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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1995, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 0-19075
THE MORNINGSTAR GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2217488
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5956 SHERRY LANE, SUITE 1800
DALLAS, TEXAS 75225-6522
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 360-4777
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(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 for such shorter period that the
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 Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant based on the closing price of the Common Stock on the NASDAQ Stock
Market on February 29, 1996 was approximately $124,780,000 which value, solely
for the purpose of this calculation, excludes shares held by the Registrant's
executive officers and directors. Such exclusion should not be deemed a
determination by the Registrant that all such individuals are, in fact,
affiliates of the Registrant.
February 29, 1996, the number of outstanding shares of common stock was:
Common Stock, $.01 par value: 15,244,261 shares
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Form 10-K incorporates information from the Registrant's
Annual Report to Stockholders for the year ended December 31, 1995. Part III
of this Form 10-K incorporates information from the Registrant's definitive
Proxy Statement relating to the Registrant's annual meeting of stockholders to
be held on May 22, 1996.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
The Morningstar Group Inc., a Delaware corporation ("Morningstar" or the
"Company") is a national manufacturer and marketer of refrigerated and
non-refrigerated specialty food products that include: (i) branded products and
(ii) other specialty, dairy-based ultrapasteurized ("UHT") and cultured
products. These two major product categories comprise the Company's continuing
operations ("Continuing Operations").
The Company was formed in 1988 to acquire several regional dairies,
novelty/ice cream operations and specialty food operations. Shortly after these
acquisitions, significant increases in bulk milk prices adversely affected the
Company's operating performance and ability to service its highly leveraged
capital structure. In 1989, Morningstar shifted its emphasis to refrigerated
specialty food products by reorganizing its operations, introducing its branded
product lines and commencing the divestiture of its regional dairy and
novelty/ice cream operations. In March 1991, Hicks, Muse & Co. Incorporated,
now Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), together with
certain other investors, recapitalized the Company through a transaction that
reduced the Company's leverage (the "Financial Restructuring"). Prior to this
transaction, the Company is referred to as "Predecessor"; after this
transaction, the Company is referred to as "Successor". In April 1992, the
Company completed a public offering of 6,215,000 shares of common stock,
consisting of 5,000,000 newly issued shares and 1,215,000 shares from existing
stockholders. The net proceeds to the Company from this offering of
approximately $50 million, together with the proceeds from new senior loans,
were used to redeem all of the Company's outstanding 15% preferred stock and to
purchase $34 million in principal amount of its 13% senior subordinated
debentures (the "Debentures") at a premium, reducing the Company's interest
expense and eliminating the future payment of preferred stock dividends.
The Company acquired Favorite Foods Inc. ("Favorite") on March 31, 1993
for approximately $28 million plus expenses. Favorite is a cultured and
ultrapasteurized processor headquartered in Fullerton, California which
recorded sales of approximately $31 million during the nine months ended
December 31, 1993. Favorite's results of operations are included in the
Consolidated Statement of Operations contained in the Company's Annual Report
to Stockholders for the period April 1 through December 31, 1993.
On January 6, 1994, the Company announced a restructuring plan designed
to sharpen its focus on the faster-growing segments of its core specialty food
products business, while reorganizing its operations to increase efficiency.
The plan, which resulted in a $9 million charge in the fourth quarter of 1993,
included provisions for reductions in workforce, relocation of the
manufacturing for certain product lines to gain operating efficiencies and the
abandonment of other product lines. Included within the $9 million charge was
$1.9 million for reserves established for certain supply agreements and
promissory notes received as part of the sale of certain of the Company's
regional dairies in 1991 and 1992. The $9.0 million charge included non-cash
expenses of $4.4 million and cash expenses of $4.6 million. The majority of
the cash expenditures were paid during 1994.
The Company suspended the payment of dividends on its common stock
immediately following the $.0375 per share payment in the first quarter of 1994
to holders of record as of December 31, 1993.
DISCONTINUED OPERATIONS
The Company has made significant divestitures since its inception and as
a result, the size and scope of the Company's operations have changed
significantly. During 1990, the Company divested Oak Farms Inc. ("Oak Farms")
and Cabell's Dairy Inc. ("Cabell's") regional dairy operations located in
Texas, and Adohr Farms Inc. ("Adohr") in California. During 1991, the Company
divested a novelty/ice cream operation in Texas and a milk distribution
location in Pennsylvania. The Company also closed a novelty operation located
in Kansas City, Missouri in October 1991. During 1992, the Company divested
Embassy Dairy Inc., a regional dairy in Waldorf, Maryland and East Coast Ice
Cream, a novelty/ice cream operation located in Laurel, Maryland. In January
1994, the Company divested its plastic packaging operation located in Dallas,
Texas. On April 13, 1994, the Company completed the divestiture of its
Florida-based fluid milk operation Velda Farms, Inc. ("Velda"), for
approximately $48 million in cash after working capital adjustments and $3
million in 9% Series A Preferred Stock. The Company deferred the recognition
of the gain on the preferred stock pending realization of the gain. The
majority of the cash proceeds were used to pay down existing bank debt and to
fund federal and state taxes generated by the gain on the sale. The sale of
Velda concluded the divestiture of the
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Company's regional dairies which were considered a major and distinct segment of
its business. As such, the operations of the regional dairies and other
divested operations have been restated and presented in the consolidated
financial statements in the 1995 Annual Report to Stockholders (See Item 8,
Footnote No. 2) to conform with discontinued operations treatment ("Discontinued
Operations").
PRODUCTS
The following table sets forth sales percentage information by product
and business category.
PERCENT OF NET SALES FROM CONTINUING OPERATIONS
Combined Year Ended December 31,
Period -------------------------------------------------------------
Product Category/Business 1991(a) 1992 1993 1994 1995
------------------------- ---------- ------------ ------------ ------------- -------------
Branded specialty food products 24.7% 29.3% 30.1% 34.9% 38.4%
---------- ------------ ------------ ------------- ------------
Other specialty products:
UHT 35.5% 30.1% 25.0% 22.6% 25.0%
Cultured & other 39.8% 40.6% 44.9% 42.5% 36.6%
---------- ------------ ------------ ------------- ------------
Total other specialty 75.3% 70.7% 69.9% 65.1% 61.6%
---------- ------------ ------------ ------------- ------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
========== ============ ============ ============= ============
(a) Combines the two months ended February 28, 1991 and the ten
months ended December 31, 1991. A change of control occurred on
March 1, 1991. Operations prior to that date are referred to as
Predecessor and after that date are referred to as Successor.
BRANDED SPECIALTY FOOD PRODUCTS
The Company's branded product business consists of four product lines:
International Delight(R), Second Nature(R), Naturally Yours(TM) and Lactaid(R).
In the development of its branded product lines, the Company has targeted
growing market niches and developed products to meet the specific consumer
demands.
International Delight. International Delight is a gourmet flavored
coffee creamer that is marketed in several regular and fat-free flavors. In
1995, the Company completed the installation of its second 1/2 ounce aseptic
production line. This aseptic product requires no refrigeration and is
marketed in several flavors.
International Delight was originally introduced on a regional basis in
1973 and was repackaged, reformulated and marketed as a national brand in 1989.
The product is sold in 1/2 ounce single serving, pint and quart sizes to
supermarkets, food service outlets, club stores and convenience stores. The
non-aseptic International Delight is a non- dairy product that is manufactured
using the UHT process and, as a result, has an extended shelf life. The
Company encounters competition in this product line from various regional and
national competitors.
Second Nature. Second Nature is a pasteurized, fat-free, no cholesterol
egg product. The primary ingredient of Second Nature is egg whites. The
product was the first refrigerated alternative to whole eggs to provide the
equivalent nutritional value of whole eggs. Second Nature is another product
that was first marketed by the Company as a national brand in 1989. Second
Nature was reformulated in a fat-free variety and introduced nationally during
1993 in a twin pack containing two eight-ounce containers. In 1995, the
Company introduced a four-ounce twin pack container to complement its other
sizes. Second Nature is typically sold in the fresh egg section of
supermarkets, encountering competition from several other national and regional
competitors both in the refrigerated format and in the frozen format.
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Naturally Yours. Naturally Yours fat-free sour cream was introduced
nationally during 1993 following a test market in the last half of 1992.
Naturally Yours contains 67% less calories than full fat sour cream while
delivering similar taste and texture characteristics. During 1995, the Company
introduced a regular sour cream under this label to expand the product line.
The Company also introduced several fat-free flavored snack dips in 1995
including salsa, ranch and french onion. Naturally Yours competes with
numerous national and regional competitors in the fat-free and regular sour
cream categories.
Lactaid. Lactaid is a line of lactose-reduced and lactose-free UHT
fluid milks produced by the Company under a license arrangement with McNeil
Consumer Products Company ("McNeil"), an affiliate of Johnson & Johnson. See
"Intellectual Property". Lactose intolerance afflicts millions of individuals
and Lactaid products bring such individuals back into the market for dairy
products. Lactaid has been sold by the Company in the western two-thirds of the
United States since September 1991.
OTHER SPECIALTY PRODUCTS
The Company manufactures and distributes other dairy-based specialty
food products, including (i) UHT products, such as whipping cream, aerosol
toppings, half & half and coffee creamers, and (ii) cultured products, such as
cottage cheese, sour cream, snack dips and yogurt. These products are sold
under customers' brand names, in a wide variety of food service packages as
well as under the Company's own regional brand names such as Avoset(R)
(creams), Bancroft(R) (cottage cheese and sour cream), Naturally Yours(R)
(yogurt), Qwip(R) (aerosol toppings) and Trimline(R) (cottage cheese and other
low fat products). The Company sells its UHT and cultured products to food
service distributors, regional dairies and retail grocery warehouses. The
Company also processes several products for other national marketers including
Dole(R) and Procter & Gamble(R). The Company encounters competition from
several other regional UHT and cultured product manufacturers.
UHT. Certain of the Company's branded products and a number of its
other specialty products are produced using the UHT process. The UHT process
involves heating products to extremely high temperatures to eliminate all
living organisms and then rapidly cooling the products. This process results in
product shelf lives in excess of 45 days allowing these products to be shipped
relatively long distances and to be distributed through warehouses.
The UHT product category includes several products such as whipping
cream, half & half, heavy whipping cream, bavarian style cream, light cream,
pastry topping, baker's cream, coffee cream, flavored milks and various
non-dairy formulas of creams and creamers. The Company packages its UHT
products in a wide variety of sizes and packages to facilitate serving the
various needs of its diverse customer base. These packages include: 1/2
ounce and 3/8 ounce portion control creamers; half-pint, pint, and quart
pure-pak containers; aerosol cans; glass bottles; metal cans; and various
multi-gallon containers.
Cultured. Cultured products are derived from milk that is pasteurized,
inoculated with beneficial bacterial cultures, cooled and then, in some
instances, mixed with other ingredients to provide flavor. The culturing
process provides unique flavor and texture characteristics and extends shelf
life. The Company's cultured products have shelf lives from 30 to 60 days
allowing distribution through warehouse systems.
The cultured products category includes: cottage cheese, sour cream,
snack dips and yogurt. Each of these basic products has numerous formula
variations primarily related to varying levels of fat content and flavoring
options. These products are generally packaged in plastic containers ranging
in size from four ounces to 35 pounds.
PRODUCTION AND DISTRIBUTION
Refrigerated specialty food products are manufactured at six plants
located in California (3), Wisconsin (1), Texas (1) and Maryland (1). UHT
products are manufactured in each of the six plants and cultured products are
manufactured in each of the plants other than the Gustine, California plant and
the Texas plant.
The Company distributes products from its six plants to more than 850
customers in 50 states and to more than 20 foreign countries using common
carriers as well as a number of leased refrigerated vehicles. Certain
customers pick up products at the Company's manufacturing facilities.
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MARKETING AND CUSTOMERS
Branded Specialty Products. The Company develops consumer awareness of
its branded products through media advertising of such products, primarily
through cooperative advertising with the stores in which its branded specialty
products are sold and with manufacturers of products that complement the
Company's branded specialty products. The Company also utilizes television
advertising, coupon redemption and in-store demonstrations to develop consumer
awareness.
Branded specialty products are primarily sold to grocery warehouses
serving the major supermarket chains and are primarily sold through the
Company's network of independent food brokers and nationwide sales force. The
typical broker used by the Company generally works exclusively on commission.
The broker is responsible for placing the sale of the Company's branded
products and for ensuring that the product is appropriately stocked and
positioned in supermarkets.
The Company also ships its branded products internationally, currently
serving Canada and several countries in the Pacific Rim, Aruba, Australia,
Bermuda, the islands of the Caribbean, Chile, Mexico, Puerto Rico, Saipan, and
Saudi Arabia, among others.
Other Specialty Products. The Company markets its other specialty
products directly to dairy companies, private label supermarket wholesalers,
grocery warehouses, food service outlets and food manufacturers. The primary
market for the Company's other specialty products is the United States. The
Company also markets certain UHT products in the Pacific Rim, primarily in Hong
Kong, Taiwan and Singapore.
RESEARCH AND DEVELOPMENT
The development of new products and the processes under which they are
manufactured has been an important part of the Company's growing emphasis on
branded specialty products. In addition to the Company's full-time research
technicians, all employees, both at the operating and management levels, are
encouraged to play an active role in the development of products and their
manufacturing processes. The Company's senior management is closely involved
in the identification and development of branded products. The Company
utilizes consumer research to test new products prior to market introduction.
While the research and development function is important to the Company's
operations, the total expenditures related to this function are not material to
the Company's Consolidated Statements of Operations.
One of the achievements of this research and development effort was the
reformulation of Second Nature to deliver the equivalent nutritional value of
whole eggs. More recently Second Nature(R) was reformulated to be a fat-free
product. This research effort also developed Naturally Yours(TM), a fat-free
sour cream made from real dairy ingredients and a fat-free version of
International Delight. Most recently, the Company developed an aseptic, real
1/2 and 1/2 coffee creamer product to be sold under the International Delight
brand name.
INTELLECTUAL PROPERTY
GENERAL
The Company's business involves the use of patents, trademarks and trade
secrets and licenses granted both to and by the Company. The Company's most
important trademarks include International Delight(R), Second Nature(R),
Naturally Yours(TM), Trimline, Avoset, Bancroft, Carnation Smooth 'n Creamy
(under license from Nestle) and the Company's star logo. The Company has also
permitted third parties to use its trademarks pursuant to licenses granted by
the Company, typically in connection with its divestitures (see Discontinued
Operations).
LICENSE AGREEMENT WITH AGRIFOODS INTERNATIONAL COOPERATIVE LTD.
The Company has entered into a license agreement with AgriFoods, a
Canadian Cooperative association whereby the Company granted to AgriFoods an
exclusive license to manufacture, market and distribute International
Delight(R) liquid flavored coffee creamer products in Canada and to use the
trademark, International Delight(R) in said products. The agreement provides
for a royalty to be paid to the Company based on the number of cases of product
sold on a monthly basis.
LACTAID LICENSE ARRANGEMENT
Lactaid is produced under two Lactaid License Agreements (collectively
the "Lactaid License") with McNeil. Under the terms of the Lactaid License,
McNeil granted the Company the exclusive right to manufacture, produce and
package Lactaid modified milk products in the western two-thirds of the United
States and in certain countries around the Pacific Rim. The Lactaid
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License provides for payment of a license fee to McNeil based on the volume of
Lactaid modified milk products sold by the Company.
DIVESTITURES
The purchasers of Adohr Farms entered into a Requirements and
Distribution Agreement (herein so called) pursuant to which they agreed to
purchase a minimum of 75% of their UHT and cultured products requirements from
the Company for a period of seven years ending in 1997.
The purchasers of Embassy Dairy Inc. entered into an agreement pursuant
to which they agreed to purchase their requirements of UHT and cultured
products from the Company for a period of three years ended in 1995.
The purchasers of Velda Farms, L.P. entered into an agreement pursuant
to which they agreed to purchase their requirements of certain UHT and cultured
products from the Company for a period of ten years ending in 2004.
The Company has agreed to indemnify the purchasers of certain 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. See Item 3 of this Form 10-K.
SUPPLIERS AND RAW MATERIALS
The Company purchases its primary raw material, bulk milk, from farm
marketing cooperatives, individual farmers and other dairy companies. The
supply and cost of bulk milk are influenced by many factors, including consumer
demand, government regulation and seasonality. The Company has not experienced
any supply shortages and expects that bulk milk will continue to be available
in sufficient quantities to supply its processing requirements.
Certain other raw materials, such as juice concentrates, sweeteners,
flavorings and various packaging supplies, are generally available from a wide
variety of sources.
CUSTOMERS
The Company markets products to a broad range of customers including
convenience stores, supermarkets, grocery warehouses, independent distributors,
other dairies, club stores and food service customers such as hotels,
restaurants, nursing homes, schools, and theme parks. The Company sells to
customers nationwide and a small percentage of its products is distributed in
foreign countries, primarily in Canada, Mexico and the Pacific Rim. No customer
of the Company accounted for more than 10% of the Company's net sales for the
year ended December 31, 1995.
SEASONALITY
Sales of the Company's refrigerated specialty food products exhibit
modest seasonality with products such as whipping cream, aerosol toppings, sour
cream and International Delight experiencing higher sales in the late fall and
winter seasons.
EMPLOYEES
As of December 31, 1995 the Company employed approximately 792 people of
which approximately 486 were represented by unions under collective bargaining
agreements. These agreements cover employees at the following locations:
Fullerton, Gustine and Tulare, California, Sulphur Springs, Texas and Madison,
Wisconsin. The Company will from time to time be negotiating new agreements
with the various unions representing these employees and it expects that it
will enter into agreements with such unions which are satisfactory to the
Company. Three contracts were negotiated in the last 12 months. Two contracts
are being negotiated at the present time. The Company has had no recent work
stoppages and considers its relations with its employees to be satisfactory.
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GOVERNMENT REGULATION
PUBLIC HEALTH
As a manufacturer and distributor of food products, the Company is
subject to the Federal Food, Drug, and Cosmetic Act and regulations promulgated
thereunder by the Food and Drug Administration ( the "FDA"). This comprehensive
regulatory scheme governs, among other things, the manufacturing, composition
and ingredients, labeling, packaging, and safety of food. For example, the FDA
regulates manufacturing practices for foods through its current good
manufacturing practices regulations, specifies the "recipes," called standards
of identity, for certain foods, including many of the kinds of products
marketed by the Company (e.g ., sour cream, half & half, and yogurt), and
prescribes the format and content of certain information required to appear on
the labels of food products.
Additionally, the FDA is responsible for enforcement of the Public
Health Service Act and regulations issued thereunder, which authorize
regulatory activity necessary to prevent the introduction, transmission or
spread of communicable diseases. These regulations require, for example,
pasteurization of milk and milk products.
The FDA has recently enacted extensive regulations pursuant to the
Nutrition Labeling and Education Act of 1990. The regulations, which took
effect in August 1994, require nutritional labeling on all foods that are a
meaningful source of nutrition, including certain of the Company's products.
Limitations have been placed on the use of certain labeling terms while the use
of other terms is required. The Company has revised the labeling of its
products to conform to the final regulations.
In addition to FDA regulation of the Company's products, the Company's
advertising is subject to regulation by the Federal Trade Commission pursuant
to the Federal Trade Commission Act and regulations issued thereunder.
The Company and its products are also subject to state regulation
through such measures as licensing of the Company's dairy plants, enforcement
by state health agencies of state standards for the Company's products,
inspection of the Company's facilities, and regulation of the Company's trade
practices in connection with the sale of the dairy products.
Enforcement actions for violations of federal and state regulations may
include seizure and condemnation of violative products, cease and desist
orders, injunctions and/or monetary penalties.
The Company maintains quality control laboratories at each of its food
processing facilities to test bulk milk and other ingredients as well as
finished products. In addition, the Company has developed and administers
Hazard Analysis of Critical Control Point programs designed to detect hazardous
levels of bacteria and other contamination that may have occurred during
manufacturing. The Company believes that its facilities and practices are
sufficient to maintain its compliance with applicable government regulations,
although there can be no assurances in this regard.
INTERSTATE COMMERCE COMMISSION
The Company's interstate trucking services to the public in connection
with its backhaul operations are subject to regulation by the Interstate
Commerce Commission (the "ICC"). In order to provide backhaul services, the
Company obtained a license from the ICC and must comply with certain safety and
insurance requirements promulgated by the ICC on a continuing basis.
EMPLOYEE SAFETY REGULATIONS
The Company is subject to certain health and safety regulations
including regulations issued pursuant to the Occupational Safety and Health
Act. These regulations require the Company to comply with certain
manufacturing, health and safety standards to protect its employees from
accidents.
ENVIRONMENTAL REGULATIONS
The Company is subject to certain federal, state and local environmental
regulations. Certain of the Company's facilities discharge biodegradable
wastewater into municipal waste treatment facilities in excess of levels
permitted under local regulations. In such circumstances, the Company generally
pays wastewater surcharges to municipal water treatment authorities. However,
such authorities may require the Company to comply with such regulations and
construct pre-treatment facilities or to take other action to reduce effluent
discharge.
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The Company maintains underground fuel storage tanks to service its
vehicles. All such tanks are periodically inspected to determine compliance
with applicable regulations. In connection with these inspections, the Company
may, at times, need to make certain expenditures in order to maintain
compliance.
Environmental compliance with federal, state or local authorities is not
expected to have a material impact on the Company's capital expenditures,
earnings or competitive position.
DAIRY SUPPORT PROGRAM
The minimum prices paid for grade-A bulk milk in the United States are
controlled in most areas by Federal Milk Marketing Orders or state regulatory
agencies. In most areas, the prices paid for bulk milk by processors are higher
than these minimums due to premiums charged by suppliers and shippers. The
Company has long, established relationships with bulk milk suppliers, primarily
milk cooperatives in each of its markets and has not experienced any shortages
in its supply of fresh bulk milk. The Company's requirements for bulk milk
have decreased since the divestiture of Velda in April 1994.
THE PUBLIC EQUITY OFFERING
On April 24, 1992, the Company issued 5,000,000 shares of new common
stock in a public offering at an issue price of $11 per share. Simultaneously
1,215,000 shares were sold to the public by certain selling stockholders. The
offering provided net cash proceeds to the Company of approximately $50 million
which, combined with approximately $104 million in new senior bank borrowings,
was used to purchase approximately $34 million in aggregate principal amount of
the Debentures at a cash premium of approximately $4 million, to redeem all the
Company's 15% Preferred Stock for approximately $18 million and to refinance
approximately $98 million in senior debt.
ITEM 2. PROPERTIES.
The Company currently owns and operates processing facilities in the
following locations:
Approximate
Square
Location Products Footage
-------- -------- -------
Fullerton, California Cultured Products, UHT 83,995
Frederick, Maryland Cultured Products, UHT 68,958
Gustine, California UHT, Juices 114,000
Madison, Wisconsin Cultured Products, UHT 83,558
Sulphur Springs, Texas UHT, Juices 70,333
Tulare, California Cultured Products, UHT 39,415
------------------
The Company's executive offices are located in approximately 10,500
square feet of leased office space located at 5956 Sherry Lane, Suite 1800,
Dallas, Texas 75225-6522. The lease for this property expires on April 30,
1999. All six of the Company's processing facilities are held as collateral
pursuant the Company's Senior Credit Agreement.
The Company believes that its facilities are well maintained and adequate
to meet its current needs. The Company expects to expand the capacity of its
existing facilities in order to service future growth.
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ITEM 3. LEGAL PROCEEDINGS.
FEDERAL INVESTIGATION
The Company received a target letter dated December 31, 1991, from the
United States Department of Justice informing it that Morningstar was 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
related 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 was concluded in 1994.
The Company was not made a party to legal action commenced by the Department.
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 Texas 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.
Southern Foods made claim against the Company in 1994 pursuant to the
indemnification provisions noted above to recover certain sums that Southern
Foods paid as a result of the Department of Justice investigation. In February
1995, the Company reached an agreement with Southern Foods to pay the sum of
$425,000 to settle all claims between the parties relating to the aforesaid
investigation. This agreement did not have a material adverse effect on the
results of operations or the financial position of the Company.
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 business, financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders during the fourth
quarter of the fiscal year.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is included in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1995 on page 34
under the caption "Quarterly Financial Information" and is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1995 on page 35
under the caption "Selected Financial Data" and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is included in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1995 on pages 13
through 16, under the caption "Management's Discussion and Analysis of Results
of Operations and Financial Condition," and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1995 on pages 17
through 33, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
9
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included in the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held on May 22, 1996 under the caption "Directors and Officers".
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included in the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held on May 22, 1996 under the caption "Executive Management Compensation" and
is incorporated herein by reference. The foregoing incorporation by reference
specifically excludes the discussion under "Executive Management and Director
Compensation - Report of the Compensation Committee" and "The Morningstar Group
Inc. Stock Price Performance".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included in the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders to be
held on May 22, 1996 under the caption "Voting Securities Outstanding, Security
Ownership of Management and Principal Stockholders" and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included in the Registrant's
definitive Proxy Statement under the captions "Executive Management and
Director Compensation - Compensation Committee Interlocks and Insider
Participation" and "Related Party Transactions" and is incorporated herein by
reference.
10
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report. The page
number, if any, listed opposite a document indicates the page number in
the sequential number system in the manually signed original of this
Report where such document can be found.
Page Number
-----------
(1) Financial Statements
See Item 8 on page 9
(2) Index to Financial Statement Schedule
Report of independent public accountants on financial
statement schedules . . . . . . . . . . . . . . . . . . . . . . 20
Schedule II - Allowance for doubtful accounts . . . . . . . . . . 21
All other schedules have been omitted because they are not applicable,
not required, or because the required information is shown in the
consolidated financial statements or notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number Description
------- -----------
3(a) -- Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
3(b) -- Amended and Restated By-laws of the Company.
(Incorporated by reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
4(a) -- Third Amended and Restated Stockholders' Agreement dated
as of March 1, 1991, among the Company and certain
stockholders of the Company. (Incorporated by reference
to Exhibit 4(d) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1990.)*
11
13
Exhibit
Number Description
------ -----------
4(b) -- Stockholders' Agreement dated as of March 1, 1991, among
LTCB, NMB, HMCM, the Company and certain stockholders of
the Company. (Incorporated by reference to Exhibit 4(e)
to the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1990.)*
4(c) -- Stockholders' Agreement dated February 5, 1992 among the
Company and certain stockholders. (Incorporated by
reference to Exhibit 4(d) to the Registrant's Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.)*
10(a) -- Dairy Products Purchase Agreement dated April 1, 1988,
between the Company and Southland (without exhibits).
(Incorporated by reference to Exhibit 10(a) to the
Registrant's Registration Statement on Form S-1, as
amended, registration No. 33-21790.)*
10(b) -- Stock Purchase Agreement dated as of March 16, 1990,
between the Company and Southern Foods Group, Inc.
(Incorporated by reference to Exhibit (c)(1) to the
Registrant's Current Report on Form 8-K dated September
6, 1990.)*
10(c) -- First Amendment to Stock Purchase Agreement dated
September 6, 1990, among Southern Foods Group, Inc., the
Company and Schepps-Foremost, Inc. (Incorporated by
reference to Exhibit (c)(2) to the Registrant's Current
Report on Form 8-K dated September 6, 1990.)*
10(d) -- Securities Purchase Agreement dated as of February 22,
1991, between the Company and HMCM. (Incorporated by
reference to Exhibit (c)(2) to the Registrant's Current
Report on Form 8-K dated March 1, 1991.)*
10(e) -- Stock Purchase Agreement dated as of March 1, 1991,
among the Company, NMB U.S. Finance Corporation and The
Long-Term Credit Bank of Japan, Ltd. (Incorporated by
reference to Exhibit 10(g) to the Registrant's Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1990.)*
10(f) -- Financial Advisory Agreement dated as of March 1, 1991,
between the Company and Hicks, Muse & Co. Incorporated.
(Incorporated by reference to Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1990.)*
10(g) -- Employees' Savings and Profit Sharing Plan dated April
1, 1988. (Incorporated by reference to Exhibit 10(g) to
the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1988.)*
10(h) -- Employment Agreement dated March 1, 1991, between the
Company and James A. Bach. (Incorporated by reference to
Exhibit 10(k) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1990.)*
10(i) -- Employment Agreement dated March 1, 1991, between the
Company and Clifford L. Marquart. (Incorporated by
reference to Exhibit 10(l) to the Registrant's Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1990.)*
12
14
Exhibit
Number Description
------ -----------
10(j) -- Employment Agreement dated March 1, 1991, between the
Company and Tracy L. Noll. (Incorporated by reference to
Exhibit 10(m) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1990.)*
10(k) -- Amendment No. 1 to Employment Agreement, entered into as
of September 17, 1991, by and among The Morningstar
Group Inc. and James A. Bach.**
10(l) -- Amendment No. 1 to Employment Agreement, entered into as
of September 17, 1991, by and among The Morningstar
Group Inc. and Clifford L. Marquart.**
10(m) -- Amendment No. 1 to Employment Agreement, entered into as
of September 17, 1991, by and among The Morningstar
Group Inc. and Tracy L. Noll.**
10(n) -- Purchase Agreement dated as of September 13, 1991, among
HMCM, certain sellers (as defined), certain buyers (as
defined) and the Company.**
10(o) -- MorningStar Foods, Inc. 1991 Incentive and Nonstatutory
Stock Option Plan.**
10(p) -- The Morningstar Group Inc. 1992 Incentive and
Nonstatutory Option Plan.**
10(q) -- Second Amended and Restated Credit Agreement dated as of
May 4, 1992, among the Company, the financial
institutions named therein, LTCB, as Agent, and Banque
Paribas as Co-Agent. (Incorporated by reference to
Exhibit 10(t) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(r) -- Licensing Agreement to produce Lactaid Brand Lactose
Reduced Milk (Confidential treatment has been granted
with respect to portions of this exhibit).**
10(s) -- Stock Purchase Agreement dated as of January 10, 1992,
among Protein Capital Corporation and the Company.***
10(t) -- First Amendment to Stock Purchase Agreement, dated as of
March 31, 1992 to Stock Purchase Agreement dated as of
January 10, 1992, among Protein Capital Corporation and
the Company.***
10(u) -- Stock Purchase Agreement dated as of March 31, 1992,
among Protein Capital Corporation and the Company.***
10(v) -- Amendment No. 2 to Employment Agreement, entered into as
of April 30, 1992 by and among The Morningstar Group
Inc. and James A. Bach. (Incorporated by reference to
Exhibit 10(dd) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
13
15
Exhibit
Number Description
------ -----------
10(w) -- Amendment No. 2 to Employment Agreement, entered into as
of April 30, 1992 by and among The Morningstar Group
Inc. and Clifford L. Marquart. (Incorporated by
reference to Exhibit 10(ee) to the Registrant's Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.)*
10(x) -- Amendment No. 2 to Employment Agreement, entered into as
of April 30, 1992 by and among The Morningstar Group
Inc. and Tracy L. Noll. (Incorporated by reference to
Exhibit 10(ff) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(y) -- Amendment No. 1 to Financial Advisory Agreement entered
into as of April 30, 1992 between the Company and Hicks,
Muse & Co. Incorporated. (Incorporated by reference to
Exhibit 10(gg) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(z) -- Incentive Stock Option Agreement (Tenure Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and James A. Bach.****
10(aa) -- Incentive Stock Option Agreement (EBITDA Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and James A. Bach.****
10(bb) -- Incentive Stock Option Agreement (Tenure Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and Clifford L. Marquart.****
10(cc) -- Incentive Stock Option Agreement (EBITDA Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and Clifford L. Marquart.****
10(dd) -- Incentive Stock Option Agreement (Tenure Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and Tracy L. Noll.****
10(ee) -- Incentive Stock Option Agreement (EBITDA Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and Tracy L. Noll.****
10(ff) -- Amendment No. 1 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and James A.
Bach.****
10(gg) -- Amendment No. 1 to Incentive Stock Option Agreement
(Tenure Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and James A.
Bach.****
10(hh) -- Amendment No. 1 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and Clifford L.
Marquart.****
14
16
Exhibit
Number Description
------ -----------
10(ii) -- Amendment No. 1 to Incentive Stock Option Agreement
(Tenure Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and Clifford L.
Marquart.****
10(jj) -- Amendment No. 1 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and Tracy L.
Noll.****
10(kk) -- Amendment No. 1 to Incentive Stock Option Agreement
(Tenure Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and Tracy L.
Noll.****
10(ll) -- Amendment No. 2 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and James A. Bach.
(Incorporated by reference to Exhibit 10(tt) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(mm) -- Amendment No. 2 to Incentive Stock Option Agreement
(Tenure Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and James A. Bach.
(Incorporated by reference to Exhibit 10(uu) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(nn) -- Amendment No. 2 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Clifford L.
Marquart. (Incorporated by reference to Exhibit 10(vv)
to the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(oo) -- Amendment No. 2 to Incentive Stock Option Agreement
(Tenure Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Clifford L.
Marquart. (Incorporated by reference to Exhibit 10(ww)
to the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(pp) -- Amendment No. 2 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Tracy L. Noll.
(Incorporated by reference to Exhibit 10(xx) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(qq) -- Amendment No. 2 to Incentive Stock Option Agreement
(Tenure Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Tracy L. Noll.
(Incorporated by reference to Exhibit 10(yy) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(rr) -- Amendment to No. 2 to Lactaid Licensing Agreement and to
Distribution Agreement (Confidential treatment has been
granted with respect to this exhibit).****
15
17
Exhibit
Number Description
------ -----------
10(ss) -- Amendment No. 3 to Employment Agreement, entered into as
of July 30, 1992 by and among The Morningstar Group Inc.
and James A. Bach. (Incorporated by reference to
Exhibit 10(aaa) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(tt) -- Amendment No. 3 to Employment Agreement, entered into as
of July 30, 1992 by and among The Morningstar Group Inc.
and Clifford L. Marquart. (Incorporated by reference to
Exhibit 10(bbb) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(uu) -- Amendment No. 3 to Employment Agreement, entered into as
of July 30, 1992 by and among The Morningstar Group Inc.
and Tracy L. Noll. (Incorporated by reference to
Exhibit 10(ccc) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(vv) -- Amendment No. 3 to Incentive Stock Option Agreement
(Tenure Option) entered into as of October 1, 1992, by
and among The Morningstar Group Inc. and James A. Bach.
(Incorporated by reference to Exhibit 10(ddd) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(ww) -- Amendment No. 3 to Incentive Stock Option Agreement
(Tenure Option) entered into as of October 1, 1992, by
and among The Morningstar Group Inc. and Clifford L.
Marquart. (Incorporated by reference to Exhibit 10(eee)
to the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(xx) -- Amendment No. 3 to Incentive Stock Option Agreement
(Tenure Option) entered into as of October 1, 1992, by
and among The Morningstar Group Inc. and Tracy L. Noll.
(Incorporated by reference to Exhibit 10(fff) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(yy) -- Letter agreement dated December 15, 1993 between The
Morningstar Group Inc. and Hicks, Muse & Company,
Inc.*****
10(zz) -- Agreement dated June 1, 1993 between McNeil Consumer
Products Company, a division of McNeil - PPC, Inc. and
The Morningstar Group Inc. (Confidential treatment has
been granted with respect to this exhibit).
(Incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.)*
10(aaa) -- Letter Agreement dated June 1, 1993 between McNeil
Consumer Products Company, a division of McNeil - PPC,
Inc. and The Morningstar Group Inc. and Avoset Food
Corporation (Confidential treatment has been granted
with respect to this exhibit). (Incorporated by
reference to Exhibit 10(b) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.)*
10(bbb) -- First Amendment and Waiver to the Second Amended and
Restated Credit Agreement dated March 5, 1993 among The
Morningstar Group Inc. and The Long-Term Credit Bank of
Japan, Limited, New York Branch, Agent and Banque
Paribas, Houston Agency as Co-Agent.*****
16
18
Exhibit
Number Description
------ -----------
10(ccc) -- Second Amendment to the Second Amended and Restated
Credit Agreement dated October 28, 1993 among The
Morningstar Group Inc. and The Long-Term Credit Bank of
Japan, Limited, New York Branch, Agent and Banque
Paribas, Houston Agency as Co-Agent.*****
10(ddd) -- Waiver to the Second Amended and Restated Credit
Agreement dated March 4, 1993 among The Morningstar
Group Inc. and The Long-Term Credit Bank of Japan,
Limited, New York Branch, Agent and Banque Paribas,
Houston Agency as Co-Agent.*****
10(eee) -- Agreement and Plan of Merger dated February 17, 1994 by
and among Engles Dairy Acquisition, Inc., Velda Farms
Inc. and The Morningstar Group Inc.*****
10(fff) -- Form of Dairy Products Supply Agreement by and among The
Morningstar Group Inc., its named subsidiaries and Velda
Farms Inc.*****
10(ggg) -- Letter of Resignation dated March 17, 1994 from James A.
Bach, accepted and agreed to by The Morningstar Group
Inc.*****
10(hhh) -- Waiver No. 1 to Employment Agreement entered into as of
December 15, 1993 by and among The Morningstar Group
Inc. and James A. Bach.*****
10(iii) -- Waiver No. 1 to Employment Agreement entered into as of
December 15, 1993 by and among The Morningstar Group
Inc. and Tracy L. Noll.*****
10(jjj) -- Advisory Agreement entered into as of October 1, 1993 by
and among The Morningstar Group Inc. and C. Dean
Metropoulos.*****
10(kkk) -- Stock Purchase Agreement entered into as of February 5,
1993 by and among TSC Holdings, Inc. and The Morningstar
Group Inc.*****
10(lll) -- The Morningstar Group Inc. Employees Savings and Profit
Sharing Plan, revised effective April 1, 1988.*****
10(mmm) -- License agreement entered into as of October 1, 1994
between The Morningstar Group Inc. and AgriFoods
International Cooperative LTD (Confidential treatment
has been granted for this exhibit).*****
10(nnn) -- Employment Agreement entered into as of April 13, 1995
between the Company and C. Dean Metropoulos and certain
other key management personnel.#
13(a) -- The Morningstar Group Inc. Annual Report to Stockholders
for the year ended December 31, 1993 (except for the
pages and information thereof expressly incorporated by
reference in this Form 10-K, the annual report is
provided solely for the information of the Securities
and Exchange Commission and is not to be deemed "filed"
as part of the Form 10-K).*****
13(b) -- The Morningstar Group Inc. Annual Report to Stockholders
for the year ended December 31, 1994 (except for the
pages and information thereof expressly incorporated by
reference in this Form 10-K, the annual report is
provided solely for the information of the Securities
and Exchange Commission and is not to be deemed "filed"
as part ofthe Form 10-K).#
17
19
Exhibit
Number Description
------ -----------
21 -- Subsidiaries.#
27 -- Financial Data Schedule.#
(b) Reports on Form 8-K
None.
__________________________________
* Incorporated by reference as indicated.
** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No. 33-45805) filed
by the Registrant on February 19, 1992.
*** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No. 33-45805), as
amended by the Registrant on April 8, 1992.
**** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No. 33-45805), as
Amended by the Registrant on April 22, 1992.
***** Incorporated by reference to the corresponding exhibit to the
Registrant's Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1994.
# Filed herewith.
18
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE MORNINGSTAR GROUP INC.
By /s/ DARRON K. ASH
----------------------------------------
Darron K. Ash
(Vice President, Chief Financial Officer)
Date: March 28, 1996
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 and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ C. DEAN METROPOULOS Director and Chief Executive Officer March 28, 1996
- -------------------------------------
C. Dean Metropoulos
/s/ JACK W. EVANS Director March 28, 1996
- -------------------------------------
Jack W. Evans
/s/ JOHN R. MUSE Director March 28, 1996
- -------------------------------------
John R. Muse
/s/ CHARLES W. TATE Director March 28, 1996
- -------------------------------------
Charles W. Tate
/s/ JIM L. TURNER Director March 28, 1996
- -------------------------------------
Jim L. Turner
/s/ L. HOLLIS JONES President and Chief Operating Officer March 28, 1996
- -------------------------------------
L. Hollis Jones
/s/ DARRON K. ASH Vice President, Chief Financial Officer and March 28, 1996
- ------------------------------------- Principal Accounting Officer
Darron K. Ash
19
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
The Morningstar Group Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of The Morningstar Group Inc., and
subsidiaries included in the Annual Report to Stockholders incorporated by
reference in this Form 10-K and have issued our report thereon dated February
16, 1996. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the Index to Financial
Statement Schedules is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 16, 1996
20
22
SCHEDULE II
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(Dollars in Thousands)
Deductions Balance at
Beginning Charged to From End of
Period of Period Expense Reserves Acquisitions Period
------ --------- --------- ---------- ------------ ---------
Year Ended December 31, 1995 . . . . . . . . . . $ 1,495 $ 695 $ (595) $ - $1,595
Year Ended December 31, 1994 . . . . . . . . . . 974 622 (101) - 1,495
Year Ended December 31, 1993 . . . . . . . . . . 306 735 (226) 159 974
21
23
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3(a) -- Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
3(b) -- Amended and Restated By-laws of the Company.
(Incorporated by reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
4(a) -- Third Amended and Restated Stockholders' Agreement dated
as of March 1, 1991, among the Company and certain
stockholders of the Company. (Incorporated by reference
to Exhibit 4(d) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1990.)*
4(b) -- Stockholders' Agreement dated as of March 1, 1991, among
LTCB, NMB, HMCM, the Company and certain stockholders of
the Company. (Incorporated by reference to Exhibit 4(e)
to the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1990.)*
4(c) -- Stockholders' Agreement dated February 5, 1992 among the
Company and certain stockholders. (Incorporated by
reference to Exhibit 4(d) to the Registrant's Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.)*
10(a) -- Dairy Products Purchase Agreement dated April 1, 1988,
between the Company and Southland (without exhibits).
(Incorporated by reference to Exhibit 10(a) to the
Registrant's Registration Statement on Form S-1, as
amended, registration No. 33-21790.)*
10(b) -- Stock Purchase Agreement dated as of March 16, 1990,
between the Company and Southern Foods Group, Inc.
(Incorporated by reference to Exhibit (c)(1) to the
Registrant's Current Report on Form 8-K dated September
6, 1990.)*
10(c) -- First Amendment to Stock Purchase Agreement dated
September 6, 1990, among Southern Foods Group, Inc., the
Company and Schepps-Foremost, Inc. (Incorporated by
reference to Exhibit (c)(2) to the Registrant's Current
Report on Form 8-K dated September 6, 1990.)*
10(d) -- Securities Purchase Agreement dated as of February 22,
1991, between the Company and HMCM. (Incorporated by
reference to Exhibit (c)(2) to the Registrant's Current
Report on Form 8-K dated March 1, 1991.)*
10(e) -- Stock Purchase Agreement dated as of March 1, 1991,
among the Company, NMB U.S. Finance Corporation and The
Long-Term Credit Bank of Japan, Ltd. (Incorporated by
reference to Exhibit 10(g) to the Registrant's Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1990.)*
22
24
Exhibit
Number Description
------ -----------
10(f) -- Financial Advisory Agreement dated as of March 1, 1991,
between the Company and Hicks, Muse & Co. Incorporated.
(Incorporated by reference to Exhibit 10(h) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1990.)*
10(g) -- Employees' Savings and Profit Sharing Plan dated April
1, 1988. (Incorporated by reference to Exhibit 10(g) to
the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1988.)*
10(h) -- Employment Agreement dated March 1, 1991, between the
Company and James A. Bach. (Incorporated by reference to
Exhibit 10(k) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1990.)*
10(i) -- Employment Agreement dated March 1, 1991, between the
Company and Clifford L. Marquart. (Incorporated by
reference to Exhibit 10(l) to the Registrant's Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1990.)*
10(j) -- Employment Agreement dated March 1, 1991, between the
Company and Tracy L. Noll. (Incorporated by reference to
Exhibit 10(m) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1990.)*
10(k) -- Amendment No. 1 to Employment Agreement, entered into as
of September 17, 1991, by and among The Morningstar
Group Inc. and James A. Bach.**
10(l) -- Amendment No. 1 to Employment Agreement, entered into as
of September 17, 1991, by and among The Morningstar
Group Inc. and Clifford L. Marquart.**
10(m) -- Amendment No. 1 to Employment Agreement, entered into as
of September 17, 1991, by and among The Morningstar
Group Inc. and Tracy L. Noll.**
10(n) -- Purchase Agreement dated as of September 13, 1991, among
HMCM, certain sellers (as defined), certain buyers (as
defined) and the Company.**
10(o) -- MorningStar Foods, Inc. 1991 Incentive and Nonstatutory
Stock Option Plan.**
10(p) -- The Morningstar Group Inc. 1992 Incentive and
Nonstatutory Option Plan.**
10(q) -- Second Amended and Restated Credit Agreement dated as of
May 4, 1992, among the Company, the financial
institutions named therein, LTCB, as Agent, and Banque
Paribas as Co-Agent. (Incorporated by reference to
Exhibit 10(t) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
23
25
Exhibit
Number Description
------ -----------
10(r) -- Licensing Agreement to produce Lactaid Brand Lactose
Reduced Milk (Confidential treatment has been granted
with respect to portions of this exhibit).**
10(s) -- Stock Purchase Agreement dated as of January 10, 1992,
among Protein Capital Corporation and the Company.***
10(t) -- First Amendment to Stock Purchase Agreement, dated as of
March 31, 1992 to Stock Purchase Agreement dated as of
January 10, 1992, among Protein Capital Corporation and
the Company.***
10(u) -- Stock Purchase Agreement dated as of March 31, 1992,
among Protein Capital Corporation and the Company.***
10(v) -- Amendment No. 2 to Employment Agreement, entered into as
of April 30, 1992 by and among The Morningstar Group
Inc. and James A. Bach. (Incorporated by reference to
Exhibit 10(dd) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(w) -- Amendment No. 2 to Employment Agreement, entered into as
of April 30, 1992 by and among The Morningstar Group
Inc. and Clifford L. Marquart. (Incorporated by
reference to Exhibit 10(ee) to the Registrant's Annual
Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1992.)*
10(x) -- Amendment No. 2 to Employment Agreement, entered into as
of April 30, 1992 by and among The Morningstar Group
Inc. and Tracy L. Noll. (Incorporated by reference to
Exhibit 10(ff) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(y) -- Amendment No. 1 to Financial Advisory Agreement entered
into as of April 30, 1992 between the Company and Hicks,
Muse & Co. Incorporated. (Incorporated by reference to
Exhibit 10(gg) to the Registrant's Annual Report on Form
10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(z) -- Incentive Stock Option Agreement (Tenure Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and James A. Bach.****
10(aa) -- Incentive Stock Option Agreement (EBITDA Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and James A. Bach.****
24
26
Exhibit
Number Description
------ -----------
10(bb) -- Incentive Stock Option Agreement (Tenure Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and Clifford L. Marquart.****
10(cc) -- Incentive Stock Option Agreement (EBITDA Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and Clifford L. Marquart.****
10(dd) -- Incentive Stock Option Agreement (Tenure Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and Tracy L. Noll.****
10(ee) -- Incentive Stock Option Agreement (EBITDA Option) entered
into as of March 1, 1991, between MorningStar Foods Inc.
and Tracy L. Noll.****
10(ff) -- Amendment No. 1 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and James A.
Bach.****
10(gg) -- Amendment No. 1 to Incentive Stock Option Agreement
(Tenure Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and James A.
Bach.****
10(hh) -- Amendment No. 1 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and Clifford L.
Marquart.****
10(ii) -- Amendment No. 1 to Incentive Stock Option Agreement
(Tenure Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and Clifford L.
Marquart.****
10(jj) -- Amendment No. 1 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and Tracy L.
Noll.****
10(kk) -- Amendment No. 1 to Incentive Stock Option Agreement
(Tenure Option) entered into as of September 12, 1991,
by and among The Morningstar Group Inc. and Tracy L.
Noll.****
10(ll) -- Amendment No. 2 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and James A. Bach.
(Incorporated by reference to Exhibit 10(tt) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(mm) -- Amendment No. 2 to Incentive Stock Option Agreement
(Tenure Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and James A. Bach.
(Incorporated by reference to Exhibit 10(uu) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
25
27
Exhibit
Number Description
------ -----------
10(nn) -- Amendment No. 2 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Clifford L.
Marquart. (Incorporated by reference to Exhibit 10(vv)
to the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(oo) -- Amendment No. 2 to Incentive Stock Option Agreement
(Tenure Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Clifford L.
Marquart. (Incorporated by reference to Exhibit 10(ww)
to the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(pp) -- Amendment No. 2 to Incentive Stock Option Agreement
(EBITDA Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Tracy L. Noll.
(Incorporated by reference to Exhibit 10(xx) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(qq) -- Amendment No. 2 to Incentive Stock Option Agreement
(Tenure Option) entered into as of April 30, 1992 by and
among The Morningstar Group Inc. and Tracy L. Noll.
(Incorporated by reference to Exhibit 10(yy) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(rr) -- Amendment to No. 2 to Lactaid Licensing Agreement and to
Distribution Agreement (Confidential treatment has been
granted with respect to this exhibit).****
10(ss) -- Amendment No. 3 to Employment Agreement, entered into as
of July 30, 1992 by and among The Morningstar Group Inc.
and James A. Bach. (Incorporated by reference to
Exhibit 10(aaa) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(tt) -- Amendment No. 3 to Employment Agreement, entered into as
of July 30, 1992 by and among The Morningstar Group Inc.
and Clifford L. Marquart. (Incorporated by reference to
Exhibit 10(bbb) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(uu) -- Amendment No. 3 to Employment Agreement, entered into as
of July 30, 1992 by and among The Morningstar Group Inc.
and Tracy L. Noll. (Incorporated by reference to
Exhibit 10(ccc) to the Registrant's Annual Report on
Form 10-K of the Registrant for the fiscal year ended
December 31, 1992.)*
10(vv) -- Amendment No. 3 to Incentive Stock Option Agreement
(Tenure Option) entered into as of October 1, 1992, by
and among The Morningstar Group Inc. and James A. Bach.
(Incorporated by reference to Exhibit 10(ddd) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(ww) -- Amendment No. 3 to Incentive Stock Option Agreement
(Tenure Option) entered into as of October 1, 1992, by
and among The Morningstar Group Inc. and Clifford L.
Marquart. (Incorporated by reference to Exhibit 10(eee)
to the Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
26
28
Exhibit
Number Description
------ -----------
10(xx) -- Amendment No. 3 to Incentive Stock Option Agreement
(Tenure Option) entered into as of October 1, 1992, by
and among The Morningstar Group Inc. and Tracy L. Noll.
(Incorporated by reference to Exhibit 10(fff) to the
Registrant's Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31,
1992.)*
10(yy) -- Letter agreement dated December 15, 1993 between The
Morningstar Group Inc. and Hicks, Muse & Company,
Inc.*****
10(zz) -- Agreement dated June 1, 1993 between McNeil Consumer
Products Company, a division of McNeil - PPC, Inc. and
The Morningstar Group Inc. (Confidential treatment has
been granted with respect to this exhibit).
(Incorporated by reference to Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.)*
10(aaa) -- Letter Agreement dated June 1, 1993 between McNeil
Consumer Products Company, a division of McNeil - PPC,
Inc. and The Morningstar Group Inc. and Avoset Food
Corporation (Confidential treatment has been granted
with respect to this exhibit). (Incorporated by
reference to Exhibit 10(b) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993.)*
10(bbb) -- First Amendment and Waiver to the Second Amended and
Restated Credit Agreement dated March 5, 1993 among The
Morningstar Group Inc. and The Long-Term Credit Bank of
Japan, Limited, New York Branch, Agent and Banque
Paribas, Houston Agency as Co-Agent.*****
10(ccc) -- Second Amendment to the Second Amended and Restated
Credit Agreement dated October 28, 1993 among The
Morningstar Group Inc. and The Long-Term Credit Bank of
Japan, Limited, New York Branch, Agent and Banque
Paribas, Houston Agency as Co-Agent.*****
10(ddd) -- Waiver to the Second Amended and Restated Credit
Agreement dated March 4, 1993 among The Morningstar
Group Inc. and The Long-Term Credit Bank of Japan,
Limited, New York Branch, Agent and Banque Paribas,
Houston Agency as Co-Agent.*****
10(eee) -- Agreement and Plan of Merger dated February 17, 1994 by
and among Engles Dairy Acquisition, Inc., Velda Farms
Inc. and The Morningstar Group Inc.*****
10(fff) -- Form of Dairy Products Supply Agreement by and among The
Morningstar Group Inc., its named subsidiaries and Velda
Farms Inc.*****
10(ggg) -- Letter of Resignation dated March 17, 1994 from James A.
Bach, accepted and agreed to by The Morningstar Group
Inc.*****
10(hhh) -- Waiver No. 1 to Employment Agreement entered into as of
December 15, 1993 by and among The Morningstar Group
Inc. and James A. Bach.*****
27
29
Exhibit
Number Description
------ -----------
10(iii) -- Waiver No. 1 to Employment Agreement entered into as of
December 15, 1993 by and among The Morningstar Group
Inc. and Tracy L. Noll.*****
10(jjj) -- Advisory Agreement entered into as of October 1, 1993 by
and among The Morningstar Group Inc. and C. Dean
Metropoulos.*****
10(kkk) -- Stock Purchase Agreement entered into as of February 5,
1993 by and among TSC Holdings, Inc. and The Morningstar
Group Inc.*****
10(lll) -- The Morningstar Group Inc. Employees Savings and Profit
Sharing Plan, revised effective April 1, 1988.*****
10(mmm) -- License agreement entered into as of October 1, 1994
between The Morningstar Group Inc. and AgriFoods
International Cooperative LTD (Confidential treatment
has been granted for this exhibit).*****
*10(nnn) -- Employment Agreement entered into as of April 13, 1995
between the Company and C. Dean Metropoulos and certain
other key management personnel.#
13(a) -- The Morningstar Group Inc. Annual Report to Stockholders
for the year ended December 31, 1993 (except for the
pages and information thereof expressly incorporated by
reference in this Form 10-K, the annual report is
provided solely for the information of the Securities
and Exchange Commission and is not to be deemed "filed"
as part of the Form 10-K).*****
* 13(b) -- The Morningstar Group Inc. Annual Report to Stockholders
for the year ended December 31, 1994 (except for the
pages and information thereof expressly incorporated by
reference in this Form 10-K, the annual report is
provided solely for the information of the Securities
and Exchange Commission and is not to be deemed "filed"
as part ofthe Form 10-K).#
*21 -- Subsidiaries.#
*27 -- Financial Data Schedule.#
(b) Reports on Form 8-K
None.
__________________________________
* Incorporated by reference as indicated.
** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No. 33-45805) filed
by the Registrant on February 19, 1992.
*** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No. 33-45805), as
amended by the Registrant on April 8, 1992.
**** Incorporated by reference to the corresponding exhibit to the
Registration Statement on Form S-1 (Registration No. 33-45805), as
Amended by the Registrant on April 22, 1992.
***** Incorporated by reference to the corresponding exhibit to the
Registrant's Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1994.
# Filed herewith.
28