10,974 (2,936)
Property, plant and equipment . . . . . 75,827 (52,893) 76 (12,255)
Other assets . . . . . . . . . . . . . 70,991 (113,725) (782) (15,190)
Notes and receivables due from buyer
of subsidiary . . . . . . . . . . . . - - (1,000) -
Other long term liabilities . . . . . . (47,028) 47,028 - 354
------------- ------------- ------------- --------------
128,712 (147,372) 9,268 (30,027)
Capital expenditures . . . . . . . . . . . (256) (3,128) (5,530) (5,520)
Proceeds from sale of assets . . . . . . . 108 2,634 3,324 209
Other . . . . . . . . . . . . . . . . . . (219) (2,060) (2,119) (3,245)
------------- ------------- ------------- --------------
Net cash provided by (used in)
investing activities . . . . . . . . 128,345 (149,926) 4,943 (38,583)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance (redemption) of preferred stock . - 15,000 (17,814) -
Issuance of common stock . . . . . . . . . - 18,236 50,281 74
Proceeds from issuance of long-term debt . 263 92,189 104,000 35,000
Net borrowings (repayments) under
revolving credit facility . . . . . . . (14,850) 9,500 500 6,675
Principal payments on long-term debt . . . (110,881) (5,070) (154,409) (18,231)
Refinancing fees . . . . . . . . . . . . . - - (3,140) -
Dividends paid . . . . . . . . . . . . . . - - (535) (2,140)
------------- ------------- ------------- --------------
Net cash provided by (used in)
financing activities . . . . . . . . (125,468) 129,855 (21,117) 21,378
NET INCREASE (DECREASE) IN CASH . . . . . . . (5,617) 5,569 (1,718) (508)
CASH, BEGINNING OF PERIOD . . . . . . . . . . 5,617 - 5,569 3,851
------------- ------------- ------------- --------------
CASH, END OF PERIOD . . . . . . . . . . . . . $ - $ 5,569 $ 3,851 $ 3,343
============= ============= ============= ==============
The accompanying notes are an integral part of these consolidated statements.
18
11
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS RECONCILIATION OF
NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATIONS
(Dollars in thousands)
Predecessor Successor
------------- ------------------------------------------------
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------- ------------- ------------- --------------
NET INCOME (LOSS) . . . . . . . . . . . . . . $ 57,022 $ 727 $ (10,675) $ 820
ADJUSTMENTS TO RECONCILE NET
INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATIONS:
Depreciation . . . . . . . . . . . . . 1,280 4,662 4,998 5,293
Amortization of other assets . . . . . 279 1,498 1,042 922
Amortization of intangibles . . . . . . 1,663 6,857 6,348 4,954
Amortization of original issue discount 14 544 218 -
Refinancing charges . . . . . . . . . . - - 15,671 -
Restructuring and other charges . . . . - 749 2,048 9,000
(Gain) loss on fixed asset retirements (22) 20 68 90
Increase in noncash taxes . . . . . . . - - - 1,040
(Gain) loss on extinguishment of debentures (59,019) - 5,676 164
Change in assets and liabilities net of
effects from acquisitions and
divestitures of subsidiaries:
Accounts receivable . . . . . . . . 1,306 5,530 (8,451) (2,111)
Inventories . . . . . . . . . . . . (3,539) 9,249 (2,615) (2,939)
Prepaids and other . . . . . . . . (653) 2,085 200 (2,970)
Accounts payable . . . . . . . . . 1,563 (5,614) 2,809 1,988
Other accrued liabilities . . . . . (8,393) 284 (3,560) 2,660
Other long-term liabilities . . . . 5 (951) 679 (2,214)
------------- ------------- ------------- --------------
Total adjustments . . . . . . (65,516) 24,913 25,131 15,877
NET CASH PROVIDED BY (USED IN)
OPERATIONS . . . . . . . . . . . . . . . $ (8,494) $ 25,640 $ 14,456 $ 16,697
============= ============= ============= ==============
The accompanying notes are an integral part of these consolidated statements.
19
12
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
BACKGROUND
The Morningstar Group Inc. (together with its subsidiaries, the
"Company", "Morningstar", or "Successor") was formed in March 1991. On
April 1, 1988, the Company's predecessor, MorningStar Foods Inc. ("MSF"),
acquired substantially all of the net assets and operations of the Dairy
Group of The Southland Corporation.
Due to a change of ownership, the Company adopted a new basis of
accounting on March 1, 1991. In accordance with generally accepted
accounting principles, the assets and liabilities of the Company were
adjusted to their appraised fair market values as of this date (see Note
3 -- "Financial Restructuring").
In the second quarter of 1992 the Company accomplished a public
offering of 5,000,000 new shares of common equity, which provided $50.3
million in net cash proceeds which, combined with $104.0 million in new
senior borrowings was utilized to purchase $34.0 million in face amount
of the Company's 13% Senior Subordinated Debentures at a cash premium of
$4.1 million, to redeem $17.8 million of the Company's preferred stock
and to refinance $98.4 million of previously outstanding senior debt.
The Company announced on January 6, 1994, a new growth strategy
which includes $9 million in restructuring and other charges, the pending
sale of Velda Farms Inc. ("Velda") for $48 million and the cessation of
the payment of its dividend on common stock. When the sale of Velda is
consummated, the Company will have completed its divestiture of regional
dairies and these operations will be treated as discontinued operations.
There can be no assurance that this sale will be consummated.
DIVESTITURES
The Company has made significant divestitures since its inception .
Those operating units divested or closed are referred to as the "Divested
Operations". As a result of the divestitures, the size and scope of the
Company's operations have been significantly changed. The Company has
presented information within its Consolidated Statements of Operations to
provide a clearer delineation of the results of the Divested Operations
from those operations designated to be retained (the "Remaining
Operations").
In 1991, the Company divested a novelty/ice cream operation in Texas
and closed a novelty/ice cream operation in Missouri. In 1992, the
Company divested a regional dairy operation and a novelty/ice cream
operation, both located in Maryland.
FAVORITE FOODS ACQUISITION
On March 31, 1993, the Company completed its purchase of Favorite
Foods, Inc., formerly a subsidiary of Nestle USA, Inc., for approximately
$28 million plus expenses. Simultaneously with the purchase, the
acquired corporation was merged into Favorite Foods Inc., a Delaware
corporation (collectively "Favorite"). Favorite, headquartered in
Fullerton, California, is a processor of cultured and ultrapasteurized
products and recorded approximately $31 million in sales during the nine
months ended December 31, 1993. Favorite's results are included in the
Consolidated Statement of Operations for the period April 1 through
December 31, 1993. The Company amended its senior credit agreement to
increase the term loan and borrowed funds thereunder to complete this
purchase.
20
13
BUSINESS
The Company's Remaining Operations include its specialty operations
which manufacture and market food products that include nationally
branded products and other specialty, dairy-based cultured and
ultrapasteurized products. Remaining Operations also include Velda, a
leading supplier of dairy products to foodservice outlets and convenience
stores in Florida and a packaging operation located in Texas. The
packaging operation was sold in January 1994.
PRO FORMA RESULTS FROM REMAINING OPERATIONS
The following unaudited pro forma information is presented to
illustrate the estimated effects of and the elimination of non-recurring
charges related to: (i) the divestitures and closing of certain
operations during 1992; (ii) the completion of the May 1992 equity
offering and related financing and debenture purchase; (iii) the
acquisition of Favorite, as if each such transaction had occurred at
January 1, 1992; and (iv) the 1993 restructuring plan (see Note 6 -
"Restructuring and Other Charges") (dollars in thousands except per share
amounts):
Twelve Months Ended December 31,
------------------------------------
1992 1993
------------- ------------
(unaudited) (unaudited)
Pro forma net sales . . . . . . . . . . . . . . . . . . . . . . $ 394,403 $ 407,855
============= ============
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,716 $ 7,481
============= ============
Pro forma shares outstanding . . . . . . . . . . . . . . . . . 14,980,582 15,011,607
Pro forma earnings per share . . . . . . . . . . . . . . . . . $ 0.72 $ 0.50
============= ============
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intracompany transactions and balances have been eliminated.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company sells in 49 states and 16 foreign countries,
with a concentration of customers located in Florida and California. The
Company performs ongoing credit evaluations of its customers' financial
condition. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends and other information. The Southland Corporation
accounted for 21.9%, 13.8% and 5.8% of all net sales and 9.0%, 7.7% and
5.8% of net sales from Remaining Operations during 1991, 1992 and 1993,
respectively.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories are
summarized as follows (in thousands):
At December 31,
---------------------------
1992 1993
---------- -----------
Raw materials and supplies . . . . . . . . . . . . . . . . . . . $ 5,413 $ 8,970
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 5,371 6,157
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,784 $ 15,127
========== ==========
Finished goods inventories include the costs of materials, labor and
plant overhead.
21
14
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is depreciated on a straight-line
basis over the estimated useful lives of the assets, as follows:
Useful
Asset Category Life (Years)
-------------- ------------
Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 10
Buildings and Improvements . . . . . . . . . . . . . . . . . . . . . . . . 25
Property sold or retired is eliminated from the accounts in the year
of disposition. Major expenditures for renewals and betterments are
capitalized while maintenance and repairs are charged against income.
IDENTIFIABLE INTANGIBLE ASSETS
Certain identifiable intangible assets related to the 1988 and 1991
acquisitions were amortized over their respective estimated useful lives
which ended in 1993. Additional identifiable intangible assets of
$4,168,000 were recorded in 1990 to reflect product purchase agreements
entered into with the buyers of certain divested operations; these assets
were retired in 1993. Identifiable intangible assets of $3,690,000
relating to the acquisition of Favorite were added in 1993, and are being
amortized over their estimated useful lives which is generally 5 years.
Amortization costs totaled $658,000 for the two months ended February
28, 1991, $2,169,000 for the ten months ended December 31, 1991,
$2,709,000 in 1992 and $2,060,000 in 1993. The 1993 amortization does
not include the write-down of certain identifiable intangibles associated
with the 1993 restructuring and other charges. Accumulated amortization
was $4,878,000 and $513,000 at December 31, 1992 and 1993, respectively.
GOODWILL
Goodwill is amortized on a straight-line basis over 40 years and is
recorded at cost less accumulated amortization. The Company continually
evaluates whether events and circumstances indicate the remaining
estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. To make this
evaluation, the Company uses an estimate of undiscounted net income over
the remaining life of the goodwill. For Divested Operations, the Company
writes off the applicable goodwill. Amortization costs totaled $289,000
for the two months ended February 28, 1991, $1,698,000 for the ten months
ended December 31, 1991, $2,248,000 in 1992 and $2,148,000 in 1993.
Accumulated amortization was $3,946,000 and $6,094,000 at December 31,
1992 and 1993, respectively.
DEFERRED FINANCING COSTS
Costs incurred that relate to the issuance of indebtedness and the
corresponding accumulated amortization are included in deferred financing
costs in the accompanying consolidated balance sheets. Deferred financing
costs related to existing debt are amortized over the life of the related
debt. Accumulated amortization was $451,000 and $1,198,000 at December
31, 1992 and 1993, respectively.
OTHER ASSETS
Cases and containers are used to transport milk, juices and other
products to customers and are reflected in other assets in the
accompanying consolidated balance sheets. Such amounts are amortized over
a period ranging from one to two years. Amortization of such costs
included in cost of goods sold was $241,000 for the two months ended
February 28, 1991, $1,325,000 for the ten months ended December 31, 1991,
$1,003,000 in 1992 and $922,000 in 1993.
22
15
ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
At December 31,
---------------------------
1992 1993
---------- -----------
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . $ 322 $ 390
Payroll & benefits (accrued wages, vacation, and
profit sharing) . . . . . . . . . . . . . . . . . . . . . . . . 4,179 4,308
Restructuring accruals . . . . . . . . . . . . . . . . . . . . . 450 4,425
Insurance accruals . . . . . . . . . . . . . . . . . . . . . . . 4,249 5,083
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . 2,136 5,228
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,336 $ 19,434
========== ==========
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial position of the Company at December 31, 1993 includes
certain financial instruments which may have a fair value that is
different than that which is currently reflected on the financial
statements. However, any variation in value is insignificant.
SUPPLEMENTAL OPERATING INFORMATION
The Consolidated Statements of Operations segregate the Company's
net sales, gross profit and operating income (loss) between Remaining
Operations and Divested Operations. This information is obtained from
records that are maintained at each subsidiary.
In determining operating income for 1991, 1992, and 1993, expenses
of the corporate office were charged entirely against the Remaining
Operations. Amortization of goodwill and other identifiable intangibles
were also deducted from the operating income of Remaining Operations.
Plant closing and divestiture-related charges were charged to the
Divested Operations. The Company's profit sharing expense was allocated
between Remaining Operations and Divested Operations based on the amounts
contributed to each individual employee account. In 1992, compensation
expenses related to stock options were charged to Remaining Operations
(see Note 6 - "Restructuring and Other Charges"). In 1993, $7.1 million
of the restructuring provision related to continuing units and was
charged to Remaining Operations.
NET SALES
The Company recognizes revenue upon shipment to customers.
Intracompany sales principally between the "Other Specialty Products"
category and the "Velda and Other" and "Divested Operations" categories
have been eliminated. These intracompany sales totaled $6,589,000 for the
two months ended February 28, 1991, $32,987,000 for the ten months ended
December 31, 1991, $26,642,000 for 1992 and $38,409,000 for 1993.
INCOME TAXES
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," was issued in February 1992. The Company
elected to adopt the new standard effective January 1, 1992. The
adoption of SFAS 109 had no material effect on the Company's financial
statements.
OTHER INCOME
Other income primarily consists of purchase discounts and royalty
revenue.
EARNINGS (LOSS) PER COMMON SHARE
The earnings (loss) per common share is computed based on the
weighted average number of shares outstanding during the period
reflecting retroactively the 9 for 1 split that occurred on April 24,
1992 in conjunction with the Company's initial public equity offering.
The impact of stock options discussed in Note 9 has not been considered
in 1991 and 1992 because of their antidilutive effect.
23
16
FINANCIAL STATEMENT PRESENTATION
Certain 1992 balances have been reclassified to conform to the 1993
presentation.
(3) FINANCIAL RESTRUCTURING
On March 1, 1991, the Company completed a comprehensive financial
restructuring of its capitalization (the "Financial Restructuring"). In
connection with the Financial Restructuring, a group of investors formed
by Hicks, Muse, Tate and Furst Incorporated ("Hicks Muse") acquired
shares of class A (voting) common stock representing approximately 80% of
the combined voting and non-voting common stock of the Company (assuming
full exercise of the Warrants) by purchasing for $30.0 million: (i)
650,000 shares of class A (voting) common stock, par value $.01 per
share; (ii) 600,000 shares of 15% Series A Exchangeable Preferred Stock,
par value $.01 per share (the "Preferred Stock"); and (iii) warrants to
purchase 150,000 additional shares of class A (voting) common stock at a
nominal exercise price (the "Warrants"). Hicks Muse is a privately held,
Dallas, Texas based investment firm engaged in acquisitions,
recapitalizations and strategic investments. Simultaneously with this
equity infusion, the Company obtained a new $140.0 million senior credit
facility. The Company used the $30.0 million received from the Hicks
Muse investment group and approximately $118.0 million borrowed under
this senior credit facility to: (i) purchase approximately $110.2 million
aggregate principal amount of the Company's 13% Senior Subordinated
Debentures Due 2000 ("Debentures") for $525 per $1,000 principal amount,
consisting of $460 in respect of principal and $65 in respect of accrued
and unpaid interest; (ii) repay outstanding balances under an existing
senior term loan of approximately $46.8 million and a revolving credit
facility of approximately $15.4 million; (iii) repay an outstanding
bridge loan from a then related party of approximately $11.8 million
(including amounts for accrued and unpaid interest); and (iv) pay costs
and expenses related to the Financial Restructuring of approximately
$16.0 million. In connection with the Financial Restructuring, the new
senior lenders received an aggregate of 150,000 shares of class B
(non-voting) common stock, representing approximately 15.0% of the
combined voting and non-voting common stock of the Company (assuming full
exercise of the Warrants). Existing stockholders received cash or class A
(voting) common stock representing in the aggregate, 5% of the combined
voting and non-voting common stock of the Company (assuming full exercise
of the Warrants). The common and preferred equity originally authorized
and issued in 1988 was canceled in the Financial Restructuring. Hicks
Muse's interest in the Company is held primarily through HMC/MorningStar,
L.P. ("HMCM"), a limited partnership, of which the general partner is HMC
Partners, L.P. The general partner of HMC Partners, L.P. is Hicks Muse.
(4) INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
Year Ended
December 31,
----------------------------------
1991 1992 1993
-------- --------- ---------
Current . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25 $ - $ 250
Deferred tax expense charged to goodwill . . . . . . . . . 1,175 - 1,085
State income tax . . . . . . . . . . . . . . . . . . . . . 150 27 550
-------- --------- --------
Provision for income taxes . . . . . . . . . . . . . . . . $ 1,350 $ 27 $ 1,885
======== ========= ========
24
17
Temporary differences and carryforwards which give rise to a
significant portion of net deferred income tax assets are as follows (in
thousands):
At December 31,
---------------------------
1992 1993
---------- -----------
Deferred Tax Assets:
Net operating loss carryforward . . . . . . . . . . . . . $ 10,800 $ 7,887
Accrued vacation . . . . . . . . . . . . . . . . . . . . . 690 811
Accrued workers' compensation . . . . . . . . . . . . . . 1,052 946
Restructuring reserves . . . . . . . . . . . . . . . . . . - 2,331
Other accrued expenses and reserves . . . . . . . . . . . 1,934 2,075
Other deferred tax assets . . . . . . . . . . . . . . . . 210 1,548
---------- ----------
Total deferred tax assets . . . . . . . . . . . . . . . . . 14,686 15,598
Deferred Tax Liabilities:
Accelerated depreciation and amortization . . . . . . . . 3,097 2,880
Other deferred tax liabilities . . . . . . . . . . . . . . 386 519
---------- ----------
Deferred income taxes . . . . . . . . . . . . . . . . . . 11,203 12,199
Valuation allowance . . . . . . . . . . . . . . . . . . . (11,203) (12,199)
---------- ----------
Long-term deferred income taxes, net . . . . . . . . . . . . $ - $ -
========== ==========
Approximately $9.7 million of the deferred tax assets were created
prior to the Company's Financial Restructuring transaction (see Note 3 -
"Financial Restructuring"), and when utilized will result in a reduction
of goodwill associated with that transaction.
The provision (benefit) for income taxes was different than the
amount computed using the statutory income tax rate for the reasons set
forth in the following table (in thousands):
Year Ended
December 31,
----------------------------------
1991 1992 1993
-------- --------- ---------
Income tax (benefit) computed at statutory rate . . . . . . $ 706 $ (1,690) $ 975
State income taxes . . . . . . . . . . . . . . . . . . . . 150 27 363
Tax on non-deductible goodwill amortization . . . . . . . . 486 673 1,018
Net operating loss not recognized (recognized) . . . . . . - 1,017 (494)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 23
-------- --------- --------
Provision for income taxes . . . . . . . . . . . . . . . . . $ 1,350 $ 27 $ 1,885
======== ========= ========
AVAILABILITY AND AMOUNT OF NET OPERATING LOSS CARRYFORWARDS
At December 31, 1993, the Company had pretax net operating loss
("NOL") carryforwards for federal income tax purposes of $23.2 million
which are available to offset future income tax liabilities. NOL
carryforwards expire by 2007.
25
18
(5) LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
At December 31,
--------------------------
1992 1993
----------- -----------
Senior term loan . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,667 $ 100,500
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . 10,000 16,675
Industrial development revenue bonds . . . . . . . . . . . . . . . . 3,000 3,000
Senior subordinated debentures . . . . . . . . . . . . . . . . . . . 4,829 -
----------- -----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . 96,496 120,175
Less: Current maturities . . . . . . . . . . . . . . . . . . . . . 10,167 14,750
----------- ----------
Long-term debt, net of current maturities . . . . . . . . . . . . . . $ 86,329 $ 105,425
=========== ==========
Maturities of long-term debt at December 31, 1993, are as follows (in
thousands):
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,750
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,625
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,500
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,500
1998 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,800
----------
Total maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,175
==========
SENIOR TERM LOAN AND REVOLVING CREDIT FACILITY
In March 1993 in conjunction with the acquisition of Favorite Foods
Inc., the Company's existing credit agreement was amended and restated
(the "Senior Credit Agreement"). The Senior Credit Agreement includes a
six-year term loan (the "Term Loan") and a $30 million revolving credit
facility (the "Revolver"). At December 31, 1993, $16.7 million was
borrowed under the Revolver and approximately $5.2 million was issued
pursuant to letters of credit.
The Senior Credit Agreement also requires mandatory prepayments of
the loans under certain conditions such as the sale of assets, excess
cash flow, the issuance of new debt or equity and the receipt of certain
other cash proceeds.
The initial base interest rate on the Term Loan is the prime rate
plus .75% with reduction provided in the future for improved interest
coverage ratios (as defined in the Senior Credit Agreement). The initial
base interest rate on the Revolver is the prime rate plus .50% with
similar reduction provisions as those in the Term Loan. Both facilities
have alternative rate options based upon spread above the London
Interbank Offering Rate ("LIBOR"). At December 31, 1993, $100.5 million
in borrowings under the Term Loan were drawn at a weighted average
interest rate of 5.53%. At December 31, 1993, $16.7 million in
borrowings under the Revolver were drawn at a weighted average interest
rate of 5.33%. Borrowings under these lending facilities are secured by
virtually all of the assets of the Company. Up to $17 million in letters
of credit may be issued under the Revolver. As of December 31, 1993
approximately $8.1 million was additionally available to the Company
under the Revolver. A fee of 2% per year is charged on outstanding
letters of credit. A 0.5% per year commitment fee on uncommitted funds
is payable quarterly. The Revolver matures on March 20, 1999 coincident
with the scheduled maturity of the Term Loan. The Revolver commitment
will be reduced from $30 million to $25 million on June 20, 1994. The
Senior Credit Agreement contains numerous covenants pertaining to
management and operations of the Company including limitations on the
amount of annual dividends to be paid, limitations on the amount of
annual capital expenditures as well as specification of certain leverage
ratios, interest coverage ratios, fixed charge coverage ratios and
minimum net worth.
The Company announced on January 6, 1994, that it had signed a
letter of intent to sell the stock of its wholly owned subsidiary, Velda,
for $48 million, of which $45 million is expected to be in cash at
closing. The current estimate of net cash proceeds after payment of
expenses and taxes due upon the sale is approximately $39.0 million. The
current Senior Credit Agreement requires that 50% of the proceeds be
applied to the outstanding term loan as a mandatory prepayment, 25% of
such payment to be applied to the final maturities of the term loan and
75% of such
26
19
payment to be applied pro rata across all remaining maturities. The
Company expects that upon receipt of such proceeds, it will seek an
amendment to its existing Senior Credit Agreement to, at a minimum,
adjust the remaining amortization schedule of the term loan. There can
be no assurance that this sale will be consumated or that the estimated
net proceeds will be realized.
Due to the recording of the restructuring charge, it was necessary
for the Company to obtain a waiver of the net worth covenant as of
December 31, 1993. The Company was in compliance with all other
financial covenants as of that date. As previously stated, the Company
intends to amend its Senior Credit Agreement upon completion of the sale
of Velda at which time it intends to reset future financial covenants.
If the Velda transaction is not completed, certain covenants may require
future amendment or waiver.
INDUSTRIAL DEVELOPMENT REVENUE BONDS
The industrial development revenue bonds were issued on December 14,
1988 to fund the construction of a waste water treatment facility at the
Company's Frederick, Maryland processing plant. The bonds mature on
December 1, 2003, and bear interest that fluctuates weekly based upon
market factors. The interest rate in effect for these bonds on December
31, 1993 was 3.75%.
(6) RESTRUCTURING AND OTHER CHARGES
In contemplation of the sale of certain assets (see Note 1 -
"Organization and Business"), the Company recorded provisions in the ten
months ended December 31, 1991 Consolidated Statements of Operations
representing management's best estimate of the cost of restructuring. In
1992, additional losses were incurred as divestitures were completed and
compensation expense was recorded related to the accelerated vesting of
stock options in connection with the Company's initial public offering.
On January 6, 1994, the Company announced a restructuring plan to sharpen
its focus on the faster-growing value-added segments of its core
specialty food products business, while reorganizing its operations to be
more efficient. The plan, which resulted in a $9 million charge in the
fourth quarter, includes provisions for reductions in workforce,
relocation of the manufacturing for certain product lines to gain
operating efficiencies, and the abandonment of other product lines. The
$9 million charge includes noncash expenses of $4.4 million and future
cash expenses of $4.6 million. Most of the cash expenditures will occur
during 1994. Management believes this plan, which is already being
implemented, will result in cost reductions in 1994 in the $5 million
range. Approximately 100 employment positions are being eliminated as a
part of the 1993 restructuring plan. The relocation of product lines
impacts each of the Company's six specialty dairy facilities. The charge
also includes a $1.9 million representing the excess of book value of
operating assets sold in 1991 and 1992 over their estimated realizable
value.
The components of these charges include (in thousands):
Ten Months Year Ended
Ended ----------------------------
December 31, December 31, December 31,
1991 1992 1993
------------ ------------ ------------
Restructuring Charge
Consulting, severance and related personnel costs . . . $ - $ - $ 2,500
Relocation of product lines . . . . . . . . . . . . . . - - 3,600
Excess data processing conversion expenses . . . . . . - - 1,000
------------ ------------ ------------
Subtotal . . . . . . . . . . . . . . . . . . . . - - 7,100
Other Charges
Estimated operating loss on closed plant . . . . . . . 1,500 - -
Loss on divestitures . . . . . . . . . . . . . . . . . - 2,134 1,900
Compensation expense on stock options . . . . . . . . . - 1,093 -
------------ ------------ ------------
Subtotal . . . . . . . . . . . . . . . . . . . . 1,500 3,227 1,900
------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . $ 1,500 $ 3,227 $ 9,000
============ ============ ============
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20
(7) EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
The Company has adopted a defined contribution profit sharing plan
for the purpose of providing retirement benefits for eligible non-union
employees. At December 31, 1993, eligible employees totaled 775, of
which 609 were participants in the plan. Contributions are made by the
Company and by plan participants. Company contributions are allocated to
the participants on the basis of individual contributions, the age of the
participant and the number of years that the participant has been in the
plan. During 1993 the Company also contributed to two single-employer
and four multi-employer pension/retirement plans under the terms of
various union contracts, which covered 482 of its 1432 employees at
December 31, 1993. The number of union pension plans and the portion of
employees covered has varied from year to year. Contributions to these
pension plans are as follows (in thousands):
Two Months Ten Months
Ended Ended Year Ended Year Ended
February 28, December 31, December 31, December 31,
1991 1991 1992 1993
------------ ------------ ------------ -----------
Defined contribution profit sharing plan $ 83 $ 667 $ 710 $ 637
Union pension plans . . . . . . . . . . 240 1,228 998 1,197
POST-RETIREMENT BENEFIT PLANS
In December 1990, the Financial Accounting Standards Board issued a
new standard on accounting for post-retirement benefits other than
pensions. This new standard requires that the expected cost of these
benefits must be charged to expense during the years that the employees
render service. The cost of providing these benefits has been primarily
paid by non-union retirees and the Company's calculation of its
obligation is not material as of December 31, 1993.
The Company's union employees participate in various defined
contribution union plans that provide health care and other welfare
benefits during their employment and after retirement. Amounts charged to
expense and contributed to these health and welfare plans totaled
$576,000 for the two months ended February 28, 1991, $2,769,000 for the
ten months ended December 31, 1991, $2,175,000 for 1992 and $2,292,000 in
1993. Having made these payments, no remaining obligations exist for
these years under the union plans.
(8) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain plant facilities and related equipment
and vehicles under operating lease arrangements. Lease expense pursuant
to such arrangements was approximately $1,900,000 for the two months
ended February 28, 1991, $9,410,000 for the ten months ended December
31, 1991, $9,840,000 for 1992 and $8,860,000 for 1993.
The following is a summary of future minimum annual lease payments
under noncancelable operating lease obligations as of December 31, 1993
(in thousands):
Year Ending
December 31,
------------
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,742
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,362
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,903
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,349
1998 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,976
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,332
==========
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EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, as amended, with
its Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer. The agreements describe the terms and conditions of employment
for each of these individuals and terminate on February 28, 1995, unless
terminated earlier due to death, disability or otherwise. In addition,
the agreements provide for the payment of approximately two and one-half
times the executive's then current salary if terminated without cause or
by each such executive after a change in control (as defined) or a
material change in the terms or duties of the executive's employment. For
the year ended December 31, 1993, the combined salaries and bonuses for
these executives was approximately $1.5 million.
LITIGATION
The Company has received a "target letter" dated December 31, 1991,
from the United States Department of Justice informing it that
Morningstar is a target of a federal grand jury investigation of
suspected bid-rigging and market allocation in the dairy industry in the
State of Texas. The investigation relates to activities conducted in the
fluid milk industry in Texas. Oak Farms and Cabell's (collectively the
"Texas Dairy Subsidiaries") were formed by the Company in March 1988 in
connection with the acquisition of substantially all of the assets of
Southland's dairy operations. The Texas Dairy Subsidiaries conducted
fluid milk operations in Texas and were sold to Southern Foods Group,
Inc. ("Southern Foods") in September 1990, which merged them into its
subsidiary, Schepps-Foremost, Inc.
The investigation by the Department of Justice is continuing, and
the scope and time of the conspiracies that may be alleged by the
government are uncertain. Based on the Company's internal investigation
to date and the advice of special counsel with respect to such matters,
the Company believes Morningstar should not be, and that Morningstar
should ultimately be removed as, a target given that (i) all of
Morningstar's Texas fluid milk operations were conducted through the
Texas Dairy Subsidiaries and (ii) the Company is not aware of any
evidence that any officers of Morningstar had any knowledge of or
participated in such alleged wrongdoings.
The Company has agreed to indemnify purchasers of its divested
operations with regard to certain potential liabilities arising out of
the acquisition of such operations. In connection therewith, the Company
has indemnified Southern Foods, the purchaser of the Oak Farms and
Cabell's dairy subsidiaries, against claims related to compliance with
environmental regulations and fair trade practices arising out of the
prior operation of Oak Farms and Cabell's through March 2000. The
Company is aware that Southern Foods may claim that the Company is
obligated to indemnify Southern Foods with respect to any illegal
activities which are found to occur prior to the sale of the Texas Dairy
Subsidiaries to Southern Foods.
The Company cannot accurately predict the outcome of the
government's investigation. However, based upon the information
available to the Company at this time, the Company believes that this
matter should not have a material impact on the Company's financial
position or future results of operations.
From time to time the Company is subject to other litigation in the
ordinary course of its business. In connection with the divestitures of
certain of the Company's operations, the Company assumed certain
obligations of indemnification, none of which is believed to be material
to the Company. The Company maintains insurance in respect of certain
losses that may result from its current or future operations. The
Company believes that the outcome of any existing litigation, after
considering the indemnities and insurance related to such litigation,
would not have a material impact on its operations.
(9) EQUITY
1991 STOCK OPTION PLAN
In March 1991, the Company established the 1991 Incentive and
Nonstatutory Stock Option Plan which provides for the issuance of options
to purchase 999,999 shares of common stock to key employees of the
Company. At December 31, 1993, 771,741 tenure options and 228,258
incentive options had been granted to employees. Upon completion of the
common stock offering in 1992, the incentive options became vested,
resulting in compensation expense of $1,093,000. Of the options
outstanding, 466,844 tenure options and 228,258 incentive options are
currently exercisable. The exercise price for all options granted was
$2.56 per share, which was the fair market value of the options at the
date of issue. The options expire ten years after the date of their
issuance.
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22
1992 STOCK OPTION PLAN
In July 1992, the Company established the 1992 Incentive and
Nonstatutory Option Plan which provides for the issuance of options to
purchase 181,818 shares of common stock to key employees of the Company.
At December 31, 1993, 160,000 options had been granted to employees.
The exercise price for all options granted is $9.00 per share, which was
the fair market value of the options at the date of issue. These options
become exercisable over a 3-year period. The options expire ten years
after the date of their issuance.
A summary of transactions for the years ended December 31, 1992 and
1993 is set forth in the following table.
1991 Plan 1992 Plan
Number of Options Number of Options
----------------- -----------------
Outstanding at December 31, 1991 . . . . . . . . . . 999,999 -
Granted in 1992 . . . . . . . . . . . . . . . . . . - 150,000
-------------- --------------
Outstanding at December 31, 1992 . . . . . . . . . . 999,999 150,000
Granted in 1993 . . . . . . . . . . . . . . . . . . - 11,000
Cancelled in 1993 . . . . . . . . . . . . . . . . . - (1,000)
Exercised in 1993 . . . . . . . . . . . . . . . . . (29,000) -
-------------- --------------
Outstanding at December 31, 1993 . . . . . . . . . . 970,999 160,000
============== ==============
Exercisable at December 31, 1992 . . . . . . . . . . 467,064 -
============== ==============
Exercisable at December 31, 1993 . . . . . . . . . . 695,102 53,319
============== ==============
(10) RELATED PARTY TRANSACTIONS
PREFERRED STOCK SALE
On September 17, 1991, HMCM and certain of its affiliates, including
Messrs. Hicks and Muse, (the "Hicks Muse Group"), collectively sold
532,500 shares of Preferred Stock, 205,932 shares of Common Stock and
133,125 Warrants (the "Preferred Stock Sale") to a group of investors
composed of Chemical Equity Associates ("CEA"), Wand/MorningStar
Investments, L.P. ("Wand"), RFE Investment Partners IV, L.P. ("RFE") and
First National Bank of Chicago, Trustee of the Institutional Venture
Capital Fund II ("Fund II", and together with Chemical, Wand and RFE the
"Preferred Buyers"). Messrs. Hicks and Muse are directors, officers and
controlling stockholders of Hicks Muse, the general partner of the
partnership that is the general partner of HMCM. Mr. Hicks resigned from
the Board of Directors of the Company on December 14, 1993. Mr. Muse is
a director of the Company.
The Company, in recognition of certain benefits received by it in
connection with the aforementioned sale of securities, agreed to pay the
reasonable out of pocket expenses, including attorneys fees, incurred by
the Hicks Muse Group and the Preferred Buyers in connection with such
transaction. The aggregate amount of such expenses was approximately
$522,000.
In May 1992, in connection with the public offering the Company
redeemed all its outstanding preferred stock, for which the Hicks Muse
Group was paid a total of $702,000. Mr. Tate, who is a director of the
Company, received approximately $5,000 for his preferred stock.
HICKS MUSE
The Company entered into a financial advisory agreement dated March
1, 1991, as amended, pursuant to which Hicks Muse has provided financial
advisory services to the Company in connection with the negotiation and
financing of the Financial Restructuring and will continue to provide
financial advisory services to the Company in the future. The term of
this agreement is ten years and will continue from year to year
thereafter unless terminated by either party. As compensation for such
services, the Company pays Hicks Muse a fee of $50,000 per quarter,
together with all reasonable expenses incurred in connection therewith.
During 1994 this quarterly fee will be $28,500 plus reasonable expenses.
The Company paid a total of $150,000 during 1991, $200,000 during 1992
and $200,000 during 1993 in quarterly fees and reimbursed Hicks Muse
approximately $39,000, $30,000 and $21,000 for expenses for each year,
respectively. Hicks Muse was also paid a fee of $420,000 relating to the
acquisition of Favorite.
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In connection with the Financial Restructuring, Hicks Muse was paid
approximately $3.0 million, of which $2,750,000 was paid in the first
quarter of 1991.
C. DEAN METROPOULOS
The Company entered into an advisory agreement dated October 1,
1993, pursuant to which C. Dean Metropoulos will provide advisory
services to the Company in implementing its new growth strategy and
accomplishing its 1993 restructuring plan. The term of this agreement is
three years and is cancelable by either party at any time. As
compensation for such services, the Company pays Mr. Metropoulos a
monthly fee of $20,833 plus all reasonable expenses incurred in
connection therewith. During 1993, the Company paid a total of $62,500
in monthly fees and reimbursed $25,000 in expenses pursuant to this
agreement.
(11) QUARTERLY FINANCIAL INFORMATION (Unaudited)
Quarterly financial information for the years ended December 31,
1992 and 1993 is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
DOLLARS IN THOUSANDS:
Net Sales . . . . . . . . . . . . . 1992 $ 109,374 $ 121,267 $ 87,020 $ 92,970
1993 88,277 103,361 98,734 106,296
Gross profit . . . . . . . . . . . . 1992 27,998 29,709 19,176 23,979
1993 23,199 24,924 21,298 24,260
Net income (loss) before
extraordinary item . . . . . . . . 1992 201 (11,953) (a) 1,630 5,123
1993 1,949 2,670 560 (4,195) (b)
Extraordinary gain (loss) . . . . . . 1992 - (5,582) (94) -
1993 - (164) - -
Net income (loss) . . . . . . . . . . 1992 201 (17,535) (a) 1,536 5,123
1993 1,949 2,506 560 (4,195) (b)
PER COMMON SHARE:
Earnings (loss) before
extraordinary item . . . . . . . . 1992 $ (.07) $ (1.00) $ .11 $ .34
1993 .13 .18 .04 (.29)
Earnings (loss) . . . . . . . . . . . 1992 (.07) (1.46) .10 .34
1993 .13 .17 .04 (.29)
Cash dividends declared . . . . . . . 1992 - - .0375 .0375
1993 .0375 .0375 .0375 .0375
Market Price Range:
High . . . . . . . . . . . . . . . . 1992 $ - $ 11.00 $ 10.75 $ 11.75
Low . . . . . . . . . . . . . . . . . 1992 - 8.75 7.75 9.25
High . . . . . . . . . . . . . . . . 1993 13.00 11.25 10.75 10.00
Low . . . . . . . . . . . . . . . . . 1993 10.50 8.50 8.75 6.00
______________________________________________
(a) Includes other charges of $2,311,000 and refinancing charges of
$14,518,000.
(b) Includes restructuring and other charges of $9,000,000.
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24
Selected Financial Data
1989 Through 1993
(Dollars in thousands, except per share amounts)
Predecessor(a) Successor
----------------------------------- -------------------------------------
Two Ten
Months Months Year Year
Year Ended Ended Ended Ended Ended
December 31, February December December December
-------------------- 28, 31, 31, 31,
STATEMENTS OF OPERATIONS DATA 1989 1990 1991 1991 1992 1993
-------------------- -------- --------- -------- ---------
Net sales:
Remaining operations . . . . . . . $288,443 $319,356 $ 48,795 $270,942 $351,346 $396,668
Divested operations . . . . . . . 520,861 383,140 24,403 135,319 59,285 -
--------- --------- -------- -------- -------- --------
Total net sales . . . . . . . 809,304 702,496 73,198 406,261 410,631 396,668
Costs of goods sold . . . . . . . . 650,818 550,577 55,186 306,134 309,769 302,987
--------- --------- -------- -------- -------- --------
Gross profit:
Remaining operations . . . . . . . 55,530 70,111 12,302 65,809 86,444 93,681
Divested operations . . . . . . . 102,956 81,808 5,710 34,318 14,418 -
Operating costs and expenses:
Distribution . . . . . . . . . . . 96,935 85,689 9,242 47,095 40,505 35,576
Selling . . . . . . . . . . . . . . 20,689 19,709 3,228 15,271 18,350 21,660
General and administrative . . . . 32,263 30,141 4,021 18,764 19,875 18,679
Restructuring and other charges . . 12,076 3,510 - 1,500 3,227 9,000
--------- --------- -------- -------- -------- --------
Total operating costs and expenses 161,963 139,049 16,491 82,630 81,957 84,915
Operating income (loss):
Remaining operations . . . . . . . 7,501 17,022 2,631 17,884 20,955 10,666
Divested operations . . . . . . . . (10,978) (4,152) (1,110) (387) (2,050) (1,900)
Interest expense . . . . . . . . . . 37,003 35,082 2,403 14,647 9,320 6,429
Amortization . . . . . . . . . . . . 2,879 4,238 716 2,990 1,391 747
Refinancing charges . . . . . . . . . - - - - 14,521 -
Other (income) expense . . . . . . . (3,902) (4,143) (505) (2,217) (1,355) (1,279)
--------- --------- -------- -------- -------- --------
Income (loss) before income taxes . . (39,457) (22,307) (1,093) 2,077 (4,972) 2,869
Provision for income taxes . . . . . - - - 1,350 27 1,885
--------- --------- -------- -------- -------- --------
Income (loss) before extraordinary item (39,457) (22,307) (1,093) 727 (4,999) 984
Extraordinary item, net of tax . . . - - 58,115 (b) - (5,676) (c) (164) (d)
--------- --------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . (39,457) (22,307) 57,022 727 (10,675) 820
Dividends on preferred stock . . . . 1,731 1,904 - 1,875 939 -
--------- --------- -------- -------- -------- --------
Net income (loss) to common stockholders $(41,188) (24,211) $ 57,022 $ (1,148) $(11,614) $ 820
========= ========= ========= ======== ======== ========
Earnings (loss) per common and
equivalent share:
Before extraordinary item . . . . . $ (4.66) $ (2.74) $ (.12) $ (.15) $ (.49) $ .06
Extraordinary gain (loss) . . . . . - - 6.57 - (.47) (.01)
--------- --------- -------- -------- -------- --------
Net earnings (loss) . . . . . . . . $ (4.66) $ (2.74) $ 6.45 (b) $ (.15) $ (.96) (c) $ .05 (d)
Weighted average common and common
equivalent shares outstanding . . . 8,843,301 8,843,301 8,843,301 7,825,473 12,128,343 15,011,607
OTHER DATA
Depreciation . . . . . . . . . . . $ 15,267 $ 11,592 $ 1,280 $ 4,662 $ 4,998 $ 5,293
Amortization . . . . . . . . . . . 11,394 13,196 1,942 8,355 7,390 5,876
Capital expenditures . . . . . . . 7,163 2,754 256 3,128 5,530 5,520
BALANCE SHEET DATA
Working capital . . . . . . . . . . $ 38,875 $ 25,030 $ 23,817 $ 22,436 $ 20,624 $ 21,206
Total assets . . . . . . . . . . . 331,690 231,338 231,479 217,970 187,985 220,472
Current portion of long-term debt . 75,248 1,782 221 7,048 10,167 14,750
Long-term debt . . . . . . . . . . 213,622 225,527 167,294 132,794 86,329 105,425
Preferred stock . . . . . . . . . . 17,327 17,307 17,307 16,875 - -
Common stockholders' equity . . . . (47,334) (69,641) (12,619) 17,088 55,779 54,533
________________________________
(a) The Company was formed in 1988 to acquire several regional dairies,
novelty/ice cream operations and specialty food operations. On March 1, 1991,
the Financial Restructuring resulted in a change in control of the Company.
The statements of operations data, other data and balance sheet data of the
predecessors and successor are not comparable due to the application of
purchase accounting in connection with the 1988 acquisition and 1991
Restructuring. See Note 1 to the Notes to Consolidated Financial Statements.
(b) The Company reported a net gain of $58.1 million on the purchase of
approximately $110.2 million in subordinated debt at a discount. See Note 3 to
the Notes to Consolidated Financial Statements.
(c) The Company reported a net loss of $5.7 million on the purchase of
approximately $34 million in subordinated debt at a premium. See Note 1 to the
Notes to Consolidated Financial Statements.
(d) Loss on purchase of senior subordinated debentures, net of applicable tax
benefit of $71,000.
32