1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-18859
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INTERNATIONAL HOME FOODS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3377322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 NORTHFIELD STREET, GREENWICH, C.T. 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 622-6010
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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 [ ]
The number of shares outstanding of registrant's common stock, par value $0.01
per share, at March 31, 2000 was 73,964,174.
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INTERNATIONAL HOME FOODS, INC.
INDEX TO FORM 10-Q
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Income 3
Three Months Ended March 31, 2000 and 1999
Consolidated Balance Sheets 4
March 31, 2000 and December 31, 1999
Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 14
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit 12. Computation of Consolidated Ratio of Earnings to Fixed 24
Charges
Exhibit 27. Financial Data Schedule 25
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INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
------------ ------------
Net sales $ 561,374 $ 514,186
Cost of sales 293,133 280,362
------------ ------------
Gross profit 268,241 233,824
Marketing expenses 128,598 109,739
Selling, general, and administrative expenses 71,541 60,959
------------ ------------
Income from operations 68,102 63,126
Interest expense 25,074 25,751
Other (income) expense, net 244 (175)
Gain on sale of business -- (15,779)
------------ ------------
Income before provision for income taxes 42,784 53,329
Provision for income taxes 16,258 20,798
------------ ------------
Net income $ 26,526 $ 32,531
============ ============
Basic earnings per share:
Net income $ 0.36 $ 0.44
------------ ------------
Shares used in computing basic earnings per share 73,918,374 73,303,266
------------ ------------
Diluted earnings per share:
Net income $ 0.35 $ 0.43
------------ ------------
Shares used in computing diluted earnings per share 76,028,707 75,802,674
------------ ------------
See accompanying notes to consolidated financial statements.
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INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
March 31, December 31,
2000 1999
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 16,369 $ 14,310
Accounts receivable, net of allowances 181,530 180,671
Inventories 307,095 282,911
Prepaid expenses and other current assets 31,893 34,345
Deferred income taxes 16,317 16,113
------------ ------------
Total current assets 553,204 528,350
Property, plant and equipment, net 311,953 306,042
Intangible assets, net 434,565 432,732
Deferred income taxes 253,985 262,563
Other assets 18,120 19,686
------------ ------------
Total assets $ 1,571,827 $ 1,549,373
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 83,249 $ 73,084
Revolving credit facility 118,013 78,536
Accounts payable 56,945 69,669
Book overdrafts 26,186 22,457
Accrued compensation and benefits 25,055 22,288
Accrued advertising and promotion 48,450 39,550
Accrued interest 17,079 10,278
Other accrued liabilities 35,328 38,967
------------ ------------
Total current liabilities 410,305 354,829
Long-term debt 962,671 1,024,378
Post-retirement benefits obligation 27,990 27,216
Other non-current liabilities 253 898
------------ ------------
Total liabilities 1,401,219 1,407,321
------------ ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock - par value $0.01 per share; authorized,
100,000,000 shares; no shares issued or outstanding $ -- $ --
Common stock - par value $0.01 per share; authorized,
300,000,000 shares; issued 78,364,174 and
78,218,034 shares 784 782
Additional paid-in capital 63,655 62,475
Treasury stock, at cost 4,400,000 shares (57,200) (57,200)
Retained earnings 164,453 137,927
Accumulated other comprehensive loss (1,084) (1,932)
------------ ------------
Total stockholders' equity 170,608 142,052
------------ ------------
Total liabilities and stockholders' equity $ 1,571,827 $ 1,549,373
============ ============
See accompanying notes to consolidated financial statements.
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INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
------------ ------------
OPERATING ACTIVITIES:
Net income $ 26,526 $ 32,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,142 10,621
Deferred income taxes 8,374 10,921
Stock option compensation -- 26
Gain on sale of business -- (15,779)
Changes in assets and liabilities, net of acquisitions
and divestiture:
Increase in accounts receivable (859) (18,331)
(Increase) decrease in inventories (24,184) 26,088
Decrease (increase) in other current assets 2,452 (3,424)
(Decrease) increase in accounts payable (12,724) 6,471
Increase in accrued liabilities 14,829 28,773
Increase in non-current assets (632) (179)
Increase in non-current liabilities 129 738
------------ ------------
Net cash provided by operating activities 25,053 78,456
------------ ------------
INVESTING ACTIVITIES:
Purchases of plant and equipment, net (12,375) (10,865)
Payments for acquired businesses, net of cash
acquired (4,067) (37,733)
Proceeds from sale of business -- 30,000
------------ ------------
Net cash used in investing activities (16,442) (18,598)
------------ ------------
FINANCING ACTIVITIES:
Increase (decrease) in book overdrafts 3,729 (2,993)
Repayment of long-term debt (51,542) (25,802)
Borrowings from revolving credit facility 89,500 13,124
Repayment of borrowings from revolving
credit facility (49,909) (40,210)
Proceeds from exercise of stock options 1,182 1,232
------------ ------------
Net cash used in financing activities (7,040) (54,649)
------------ ------------
Effect of exchange rate changes on cash 488 821
------------ ------------
Increase in cash and cash equivalents 2,059 6,030
Cash and cash equivalents at beginning of period 14,310 17,201
------------ ------------
Cash and cash equivalents at end of period $ 16,369 $ 23,231
============ ============
Cash paid during the period for:
Interest 17,185 14,604
Income taxes 1,404 1,814
See accompanying notes to consolidated financial statements.
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. ACCOUNTING POLICIES
Interim Financial Statements
In the opinion of International Home Foods, Inc. ("the Company"), the
accompanying consolidated financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present
fairly the Company's financial position as of March 31, 2000 and the
results of operations and cash flows for the three months ended March 31,
2000 and 1999. The results of operations for the three month period are not
necessarily indicative of the results to be expected for the full year. The
December 31, 1999 consolidated balance sheet was derived from the Company's
audited financial statements but does not include all disclosures required
by generally accepted accounting principles. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1999
Annual Report on Form 10-K.
Use of Estimates
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles and necessarily include amounts
based on judgments and estimates made by management. Actual results could
differ from these estimates. Estimates are used when accounting for
potential bad debts, inventory obsolescence and spoilage, trade and
promotion allowances, coupon redemptions, depreciation and amortization,
stock option compensation, deferred income taxes and tax valuation
allowances, pension and post-retirement benefits, restructuring charges and
contingencies, among other items.
Reclassifications
Certain 1999 amounts have been reclassified to conform with the 2000
presentation.
2. INVENTORIES
Inventories consist of:
March 31, December 31,
2000 1999
------------ ------------
Raw materials $ 77,298 $ 65,483
Work in progress 8,789 8,841
Finished goods 221,008 208,587
------------ ------------
Total $ 307,095 $ 282,911
============ ============
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. COMPREHENSIVE INCOME
Comprehensive income is as follows:
Three Months Ended
March 31,
2000 1999
------------ ------------
(unaudited)
Net income $ 26,526 $ 32,531
Foreign currency translation
Amount before taxes $ 1,467 $ (89)
Income tax (expense) benefit (619) 260
------------ ------------
Other comprehensive income $ 848 $ 171
------------ ------------
Total comprehensive income $ 27,374 $ 32,702
============ ============
The following amounts are included in Accumulated other comprehensive loss
at March 31, 2000 and December 31, 1999:
March 31, December 31,
2000 1999
------------ ------------
Minimum pension liability $ (29) $ (29)
Foreign currency translation (1,055) (1,903)
------------ ------------
Accumulated other comprehensive loss $ (1,084) $ (1,932)
============ ============
4. BUSINESS SEGMENT INFORMATION
The Company manufactures and markets a diversified portfolio of
shelf-stable food products including entrees, side dishes, snacks, canned
fish, canned meats as well as refrigerated surimi. The Company sells its
products primarily in the United States, Canada and Mexico, and is not
dependent on any single or major group of customers for its sales.
The Company has three reportable business segments - Branded Products,
Seafood and Private Label and Foodservice. Branded Products is defined as
U.S. grocery sales for the following products: Chef Boyardee(R), Canned
Meat and Beans brands (Libby's(R), Dennison's(R), Luck's(R) and Ranch
Style(R)), Ro*Tel(R), Specialty and Snack brands (PAM(R) cooking spray,
Gulden's(R), Maypo(R), Wheatena(R), Maltex(R), G. Washington's(R), Crunch
'n Munch(R), Jiffy pop(R) and Campfire(R)). Seafood includes all sales for
the Bumble Bee(R), Orleans(R), Libby's, Clover Leaf(R), Paramount(R) and
Louis Kemp(R) brands of seafood products as well as private label and
foodservice seafood sales. Private Label and Foodservice includes all
private label canned pasta, cooking spray, fruit snacks, ready-to-eat
cereals, wholesome snack bars, pie crust and personal care products and
the sales to foodservice distributors. The All Other category is comprised
of sales to the military, contract sales to Nestle, sales of Polaner(R)
products and international sales which includes branded, private label and
foodservice sales in Canada, Mexico, Puerto Rico, and other export sales.
The Company sold its Polaner fruit spreads and spices business on February
5, 1999 (Note 6).
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Business Segment Information, (Continued)
The Company sells the products in each of its segments primarily to
grocery wholesalers and distributors, grocery stores and supermarkets,
convenience stores, drug and mass merchants and warehouse clubs.
The Company evaluates segment performance based upon segment operating
income (earnings before interest expense, net other [income] expense, and
income taxes excluding unusual or infrequently occurring items,
restructuring charge and stock compensation expense [income]). Certain
centrally incurred costs (Corporate), are not allocated to the operating
segments.
The Company allocates certain charges, including depreciation,
amortization, agent and broker commissions, storage, packing and shipping
charges, and administrative costs for salaries, insurance and employee
benefits, to its Branded Products segment, and to its Private Label and
Foodservice segment based on a percentage of net sales.
For the Three Months Ended
March 31,
2000 1999
------------ ------------
Net sales:
Branded Products $ 220,614 $ 206,029
Seafood 187,427 159,966
Private Label and Foodservice 79,290 78,563
------------ ------------
Subtotal - Reportable Segments 487,331 444,558
All Other 74,043 69,628
------------ ------------
Total $ 561,374 $ 514,186
============ ============
Segment operating income:
Branded Products $ 41,342 $ 39,801
Seafood 13,033 9,834
Private Label and Foodservice 13,838 10,393
------------ ------------
Subtotal - Reportable Segments 68,213 60,028
All Other 5,521 5,750
------------ ------------
Total $ 73,734 $ 65,778
============ ============
For the Three Months Ended
March 31,
2000 1999
------------ ------------
Reconciliation to Consolidated Results
Segment operating income $ 73,734 $ 65,778
Less:
Stock compensation expense -- 26
Unallocated expense 5,632 2,626
------------ ------------
Total consolidated income
from operations $ 68,102 $ 63,126
============ ============
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. ACQUISITIONS
On July 19, 1999, the Company, through its subsidiary Bumble Bee Seafoods,
Inc., acquired the manufacturing, sales distribution and marketing
operations of Louis Kemp from Tyson Foods, Inc. for $68,792, including
transaction fees. The Company financed this acquisition with borrowings
under its Senior Bank Facilities. Louis Kemp manufactures and sells
refrigerated and frozen surimi products. Surimi-based products are made
from North Pacific ocean pollack and whiting fish meats. These products are
primarily sold under the tradename Louis Kemp and other tradenames such as
Captain Jac(R), SeaFest(R) and Pacific Mate(R).
On January 19, 1999, the Company, through its subsidiary Bumble Bee
Seafoods, Inc., acquired the Clover Leaf and Paramount canned seafood
brands and business of British Columbia Packers ("Clover Leaf/Paramount
brands") from George Weston Ltd. of Canada for a total purchase price of
$40,394, including transaction fees. The acquisition was funded with
borrowings under the Company's Senior Bank Facilities and cash on hand.
The excess of cost over fair value of net assets acquired for the above
acquisitions is amortized over 40 years for identifiable intangibles and
for goodwill. These acquisitions have been accounted for using the purchase
method of accounting, and the operating results of the acquired companies
have been included in the consolidated financial statements from the dates
of acquisition. The information below includes non-cash investing and
financing activities supplemental to the consolidated statements of cash
flows. A summary of the excess of cost over fair value of net assets
acquired resulting from purchase price allocations for the 1999
acquisitions is as follows:
CLOVER LEAF/
LOUIS PARAMOUNT
KEMP BRANDS
------------ ------------
Cost of acquisition, including
transaction fees $ 68,792 $ 40,394
Less acquired assets:
Current assets 10,094 38,962
Property, plant and equipment 18,111 1,180
Other assets -- --
Add: liabilities assumed 1,016 9,411
------------ ------------
Excess of cost over net assets acquired,
including identifiable intangibles $ 41,603 $ 9,663
============ ============
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Acquisitions, (Continued)
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisitions of Clover Leaf/Paramount and Louis
Kemp and divestiture of Polaner had occurred as of the beginning of 1999
and reflect proforma adjustments for goodwill, interest expense and tax
expense:
For the Three Months Ended
March 31, 1999
---------------------------------------
IHF(1) Acquisitions(2) Total
-------- --------------- --------
Net sales $509,122 $33,952 $543,074
Operating income $ 62,767 $ 379 $ 63,146
Net income $ 22,547 $ (486) $ 22,061
Earnings per share:
Basic $ 0.31 $ (0.01) $ 0.30
Diluted $ 0.30 $ (0.01) $ 0.29
(1) Excludes operations of and gain on sale of Polaner (See Note 6).
(2) Amounts include Louis Kemp and Clover Leaf/Paramount brands.
The unaudited pro forma consolidated results do not purport to be
indicative of results that would have occurred had the acquisitions been
in effect for the period presented, nor do they purport to be indicative
of the results that will be obtained in the future.
6. SALE OF BUSINESS
On February 5, 1999 the Company sold its Polaner fruit spreads and spices
business to B&G Foods, Inc. for approximately $30.0 million in cash,
resulting in a gain of $15.8 million ($9.6 million, net of tax or $0.13
per diluted share).
7. RELATED PARTY TRANSACTIONS
Effective November 1, 1996, the Company entered into a 10-year monitoring
and oversight agreement with an affiliate of its largest stockholder. The
agreement provides for an annual fee of the greater of $1,000 or 0.1% of
the budgeted consolidated net sales of the Company for the current year.
In addition, effective November 1, 1996, the Company entered into a
financial advisory agreement with the affiliate under which the affiliate
will be entitled to a fee of 1.5% of the transaction value, as defined,
for each add-on transaction, as defined. The Company incurred monitoring
and oversight fees of $579 and $487 and financial advisory fees of $0 and
$546 for the three months ended March 31, 2000 and 1999, respectively.
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. GUARANTOR FINANCIAL DATA
The Company's Senior Subordinated Notes are fully and unconditionally
guaranteed by each of the Company's subsidiary guarantors on a joint and
several basis. The Company has not presented separate financial statements
and other disclosures concerning each of the subsidiary guarantors because
management has determined that such information is not material to the
holders of the Senior Subordinated Notes. The financial information for
2000 reflects the corporate re-organization, resulting from the Company's
tax restructuring, effective January 1, 2000. Certain intercompany sales
transactions between the parent and guarantor subsidiaries have been
eliminated. Presented below is consolidating financial information
including summarized combined financial information of the subsidiary
guarantors:
FOR THE THREE MONTHS ENDED
MARCH 31, 2000
(unaudited)
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Net sales $ 265,650 $ 514,241 $ 47,133 (265,650) $ 561,374
Gross profit 154,992 268,811 17,302 (172,864) 268,241
Net income 14,627 11,049 850 -- 26,526
Net cash provided by (used in)
operating activities 10,552 15,781 (1,280) -- 25,053
Net cash provided by (used in)
investing activities 359 (16,287) (514) -- (16,442)
Net cash provided by (used in)
financing activities 27,674 (36,156) 1,442 -- (7,040)
FOR THE THREE MONTHS ENDED
MARCH 31, 1999
(unaudited)
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Net sales $ 220,671 $ 250,911 $ 42,604 -- $ 514,186
Gross profit 128,854 92,109 12,861 -- 233,824
Net income 7,304 23,411(1) 1,816 -- 32,531(1)
Net cash provided by (used in)
operating activities 53,535 33,488 (8,567) -- 78,456
Net cash (used in) provided by
investing activities (531) 13,538 (31,605) -- (18,598)
Net cash (used in) provided by
financing activities (52,453) (45,002) 42,806 -- (54,649)
The 1999 amounts have been reclassified for consistency from amounts
previously reported. Amounts are not intended to report results as if the
subsidiaries were separate stand-alone entities.
(1) Includes an after-tax gain of $9.6 million ($15.8 million pre-tax)
from sale of the Polaner fruit spread and spice business.
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Guarantor Financial Data, (Continued)
MARCH 31, 2000
(unaudited) Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Current assets $ 34,545 $ 433,725 $ 84,934 $ -- $ 553,204
Non-current assets 1,120,208 675,209 14,219 (791,013) 1,018,623
Current liabilities 220,889 174,748 14,668 -- 410,305
Non-current liabilities 963,535 50,572 35,374 (58,567) 990,914
DECEMBER 31, 1999
Current assets $ 132,979 $ 304,110 $ 91,261 $ -- $ 528,350
Non-current assets 1,091,493 670,803 808 (742,081) 1,021,023
Current liabilities 200,671 132,201 21,957 -- 354,829
Non-current liabilities 1,041,449 5,195 33,109 (27,261) 1,052,492
9. IMPACT OF RECENT ACCOUNTING STANDARDS
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued to establish standards for accounting for
derivatives and hedging activities and supersedes and amends a number of
existing standards. This statement requires all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS 133. SFAS 133, as amended by SFAS 137, "Deferral of the
effective date of SFAS 133", is effective for fiscal years beginning after
June 15, 2000. The Company is currently evaluating the effect this
statement will have on its financial statements.
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. EARNINGS PER SHARE
The table below summarizes the numerator and denominator for the basic and
diluted earnings per share calculations (in thousands, except per share
amounts).
For the Three Months Ended
March 31,
2000 1999
-------- --------
Numerator:
Net income available to common
shares $ 26,526 $ 32,531
Denominator:
Average number of shares outstanding 73,918 73,303
Effect of dilutive stock options 2,111 2,500
-------- --------
Total number of shares outstanding 76,029 75,803
Basic earnings per share $ 0.36 $ 0.44
Diluted earnings per share $ 0.35 $ 0.43
11. RESTRUCTURING
In September 1998, in conjunction with management's plan to reduce costs
and improve operational efficiencies, the Company recorded a restructuring
charge of $118.1 million ($75.3 million after tax). The principal actions
in the restructuring plan involved the closure of the Vacaville,
California and Clearfield, Utah production facilities and the related
impact of the transfer of production to other facilities, mainly Milton,
Pennsylvania, and the write-down of goodwill associated with the Campfire
crisp rice snack bar brand and the Polaner fruit spreads brand. The
Polaner business was subsequently sold (Note 6).
At March 31, 2000, $3.0 million of restructuring charges remained in
other accrued liabilities. This amount is comprised of multi-employer
pension plan settlements and certain other employee benefit related costs.
Payments totalling $8.1 million have been made to date, including $0.2
million for the three months ended March 31, 2000.
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INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - Three Months Ended March 31, 2000 and 1999.
NET SALES - The Company's net sales were $561.4 million for the three months
ended March 31, 2000, an increase of $47.2 million or 9.2%, from the comparable
1999 quarter. Approximately $30.9 million of the increase was related to sales
of companies acquired during 1999 (Clover Leaf/Paramount and Louis Kemp), which
were not fully reflected in the 1999 amounts, offset by $5.1 million of lower
sales due to the sale of Polaner in February 1999. The remaining $21.4 million
increase primarily reflects increases in sales of Branded Products ($14.6
million) and All Other ($9.5 million) (See "Results by Segment").
COST OF GOODS SOLD - Cost of goods sold was $293.1 million for the three months
ended March 31, 2000 as compared to $280.4 million for the three months ended
March 31, 1999. Expressed as a percentage of net sales, cost of goods sold
decreased to 52.2% from 54.5% in 1999. Excluding the results of the Companies
acquired and divested during 1999, which have lower average gross margins than
the Company's existing products cost of goods sold declined to 51.2% of net
sales from 52.9% in 1999. This decline in cost of goods sold as a percentage of
net sales primarily reflects the effect of management's continuing cost
reduction initiatives.
MARKETING EXPENSES - Marketing expenses increased by $18.9 million to $128.6
million for the three months ended March 31, 2000 from $109.7 million in 1999.
Expressed as a percentage of net sales, marketing expenses increased to 22.9%
from 21.3% from the comparable 1999 period. The increase was primarily
attributable to Chef Boyardee ($5.3 million) and Libby's canned meats ($3.1
million), mostly due to incremental investments in introductory promotion
allowances to launch new products, and the 1999 acquisitions ($6.6 million).
SELLING, GENERAL AND ADMINISTRATIVE ("S,G & A") EXPENSES - S,G & A expenses were
$71.5 million for the three months ended March 31, 2000 as compared to $60.9
million in 1999, an increase of $10.6 million. S,G & A expenses as a percentage
of net sales increased to 12.7% in the three months ended March 31, 2000 from
11.9% in the comparable 1999 quarter. The 1999 acquisitions contributed $4.8
million to the increase of S,G & A expenses. The remainder of the increase is
primarily due to higher distribution costs, related to an increase in fuel
costs.
INTEREST EXPENSE - Interest expense for the three months ended March 31, 2000
was $25.1 million as compared to $25.8 million for the same period in 1999. The
decrease in interest expense is attributable to lower average outstanding debt
levels partially offset by higher interest rates.
GAIN ON SALE OF BUSINESS - On February 5, 1999 the Company sold its Polaner
fruit spreads and spices business to B&G Foods, Inc. for $30.0 million in cash,
resulting in a gain of $15.8 million ($9.6 million, net of tax, or $0.13 per
diluted share).
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INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
PROVISION FOR INCOME TAXES - Income taxes decreased to $16.3 million for the
three months ended March 31, 2000 from $20.8 million in the comparable 1999
quarter due to lower income before taxes, as a result of the gain on sale of
business in the prior year. The effective tax rate decreased to 38.0% in 2000
from 39.0% in 1999, reflecting the Company's tax restructuring program which was
substantially implemented by December 31, 1999. The Company anticipates
sufficient future income to realize deferred tax assets recorded at March 31,
2000. In the event management determines that sufficient future taxable income
may not be generated to fully realize the deferred tax assets, the Company will
provide a valuation allowance by a charge to income tax expense in the period of
such determination.
NET INCOME - For the three month period ended March 31, 2000, net income was
$26.5 million, a decrease of $6.0 million over the comparable 1999 period,
primarily reflecting the gain on sale of business ($9.6 million net of tax or
$0.13 per share) in 1999 offset by the factors discussed above. Basic earnings
per share were $0.36 and $0.44 for the three months ended March 31, 2000 and
1999, respectively, and diluted earnings per share were $0.35 and $0.43 for the
three months ended March 31, 2000 and 1999, respectively.
RESULTS BY SEGMENT - The Company has three reportable business segments -
Branded Products, Seafood and Private Label and Foodservice. Refer to Footnote 4
on page 7 for further details.
BRANDED PRODUCTS - The Branded Products segment net sales increased $14.6
million, or 7.1%, for the three months ended March 31, 2000 versus the
comparable 1999 period. This increase is primarily due to increased sales of
Chef Boyardee ($14.1 million), Libby's canned meats ($3.4 million), Ro*Tel ($1.5
million), partially offset by lower sales of Crunch 'n Munch ($2.1 million), Pam
($1.0 million), and exiting the branded (Campfire) crisp rice bar category ($0.7
million).
Sales of the Chef Boyardee brand increased approximately 13.4% for the three
months ended March 31, 2000 versus the comparable 1999 period. Canned pasta,
Microwave and Pizza Kits sales increased 16.6%, 3.8%, and 5.6%, respectively,
partially offset by a decline in Dinners. The increase in sales of Chef Boyardee
is driven by new advertising campaigns focusing on mothers and teens and the
introduction of new products.
Libby's canned meat sales increased 16%, primarily due to increased distribution
and the introduction of several new products.
The Branded Products segment operating income increased $1.5 million largely
reflecting the factors discussed above. As a percentage of net sales, segment
operating income decreased from 19.3% during the three months ended March 31,
1999 to 18.7% for the same period in 2000. This decrease reflects the
incremental investment in introductory promotion allowances to launch new Chef
Boyardee and Libby's canned meat products.
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INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Results by Segment, (Continued)
SEAFOOD - The Seafood segment net sales increased $27.5 million or 17.2%, due to
the acquisition of Louis Kemp ($27.6 million) and the full quarter impact of the
January 1999 acquisition of the Clover Leaf/Paramount brands ($3.3 million),
partially offset by a decrease in Bumble Bee sales ($3.4 million). Bumble Bee's
sales decline resulted from an industry-wide price rollback on light meat tuna,
which was in response to lower raw material costs, and competitive pricing
pressures in the white meat category. The Seafood segment operating income
increased $3.2 million or 32.5%, primarily due to the Louis Kemp acquisition. As
a percentage of net sales, segment operating income increased from 6.1% during
the three months ended March 31, 1999 to 7.0% for the same period in 2000,
reflecting the addition of the higher margin Louis Kemp surimi products.
PRIVATE LABEL AND FOODSERVICE - Net sales of the Private Label and Foodservice
segment increased $0.7 million to $79.3 million for the three months ended March
31, 2000. Segment operating income increased $3.4 million, or 33.1%. As a
percentage of net sales, segment operating income increased from 13.2% during
the three months ended March 31, 1999 to 17.5% for the same period in 2000,
reflecting a margin improvement in private label canned pasta.
The All Other net sales increased $4.4 million, or 6.3%, primarily due to
increases in Mexico ($4.5 million), Canada ($2.0 million) and Puerto Rico ($3.9
million). The Company sold its Polaner business in February 1999, and
accordingly, sales for Polaner decreased $5.1 million as compared to the
comparable 1999 period. Segment operating income decreased slightly to $5.5
million reflecting the factors discussed above.
RESTRUCTURING - In September 1998, in conjunction with management's plan to
reduce costs and improve operational efficiencies, the Company recorded a
restructuring charge of $118.1 million ($75.3 million after tax). The principal
actions in the restructuring plan involved the closure of the Vacaville,
California and Clearfield, Utah production facilities and the related impact of
the transfer of production to other facilities, mainly Milton, Pennsylvania, and
the write-down of goodwill associated with the Campfire crisp rice snack bar
brand and the Polaner fruit spreads brand. The Polaner business was subsequently
sold (Note 6).
At March 31, 2000, $3.0 million of restructuring charges remained in other
accrued liabilities. This amount is comprised of severance and related costs and
facility closure costs. Payments totalling $8.1 million have been made to date,
including $0.2 million for the three months ended March 31, 2000.
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INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - Net cash provided by operating activities for the three months
ended March 31, 2000 was $25.1 million, a $53.4 million decrease from the
comparable 1999 period, primarily due to increased inventory levels in the first
quarter 2000 as compared to a decrease in such levels in the comparable 1999
period.
Net cash used by investing activities for the three months ended March 31, 2000
was $16.4 million compared to $18.6 million for the same period in 1999. Capital
expenditures increased $1.5 million in 2000. No acquisitions or divestitures
occurred in 2000, however the Company paid $4.1 million relating to a prior
acquisition. In 1999, the Company through its subsidiary, Bumble Bee Seafoods,
Inc., acquired the Clover Leaf/Paramount brands for approximately $37.7 million,
net of cash acquired and received $30.0 million in proceeds from the sale of
Polaner.
Cash used in financing activities was $7.0 million for the three month period
ended March 31, 2000, versus $54.6 million in the comparable 1999 period. The
decrease reflects increased borrowings in 2000 to fund additional working
capital. In 2000, the Company borrowed $89.5 million from its revolving credit
facility and repaid $49.9 million and $51.5 million under the terms of its
revolving credit facility and its Senior Bank Facilities, respectively. In 1999,
the Company repaid $40.2 million and $25.8 million under the terms of its
revolving credit facility and its Senior Bank Facilities, respectively, and
borrowed $13.1 million to partially fund the Clover Leaf/Paramount brands
acquisition.
The Company is highly leveraged with Senior Bank Facilities that comprise (i) a
$516.5 million Tranche A term loan facility of which $412.3 million is
outstanding at March 31, 2000, maturing in 2004, (ii) a $149.8 million Tranche B
term loan facility of which $149.0 million is outstanding at March 31, 2000,
maturing in 2005, (iii) a $100.0 million Tranche B-1 term loan facility of which
$99.6 million is outstanding at March 31, 2000, maturing in 2006, and (iv) a
$230.0 million revolving credit facility, maturing in 2004 or earlier upon
repayment of the Tranche A term loans. As of March 31, 2000, the outstanding
balance of the Senior Bank Facilities was $778.9 million, which included $118.0
million of borrowings under the revolving credit facility. In addition to
scheduled periodic repayments aggregating $36.5 million for the remainder of
2000, the Company is also required to make mandatory repayments of the loans
under the Senior Bank Facilities with a portion of its excess cash flow.
The Company also has outstanding $385.0 million of 10 3/8% Senior Subordinated
Notes due 2006, without any scheduled repayments of principal prior to maturity,
requiring semi-annual interest payments. During the three months ended March 31,
2000, the Company repurchased and immediately retired $15.0 million of Notes, at
slightly above par value, the results of which were not material.
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INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources, (Continued)
Both the Senior Bank Facilities and the Senior Subordinated Notes contain a
number of significant covenants that, among other things, restrict the ability
of the Company to dispose of assets, incur additional indebtedness, repay other
indebtedness or amend other debt instruments, pay dividends, create liens on
assets, enter into capital leases, make investments or acquisitions, engage in
mergers or consolidations, make capital expenditures, engage in certain
transactions with affiliates and otherwise restrict corporate activities. In
addition, under the Senior Bank Facilities the Company is required to comply
with specified minimum interest coverage, maximum indebtedness to earnings
before interest, taxes, depreciation and amortization (EBITDA) and minimum fixed
charge coverage ratios.
Management believes that cash generated from operations and borrowings under the
Senior Bank Facilities will be sufficient to satisfy working capital
requirements and required capital expenditures. Further expansion of the
business through acquisitions may require the Company to incur additional
indebtedness or issue equity securities. There can be no assurance that
additional debt or equity will be available to the Company, or if available,
will be on terms acceptable to the Company.
FINANCIAL INSTRUMENTS
The Company currently does not use derivative financial instruments for trading
or speculative purposes, nor is the Company a party to leveraged derivatives. In
accordance with the Senior Bank Facilities, the Company is required to enter
into interest rate protection agreements to the extent necessary to provide
that, when combined with the Company's Senior Subordinated Notes, at least 50%
of the Company's aggregate indebtedness, excluding the revolving credit
facility, is subject to either fixed interest rates or interest rate protection.
At March 31, 2000, more than 50% of the Company's aggregate indebtedness,
excluding the revolving credit facility, is subject to such protection.
Under these agreements the Company agrees to exchange, at specified intervals,
the difference between fixed and floating interest amounts based on agreed upon
notional principal amounts. The notional amounts of interest rate agreements are
used to measure interest to be paid or received and do not represent the amount
of exposure to credit loss. In accordance with the interest rate agreements, the
measurement of 3 month LIBOR and 6 month LIBOR, respectively, occurs on the
first day of each calculation period. For interest rate Instruments that
effectively hedge interest rate exposures, the net cash amounts paid or received
on the agreements are accrued as incurred and recognized as an adjustment to
interest expense.
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19
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Financial Instruments, (Continued)
The Company is exposed to credit loss in the event of non-performance by the
other parties to the interest rate swap agreements. All counterparties are at
least A rated by Moody's and Standard & Poor's. Accordingly, the Company does
not anticipate non-performance by the counterparties.
As of March 31, 2000, the Company had the following interest rate instruments in
effect for which the fair value of these instruments is based on the current
settlement cost (dollar amounts are in millions):
NOTIONAL FAIR
AMOUNT VALUE PERIOD 3 MONTH LIBOR RATES 6 MONTH LIBOR RATE COMPANY PAYS COMPANY RECEIVES
- -------- ----- ------------ ------------------- ------------------ ------------------- ----------------
$600 $ 0.8 5/99-5/00 4.45% or less N/A 5.55% 3 month LIBOR
>4.45% to <5.55% N/A 3 month LIBOR 3 month LIBOR
5.55% to <6.30% N/A 5.55% 3 month LIBOR
6.30% or greater N/A 3 month LIBOR 3 month LIBOR
$200 $(1.9) 8/98-11/01 N/A 5.20% or less 10.23% 10.375%
N/A >5.20% to <6.23% 6 month LIBOR + 4% 10.375%
N/A 6.23% to <6.75% 10.23% 10.375%
N/A 6.75% or greater 6 month LIBOR + 4% 10.375%
$150 $ 0.5 10/98-10/01 <3.76% N/A 3.76% 3 month LIBOR
3.76% to 5.75% N/A 3 month LIBOR 3 month LIBOR
>5.75% N/A 5.75% 3 month LIBOR
$225 $ -- 10/99-10/00 N/A <5.30% 5.30% 6 month LIBOR
N/A 5.30% to 8.00% 6 month LIBOR 6 month LIBOR
N/A >8.00% 8.00% 6 month LIBOR
-----
$(0.6)
=====
IMPACT OF RECENT ACCOUNTING STANDARDS
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued to establish standards for accounting for derivatives
and hedging activities and supersedes and amends a number of existing standards.
This statement requires all derivatives to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS 133. SFAS 133, as amended by SFAS
137, "Deferral of the effective date of SFAS 133", is effective for fiscal years
beginning after June 15, 2000. The Company is currently evaluating the effect
this statement will have on its financial statements.
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20
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
READINESS FOR YEAR 2000
Many computer systems and other equipment with embedded chips or processors use
only two digits to represent the year, and as a result may be unable to
accurately process certain data before, during or after the Year 2000 ("Y2K").
The Company did not experience any systems failures or business interruptions as
a result of the Y2K issue. The costs associated with Y2K readiness were not
material to the Company's financial statements and were funded through operating
cash flow. The Company has not identified any continuing material Y2K compliance
issues, including those related to third parties.
INFORMATION ABOUT FORWARD LOOKING STATEMENTS
The Company may make statements about the trends, future plans and the Company's
prospects. Actual results may differ from those described in such forward
looking statements based on the risks and uncertainties facing the Company,
including but not limited to changes in the economic conditions and changes in
the food products manufacturing industry, possible acquisitions of assets or
business and other factors.
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INTERNATIONAL HOME FOODS, INC.
PART II
ITEM 6 EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits:
(12) Statements showing computation of ratio of earnings to
fixed charges based on SEC Regulation S-K, Item 503.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None noted.
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INTERNATIONAL HOME FOODS, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIGNATURES
Pursuant to the requirement 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.
International Home Foods, Inc.
(Registrant)
Date: May 12, 2000 /s/ C. Dean Metropoulos
--------------------------------
C. Dean Metropoulos
Chairman of the Board and
Chief Executive Officer
Date: May 12, 2000 /s/ Lawrence K. Hathaway
--------------------------------
Lawrence K. Hathaway
President and
Chief Operating Officer
Date: May 12, 2000 /s/ Craig D. Steeneck
--------------------------------
Craig D. Steeneck
Senior Vice President and
Chief Financial Officer
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INTERNATIONAL HOME FOODS, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBITS
- ------- --------
12 Computation of Consolidated Ratio of Earnings to Fixed
Charges
27 Financial Data Schedule
23