Attached files
file | filename |
---|---|
8-K - FORM 8-K - TreeHouse Foods, Inc. | c56185e8vk.htm |
EX-99.1 - EX-99.1 - TreeHouse Foods, Inc. | c56185exv99w1.htm |
EX-23.1 - EX-23.1 - TreeHouse Foods, Inc. | c56185exv23w1.htm |
EX-99.3 - EX-99.3 - TreeHouse Foods, Inc. | c56185exv99w3.htm |
Exhibit 99.2
Financial Statements
Sturm Foods, Inc.
Nine
Months Ended December 31, 2009 and 2008
(Unaudited)
Contents
Page | ||||
Balance Sheets
|
4 | |||
Statements of Income
|
6 | |||
Statements of Cash Flows
|
7 | |||
Notes to Financial Statements
|
9 |
This
pages intentionally left blank.
STURM FOODS, INC.
BALANCE SHEETS
BALANCE SHEETS
December 31, | March 31, | |||||||
2009 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 65,890,291 | $ | 27,720,983 | ||||
Accounts receivable, less allowance for
doubtful accounts, sales returns and cash discounts
of $556,277 and $658,033 at December 31, 2009 and March 31, 2009 |
31,430,758 | 36,773,465 | ||||||
Inventories |
43,835,416 | 43,915,526 | ||||||
Other current assets |
870,009 | 1,510,385 | ||||||
Deferred income taxes |
686,277 | 1,028,767 | ||||||
Total current assets |
142,712,751 | 110,949,126 | ||||||
PROPERTY, PLANT AND EQUIPMENT |
||||||||
Land |
1,422,643 | 1,422,643 | ||||||
Land improvements |
1,886,343 | 1,886,343 | ||||||
Buildings |
34,980,591 | 34,529,765 | ||||||
Machinery and equipment |
73,059,968 | 72,447,008 | ||||||
Office equipment |
4,685,339 | 3,660,515 | ||||||
Vehicles |
744,698 | 658,870 | ||||||
Equipment under capital leases |
631,666 | 389,988 | ||||||
Construction in progress |
6,396,177 | 3,693,978 | ||||||
123,807,425 | 118,689,110 | |||||||
Less accumulated depreciation |
(53,011,317 | ) | (46,036,234 | ) | ||||
Net property, plant and equipment |
70,796,108 | 72,652,876 | ||||||
OTHER ASSETS |
||||||||
Intangible assets |
12,490,402 | 12,490,402 | ||||||
Deferred financing costs, net of accumulated amortization
of $3,558,862 and $2,643,728 at December 31, 2009 and
March 31, 2009 |
5,143,563 | 6,058,697 | ||||||
$ | 231,142,824 | $ | 202,151,101 | |||||
The accompanying notes are an integral part of these statements.
4
December 31, | March 31, | |||||||
2009 | 2009 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
CURRENT LIABILITIES |
||||||||
Current maturities of long-term debt |
$ | 3,900,000 | $ | 3,900,000 | ||||
Current maturities of capital lease obligations |
179,251 | 77,998 | ||||||
Accounts payable |
38,970,427 | 25,971,377 | ||||||
Accrued profit sharing |
3,874,175 | 4,102,854 | ||||||
Accrued interest |
3,428,341 | 6,380,412 | ||||||
Accrued taxes |
3,237,965 | 1,381,127 | ||||||
Accrued salaries, vacation, and bonus |
2,306,130 | 3,221,484 | ||||||
Accrued brokerage and customer promotion |
3,362,125 | 2,276,143 | ||||||
Other accrued expenses |
3,623,716 | 3,820,176 | ||||||
Total current liabilities |
62,882,130 | 51,131,571 | ||||||
ACCRUED POSTRETIREMENT HEALTH AND
BENEFIT OBLIGATION |
797,112 | 797,112 | ||||||
DEFERRED INCOME TAXES |
6,474,116 | 2,229,779 | ||||||
LONG-TERM DEBT, less current maturities |
523,260,766 | 528,300,000 | ||||||
CAPITAL LEASE OBLIGATIONS,
less current maturities |
452,415 | 265,127 | ||||||
INTEREST RATE SWAP |
| 10,440,720 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
STOCKHOLDERS DEFICIT |
||||||||
Common stock |
2,308,919 | 1,842,428 | ||||||
Additional
paid-in capital (APIC) |
22,710,705 | 18,220,154 | ||||||
Accumulated other comprehensive income |
263,832 | 263,832 | ||||||
Accumulated deficit |
(388,007,171 | ) | (411,339,622 | ) | ||||
(362,723,715 | ) | (391,013,208 | ) | |||||
$ | 231,142,824 | $ | 202,151,101 | |||||
5
STURM
FOODS, INC.
STATEMENTS OF INCOME
Nine Months Ended December 31,
STATEMENTS OF INCOME
Nine Months Ended December 31,
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Net sales |
$ | 252,589,966 | $ | 239,995,839 | ||||
Cost of sales (includes $72,221 and $46,564 of stock based
compensation for the nine month period ended December 31, 2009 and 2008) |
173,481,874 | 168,019,968 | ||||||
Gross profit |
79,108,092 | 71,975,871 | ||||||
Operating expenses |
||||||||
General and administrative (includes $1,494,741 and
$522,492 of stock based compensation for the nine month period ended
December 31, 2009 and 2008) |
11,803,930 | 13,283,106 | ||||||
Selling and marketing |
9,654,301 | 7,134,742 | ||||||
Transaction costs |
708,875 | 764,574 | ||||||
22,167,106 | 21,182,422 | |||||||
Operating income |
56,940,986 | 50,793,449 | ||||||
Other expense |
||||||||
Interest expense, net |
15,987,106 | 27,864,622 | ||||||
Amortization of deferred financing costs |
915,136 | 915,136 | ||||||
Other expense, net |
47,001 | 60,747 | ||||||
16,949,243 | 28,840,505 | |||||||
Income before provision for income taxes |
39,991,743 | 21,952,944 | ||||||
Provision for income taxes |
16,516,235 | 8,071,886 | ||||||
NET INCOME |
$ | 23,475,508 | $ | 13,881,058 | ||||
The accompanying notes are an integral part of these statements.
6
STURM FOODS, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended December 31,
STATEMENTS OF CASH FLOWS
Nine Months Ended December 31,
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 23,475,508 | $ | 13,881,058 | ||||
Adjustments to reconcile net income to net cash and cash
equivalents provided by operating activities: |
||||||||
Depreciation |
6,975,083 | 6,489,909 | ||||||
Amortization |
915,136 | 915,136 | ||||||
Interest rate swap |
(10,440,720 | ) | (1,463,667 | ) | ||||
Stock based compensation |
1,566,962 | 569,065 | ||||||
Deferred income taxes |
4,586,827 | (182,787 | ) | |||||
Change in operating assets and liabilities resulting in an increase
(decrease) of cash and cash equivalents, net of effects of acquisition |
||||||||
Accounts receivable |
5,342,707 | (6,715,534 | ) | |||||
Inventories |
80,109 | (12,655,027 | ) | |||||
Other current assets |
640,376 | 241,115 | ||||||
Accrued postretirement health and benefit obligation |
| 26,100 | ||||||
Accounts payable |
12,999,051 | 11,150,488 | ||||||
Accrued profit sharing |
3,149,674 | 1,786,754 | ||||||
Accrued interest |
(2,952,071 | ) | (106,819 | ) | ||||
Other accrued expenses |
1,696,874 | 3,669,518 | ||||||
Net cash and cash equivalents provided by operating activities |
48,035,516 | 17,605,309 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of property, plant and equipment |
(4,713,303 | ) | (5,292,450 | ) | ||||
Proceeds from sale of property, plant and equipment |
| 126,000 | ||||||
Acquisition of McCanns |
| (12,920,488 | ) | |||||
Net cash and cash equivalents used in investing activities |
(4,713,303 | ) | (18,086,938 | ) |
7
STURM
FOODS, INC.
STATEMENTS OF CASH FLOWS CONTINUED
Nine Months Ended December 31,
STATEMENTS OF CASH FLOWS CONTINUED
Nine Months Ended December 31,
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Cash flows from financing activities: |
||||||||
Payments on long-term debt |
$ | (5,039,234 | ) | $ | (2,925,000 | ) | ||
Payments on capital lease obligations |
(116,471 | ) | (62,133 | ) | ||||
Proceeds from issuance of common stock |
2,800 | 5,600 | ||||||
Net cash and cash equivalents used in
financing activities |
(5,152,905 | ) | (2,981,533 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS |
38,169,308 | (3,463,162 | ) | |||||
Cash and cash equivalents, beginning of year |
27,720,983 | 23,821,854 | ||||||
Cash and cash equivalents, end of year |
$ | 65,890,291 | $ | 20,358,692 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the year for: |
||||||||
Interest |
$ | 25,022,262 | $ | 27,639,993 | ||||
Income taxes |
$ | 11,152,384 | $ | 9,140,000 |
Non-cash operating and financing activities:
During
the nine month period ending December 31, 2009 and 2008, the Company acquired machinery
and equipment through capital lease payable of $405,012 and $389,988 respectively.
In June 2009 the Company contributed 4,664,910 shares of common stock ($466,491) to the
employee retirement plan in recognition of the 2008 calendar year profit sharing.
8
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A NATURE OF OPERATIONS
Sturm Foods, Inc. (the Company) is a processor and packager of store brand and branded sugar
and sugar free drink mixes, various hot cereal products, non-fat dry milk, hot cocoa mixes and
other dry products for distribution throughout the United States and Canada. The manufacturing
facilities and corporate office of the Company are located in Manawa, Wisconsin.
The Companys primary customers are large retail grocery and mass merchant stores. For the nine
months ended December 31, 2009 and 2008, the largest two customers totaled 49% and 53% of net
sales. The Companys top ten customers account for approximately 74% and 74% of the Companys
net sales for the nine months ended December 31, 2009 and 2008.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.
Basis of Presentation
These financial statements include the accounts of the Company prepared in accordance with
accounting principles generally accepted in the United States of America by Sturm Foods, Inc.
without audit. In our opinion these statements include all adjustments necessary for a fair
presentation of the results of all interim periods reported herein. Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted as permitted by such
rules and regulations. The financial statements and related notes should be read in conjunction
with the financial statements and related notes included in the Companys annual audit report
for the fiscal year ended March 31, 2009 and 2008. Results of operations for interim periods are
not necessarily indicative of annual results.
2.
Acquisition
In September 2008, the Company acquired the McCann Irish Oatmeal (McCann) product line for
$12,920,488, including acquisition costs of $481,802. The Company acquired McCanns to strengthen
the Companys oatmeal product offering. The acquisition was accounted for as a business combination
and the purchase price was allocated based on the fair values as determined on the date of close.
The purchase price was allocated as follows:
Inventory |
$ | 1,680,086 | ||
Tradename |
12,490,402 | |||
Commission settlement liability |
(1,250,000 | ) | ||
$ | 12,920,488 | |||
3.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America (US GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
9
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
4. Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three
months or less at the date of acquisition. Cash equivalents are stated at cost which approximates
fair market value. The Company maintains its cash balances at one financial institution and is
secured by the Federal Deposit Insurance Corporation up to federally insured limits. The Company has
not experienced any losses in such accounts and believes it is not exposed to any significant
credit risk.
5. Accounts Receivable
The majority of the Companys accounts receivable is due from regional and national retail
customers. Credit is extended based on an evaluation of customers financial conditions. The
allowance for doubtful accounts represents estimates of amounts considered uncollectible and is
determined on an account-by-account basis. Payments subsequently received on accounts written off
are credited to bad debt expense.
6. Inventories
Inventories are stated at the lower of cost or market, with cost determined on the first-in,
first-out (FIFO) method. Inventory costs include material, labor and factory overhead. The
Company has recorded a reserve for obsolete and excess inventories.
Inventories consist of the following at:
(Unaudited) | ||||||||
December 31, | March 31, | |||||||
2009 | 2009 | |||||||
Raw materials |
$ | 10,236,812 | $ | 8,338,518 | ||||
Work-in-process |
10,769,946 | 10,241,055 | ||||||
Finished goods |
11,649,382 | 16,822,218 | ||||||
Packaging supplies |
12,477,359 | 9,545,228 | ||||||
45,133,499 | 44,947,019 | |||||||
Less inventory reserve |
(1,298,083 | ) | (1,031,493 | ) | ||||
$ | 43,835,416 | $ | 43,915,526 | |||||
10
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
7. Property. Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance and repair costs are charged to
expense as incurred. Improvements and betterments that substantially increase the value or extend
the useful life of the asset are capitalized at cost. The Company capitalizes interest expense
incurred on long-term construction type projects.
Depreciation of property, plant and equipment is calculated on a straight-line basis over the
assets estimated useful life. Accelerated methods are used for income tax purposes. The following
estimated lives are used in calculating depreciation:
Years | ||||
Land improvements |
15-20 | |||
Buildings |
15-40 | |||
Machinery and equipment
(includes equipment under
capital lease) |
5-15 | |||
Office equipment |
2-5 | |||
Vehicles |
3-7 |
The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverabilityof assets to be
held and used is measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment recognized is measured by the amount by which the carrying amounts of the assets exceed
their respective fair values.
8. Intangible Assets
Intangible assets, which are comprised of trade names acquired in the McCann acquisition, are
considered indefinite-lived intangible assets and are not subject to amortization. US GAAP requires
that the indefinite-lived intangible assets be tested for impairment at least annually, or more
often if warranted by events and changes in circumstances indicating that the carrying value may
exceed its fair value, and written down to fair value if impaired. The Company has not recorded any impairment.
9. Fair Value of Financial Instruments
Cash and cash equivalents and accounts receivable are financial instruments with carrying values
that approximate fair value. Accounts payable, accrued liabilities, interest rate swap and
long-term debt are financial instruments with carrying values that approximate fair value. Interest
rates currently available for debt with similar terms and remaining maturities are used to estimate
fair value of existing debt.
11
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
10. Deferred Financing Costs
The Company capitalizes fees incurred in connection with securing long-term financing.
Amortization of deferred financing costs is provided using the straight-line method over the term
of the related debt agreement. Amortization expense for these financing costs for the nine months
ended December 31, 2009 and 2008 was $915,136.
11. Accrued Promotion Expenses
Accrued promotion expenses represent discounts, allowances and volume bonuses awarded to customers
but not paid as of period end. These programs are most often based on sales volume measured in
dollars or pounds and are expensed when products are shipped. Promotion related expense for the
nine months ended December 31, 2009 and 2008 was $7,259,445 and
$5,471,167, respectively, and was
recorded as an offset to net sales.
12. Revenue Recognition
The Company recognizes revenue, net of sales incentives and including shipping charges billed
to customers, upon shipment to customers which is when risk of loss passes.
13. Classification of Shipping Costs
Shipping costs incurred by the Company are included within cost of sales on the statements of
income.
14. Advertising
The Company expenses advertising costs as the promotions occur. Advertising expense for the nine
months ended December 31, 2009 and 2008 was $3,018,465 and $1,693,068, respectively. These expenses
are classified within selling and marketing expense on the statements of income.
15. Research and Development Costs
The Company expenses research and development costs as they occur. Research and development expense
for the nine months ended December 31, 2009 and 2008 was $1,021,351 and $923,961, respectively.
These expenses were classified within general and administrative expense on the statements of
income.
16. Income Taxes
The Company follows the asset and liability method in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based upon the differences between the
financial reporting and the tax bases of assets and liabilities and are measured using enacted tax
rules and laws that are anticipated to be in effect when the differences are expected to reverse. A
valuation allowance is established when management determines that it is more likely than not that all or a portion of a deferred
tax asset will not be realized.
12
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
16. Income Taxes Continued
The Company records uncertain tax positions when it is probable that a liability has
been incurred as of the date of the financial statements and the amount of the loss can be
reasonably estimated. The Company has adopted the
recently issued uncertain income tax position guidance as of April 1, 2009. The amount
recognized for prior periods and therefore, recorded as an adjustment to retained earnings as
of April 1, 2009 was $143,062. During the nine months ended December 31, 2009, an additional
$29,773 was recorded for changes in uncertain tax positions. These amounts are subject to
estimate and management judgment with respect to the likely outcome of each uncertain tax
position. The amount that is ultimately sustained for an individual uncertain tax position or
for all uncertain tax positions in the aggregate could differ from the amount recognized.
17.
Stock Based Compensation
The Company accounts for stock based compensation by measuring the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value of the
award. The Company recognizes the compensation expense over the
vesting period.
18. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability (i.e., exit price) in an orderly transaction between market participants at the
measurement date. US GAAP requires disclosures that categorize assets and liabilities measured at
fair value into one of three different levels depending on the assumptions (i.e., inputs) used in
the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally
requires significant management judgment. Financial assets and liabilities are classified in their
entirety based on the lowest level of input significant to the fair value measurement. The fair
value hierarchy is defined as follows:
Level 1 Valuations are based on unadjusted quoted prices in active markets for identical
assets or liabilities.
Level 2 Valuations are based on quoted prices for similar assets or liabilities in active
markets, or quoted prices in markets that are not active for which significant inputs are
observable, either directly or indirectly.
Level 3 Valuations are based on prices or valuation techniques that require inputs that are
both unobservable and significant to the overall fair value measurement. Inputs reflect
managements best estimate of what market participants would use in valuing the asset or liability at the measurement date.
The Company does not have any Level 1 or 3 financial assets or liabilities. The interest rate swap
is a financial liability measured on a recurring basis and is recorded at fair market value using
Level 2 inputs as disclosed in Note E.
13
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
19. Comprehensive Income
The Company reports comprehensive income which is defined as the change in equity from
transactions and other events from non-owner sources. Comprehensive income includes net income
and net actuarial gains on the post-retirement plan.
NOTE C LINE OF CREDIT
The Company has available a $20,000,000 revolving credit line with a consortium of financial
institutions. The line of credit bears interest at the Eurodollar Rate plus an Applicable Margin as
defined in the agreement and is due May 26, 2010. No amounts were outstanding under this revolving
credit line at December 31, 2009 and March 31, 2009.
NOTE D LONG-TERM DEBT
Long-term debt consists of the following at:
(Unaudited) | ||||||||
December 31, | March 31, | |||||||
2009 | 2009 | |||||||
Term loan, bearing interest at the Base Rate or the
Eurodollar Rate plus an Applicable Margin as defined in
the agreement (the Company has elected the Eurodollar
Rate option at December 31, 2009 and March 31, 2009
2.8125% and 3.75%, respectively) with quarterly principal
payments of $975,000 through January 31, 2014. |
$ | 377,160,766 | $ | 382,200,000 | ||||
Term loan, bearing interest at the Base Rate or the
Eurodollar Rate plus an Applicable Margin as defined in
the agreement (the Company has elected the Eurodollar
Rate option at December 31, 2009 and March 31, 2009 6.3125% and 7.25%, respectively) with one lump sum
principal payment due July 31, 2014. |
150,000,000 | 150,000,000 | ||||||
527,160,766 | 532,200,000 | |||||||
Less current maturities |
(3,900,000 | ) | (3,900,000 | ) | ||||
$ | 523,260,766 | $ | 528,300,000 | |||||
The term loans and line of credit are secured by substantially all assets of the Company. Among
other restrictions, the term loans contain certain covenants that provide for the maintenance of
minimum levels of interest expense coverage and maximum levels of total leverage and capital
expenditures. The Company is in compliance with these covenants at December 31, 2009.
14
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE D LONG-TERM DEBT Continued
The future scheduled maturities of long-term debt are as follows:
Fiscal Year | Amount | |||
2010 |
$ | 0 | ||
2011 |
3,900,000 | |||
2012 |
3,900,000 | |||
2013 |
3,900,000 | |||
2014 |
365,460,766 | |||
Thereafter |
150,000,000 | |||
$ | 527,160,766 | |||
NOTE E INTEREST RATE SWAP AGREEMENT
In January 2008, the Company entered into an interest rate swap agreement which fixes the
interest rates on a portion of the Companys borrowings under the floating rate term loans. The
Company did not designate the interest rate swap agreement as a hedge. As such changes in the
fair value of the interest rate swap agreement are recognized on the statements of income. The
company has recorded a liability in the amount of $0 and $10,440,720 to reflect the fair value
of the interest rate swap at December 31, 2009 and
March 31, 2009, respectively. As changes in the
fair value occur, interest expense was adjusted. The change to the interest expense recorded for
the nine months ended December 31, 2009 and 2008 due to the agreement was $10,440,720 and
$1,463,667, respectively. Terms of the agreement were as follows:
| Notional Amount | $530,000,000 | ||||||
| Effective Date | October 31, 2007 | ||||||
| Termination Date | October 31, 2009 (EXPIRED) | ||||||
| Fixed Interest Rate | 3.735% | ||||||
| Floating Interest Rate | 90-day LIBOR |
NOTE F POSTRETIREMENT HEALTH AND OTHER BENEFITS
The Company provides certain health care and life insurance benefits for eligible retirees.
These benefits are not funded, but are paid as incurred. Eligibility for coverage is based on
certain years of service and retirement age qualifications. These benefits maybe subject to
deductibles, co-payment provisions and other limitations, and the Company has reserved the right to
modify these benefits. As of February 2000, the postretirement plan was frozen and no new plan
participants are allowed. Benefit payments for the nine months ended
December 31, 2009 and 2008 were
$0 and $26,100, respectively.
The Company is required to recognize the funded status of the plan on the balance sheet. The
funded status of the plan is determined as of the plans measurement date and represents the
difference between the amount of the obligations owed to participants under the plan and the fair
value of the plans assets dedicated to paying those obligations. To record the funded status
of the plan, unrecognized prior service costs and net actuarial gains or losses experienced by the
plan will be recorded as other comprehensive income or loss.
15
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE F POSTRETIREMENT HEALTH AND OTHER BENEFITS continued
The Company has recorded a liability on the balance sheet in the
amount of $797,112 as of December 31, 2009 and March 31, 2009 to reflect the funded status of the
plan.
NOTE G INCOME TAXES
The
Companys effective tax rate for the nine months ended
December 31, 2009 and 2008 was 41.3% and 36.8%, respectively.
The Companys 2009 effective tax rate is unfavorably impacted by the
completion and settlement of the State of Wisconsin franchise tax audit ($351,994) for the time
period through March 31, 2007. In addition, the change in the Wisconsin apportionment is
increasing the amount of the state tax liability.
The Company has reserved $172,835 for the nine months ended December 31, 2009 for uncertain
tax positions related to franchise taxes in Arkansas and Wisconsin.
NOTE H STOCKHOLDERS DEFICIT
On May 26, 2005, the Company amended its Amended and Restated Articles of Incorporation. The
amendment authorized the issuance of 350,000,000 shares of common stock ($.01 par value) and
50,000,000 of preferred stock ($.01 par value).
As of December 31, 2009 and March 31, 2009, 188,935,616 and 184,242,702 shares of common stock,
respectively and 0 shares of preferred stock were issued and outstanding.
In November 2005, the stockholders of the Company entered into a 10-year Stockholders
Agreement that imposes certain restrictions and obligations on the stockholders with respect to
their stock.
NOTE I STOCK COMPENSATION PLAN
On May 26, 2005, the Company created the Sturm Foods, Inc. 2005 Stock Option Plan (2005
Plan). Under terms of the 2005 Plan, the Company has reserved 16,952,201 shares for issuance to
certain individuals and key employees of the Company. In fiscal 2009, the 2005 Plan was amended to
increase shares available for issuance to 23,352,201. As of
December 31, 2009, 642,440 shares are
available for future option grants. According to the 2005 Plan, no options shall be granted at a
price less than the calculated fair market value of the Companys common stock at the date of grant
as determined by an independent appraisal. Unless dictated otherwise by a specific option
agreement, options vest in five equal annual installments and expire ten years from the date of
grant, or within ninety days after an employee ceases performing services for the Company.
16
STURM FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE I STOCK COMPENSATION PLAN continued
A summary of stock option activity is as follows:
Weighted | ||||||||||||
Weighted | average | |||||||||||
average | remaining | |||||||||||
Outstanding | exercise | life | ||||||||||
Options | price | (months) | ||||||||||
Outstanding April 1, 2009 |
8,904,750 | $ | 0.44 | 109 | ||||||||
Granted |
0 | N/A | N/A | |||||||||
Exercised |
(28,000 | ) | $ | 0.10 | N/A | |||||||
Forfeited |
(389,250 | ) | $ | 0.45 | N/A | |||||||
Outstanding December 31, 2009 |
8,487,500 | $ | 0.38 | 99 | ||||||||
Vested or expected to vest
at December 31, 2009 |
8,487,500 | $ | 0.38 | 99 | ||||||||
Exercisable December 31, 2009 |
2,443,345 | $ | 0.30 | 99 | ||||||||
For
the nine months ended December 31, 2009 and 2008, $1,566,962 and $569,065, respectively, was
expensed under the 2005 Plan.
NOTE J PROFIT SHARING PLAN
The Company has a defined contribution profit sharing plan for all employees who meet service
eligibility requirements. Company contributions are at the discretion of the Board of Directors and
are typically 15% of eligible employee compensation. The Companys expense for the nine months
ended December 31, 2009 and 2008 was $3,149,675 and $3,291,128, respectively. Employees can
contribute pre-tax 401(k) contributions from 1% to 80%, subject to certain limitations of their
compensation, beginning the first day of the quarter following completion of three months of
service. In fiscal 2009, the profit sharing plan was amended to allow for contributions to take the
form of cash or Company stock.
17
STURM
FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE K COMMITMENTS AND CONTINGENCIES
1. Litigation
The Company is the subject of various legal claims that arise from time to time in the ordinary
course of business. These claims may relate to the Companys operations, product liability,
workers compensation and employment matters. The Company is not aware of any litigation that would
materially impact the financial statements.
2. Self-Insurance
The Company maintains a stop-loss major medical insurance policy but is self-funded for the
coverage up to the stop-loss limit of $110,000 per individual per year.
3. Commodity Risk
In the ordinary course of business, the Company is exposed to commodity price risks relating
to the acquisition of raw materials and fuels. From time to time, the Company enters into short
term (1 year or less) supply contracts with vendors to reduce these risks. The Company is not aware
of any commodity positions that would materially impact the financial statements.
NOTE L RELATED PARTY TRANSACTIONS
On
May 26, 2005, the Company entered into a 12-year management agreement with a stockholder
whereby the stockholder provides representation to the Board of Directors of the Company and
various consulting services. A quarterly fee of $479,575 and $430,550 was charged to the Company.
Expense for the nine months ended December 31, 2009 and 2008 was $1,438,725 and $1,291,650,
respectively.
In February 2008, the Company entered into an agreement to use an aircraft owned by MEU Holdings.
The agreement calls for payments which are based on the usage of the aircraft ($3,600 per flight
hour plus variable operating expenses). MEU Holdings is owned by the former Chief Executive Officer
of the Company. Expense for the nine months ended December 31, 2009 and 2008 was $0 and $748,440,
respectively. The agreement was terminated effective October 31, 2008.
NOTE M
SALE OF COMPANY
On
December 20, 2009 the Company entered into a stock sale
agreement with
TreeHouse Foods, Inc. whereby
TreeHouse Foods, Inc. plans to acquire 100% of the outstanding stock of
the Company.
The sale is expected to close in March 2010.
NOTE N
SUBSEQUENT EVENTS
The
Company evaluated subsequent events from the balance sheet date of
December 31, 2009 through February 16, 2010, the date the
Companys interim financial statements were issued, and has
concluded that no subsequent events have occurred during this period.
18