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 June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-18859
----------
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, CT. 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 622-6010
----------
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 June 30, 2000 was 74,224,484.
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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 and Six Months Ended June 30, 2000 and 1999
Consolidated Balance Sheets 4
June 30, 2000 and December 31, 1999
Consolidated Statements of Cash Flows 5
Six Months Ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 16
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Report on Form 8-K 26
Signatures 27
Exhibit 12. Computation of Consolidated Ratio of 29
Earnings to Fixed Charges
Exhibit 27. Financial Data Schedule 30
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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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Net sales $ 530,645 $ 512,574 $ 1,092,019 $ 1,026,760
Cost of sales 270,478 272,115 563,611 552,477
------------ ------------ ------------ ------------
Gross profit 260,167 240,459 528,408 474,283
Marketing expenses 120,029 111,508 248,627 221,247
Selling, general, and administrative expenses 68,860 61,995 140,401 122,954
------------ ------------ ------------ ------------
Income from operations 71,278 66,956 139,380 130,082
------------ ------------ ------------ ------------
Interest expense 24,266 24,609 49,340 50,360
Other (income) expense, net 315 (423) 559 (598)
Gain on sale of business -- -- -- (15,779)
------------ ------------ ------------ ------------
Income before provision for income taxes 46,697 42,770 89,481 96,099
Provision for income taxes 17,745 16,681 34,003 37,479
------------ ------------ ------------ ------------
Net income $ 28,952 $ 26,089 $ 55,478 $ 58,620
============ ============ ============ ============
Basic earnings per share:
Net income $ 0.39 $ 0.36 $ 0.75 $ 0.80
------------ ------------ ------------ ------------
Shares used in computing basic earnings
per share 74,081,914 73,427,938 74,000,144 73,365,602
------------ ------------ ------------ ------------
Diluted earnings per share:
Net income $ 0.38 $ 0.34 $ 0.73 $ 0.77
------------ ------------ ------------ ------------
Shares used in computing diluted earnings
per share 76,170,434 75,781,554 76,099,571 75,792,114
------------ ------------ ------------ ------------
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)
June 30, December 31,
ASSETS 2000 1999
----------- -----------
Current Assets:
Cash and cash equivalents $ 15,394 $ 14,310
Accounts receivable, net of allowances 173,803 180,671
Inventories 275,319 282,911
Prepaid expenses and other current assets 34,983 34,345
Deferred income taxes 17,154 16,113
----------- -----------
Total current assets 516,653 528,350
Property, plant and equipment, net 315,988 306,042
Intangible assets, net 430,996 432,732
Deferred income taxes 245,673 262,563
Other assets 18,052 19,686
----------- -----------
Total assets $ 1,527,362 $ 1,549,373
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 83,249 $ 73,084
Revolving credit facility 85,176 78,536
Accounts payable 51,970 69,669
Book overdrafts 18,659 22,457
Accrued compensation and benefits 23,235 22,288
Accrued advertising and promotion 38,938 39,550
Accrued interest 7,113 10,278
Other accrued liabilities 27,612 38,967
----------- -----------
Total current liabilities 335,952 354,829
Long-term debt 962,671 1,024,378
Post-retirement benefits obligation 28,610 27,216
Other non-current liabilities 176 898
----------- -----------
Total liabilities 1,327,409 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 78,624,484 and
78,218,034 shares 786 782
Additional paid-in capital 66,396 62,475
Treasury stock, at cost 4,400,000 shares (57,200) (57,200)
Retained earnings 193,405 137,927
Accumulated other comprehensive loss (3,434) (1,932)
----------- -----------
Total stockholders' equity 199,953 142,052
----------- -----------
Total liabilities and stockholders' equity $ 1,527,362 $ 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)
Six Months Ended
June 30,
2000 1999
--------- ---------
OPERATING ACTIVITIES:
Net income $ 55,478 $ 58,620
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 20,857 21,099
Deferred income taxes 15,849 21,705
Stock option compensation -- 85
Gain on sale of business -- (15,779)
Changes in assets and liabilities, net of acquisitions and divestiture:
Decrease (increase) in accounts receivable 6,868 (19,267)
Decrease (increase) in inventories 7,431 (11,664)
Increase in other current assets (638) (14,357)
(Decrease) increase in accounts payable (17,699) 13,809
Decrease in accrued liabilities (14,185) (4,464)
Increase in non-current assets (1,937) (1,527)
Increase in non-current liabilities 672 2,134
--------- ---------
Net cash provided by operating activities 72,696 50,394
--------- ---------
INVESTING ACTIVITIES:
Purchases of plant and equipment, net (23,086) (23,354)
Payments for acquired businesses, net of cash
acquired (4,067) (38,103)
Proceeds from sale of business -- 30,000
--------- ---------
Net cash used in investing activities (27,153) (31,457)
--------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in book overdrafts (3,798) 7,922
Repayment of long-term debt (51,542) (40,889)
Borrowings from revolving credit facility 133,100 45,024
Repayment of borrowings from revolving credit facility (125,505) (31,322)
Proceeds from exercise of stock options 3,925 2,078
--------- ---------
Net cash used in financing activities (43,820) (17,187)
--------- ---------
Effect of changes in the exchange rate on cash (639) 1,062
--------- ---------
Increase in cash and cash equivalents 1,084 2,812
Cash and cash equivalents at beginning of period 14,310 17,201
--------- ---------
Cash and cash equivalents at end of period $ 15,394 $ 20,013
========= =========
Cash paid during the period for:
Interest $ 50,861 $ 56,459
Income taxes $ 18,377 $ 16,880
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 June 30, 2000 and the
results of operations for the three and six months ended June 30, 2000 and
1999 and cash flows for the six months ended June 30, 2000 and 1999. The
results of operations for the three and six month periods 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:
June 30, December 31,
2000 1999
------------ ------------
Raw materials $ 67,259 $ 65,483
Work in progress 10,253 8,841
Finished goods 197,807 208,587
------------ ------------
Total $ 275,319 $ 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
Net income $ 28,952 $ 26,089 $ 55,478 $ 58,620
Foreign currency translation
Amount before taxes $ (3,275) $ 565 $ (1,809) $ 476
Income tax (expense) benefit 926 (63) 307 197
-------- -------- -------- --------
Other comprehensive income $ (2,349) $ 502 $ (1,502) $ 673
-------- -------- -------- --------
Total comprehensive income $ 26,603 $ 26,591 $ 53,976 $ 59,293
======== ======== ======== ========
The following amounts are included in Accumulated other comprehensive loss
at June 30, 2000 and December 31, 1999:
June 30, December 31,
2000 1999
-------- ------------
Minimum pension liability $ (29) $ (29)
Foreign currency translation (3,405) (1,903)
------- -------
Accumulated other comprehensive loss $(3,434) $(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
Meats (Libby's(R) and Dennison's(R)), Southwest brands (Ro*Tel(R),
Luck's(R) and Ranch Style(R)), Specialty and Snack brands (PAM(R),
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 For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net Sales:
Branded Products $ 213,993 $ 209,726 $ 434,607 $ 415,755
Seafood 169,869 153,843 357,296 313,808
Private Label and Foodservice 75,747 71,034 155,037 149,596
---------- ---------- ---------- ----------
Subtotal - Reportable Segments 459,609 434,603 946,940 879,159
All Other 71,036 77,971 145,079 147,601
---------- ---------- ---------- ----------
Total $ 530,645 $ 512,574 $1,092,019 $1,026,760
========== ========== ========== ==========
2000 1999 2000 1999
---------- ---------- ---------- ----------
Segment Operating Income:
Branded Products $ 41,249 $ 38,672 $ 82,588 $ 78,473
Seafood 10,731 9,571 23,764 19,405
Private Label and Foodservice 14,323 9,822 28,162 20,215
---------- ---------- ---------- ----------
Subtotal - Reportable Segments 66,303 58,065 134,514 118,093
All Other 7,605 8,008 13,127 13,758
---------- ---------- ---------- ----------
Total $ 73,908 $ 66,073 $ 147,641 $ 131,851
========== ========== ========== ==========
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Reconciliation to Consolidated Results
Segment Operating Income $ 73,908 $ 66,073 $147,641 $131,851
Less:
Stock compensation expense -- 59 -- 85
Unallocated (income) expense 2,630 (942) 8,261 1,684
-------- -------- -------- --------
Total consolidated income from
operations $ 71,278 $ 66,956 $139,380 $130,082
======== ======== ======== ========
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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 Six Months Ended
June 30, 1999
---------------------------------------------
IHF(1) Acquisitions(2) Total
---------- --------------- ----------
Net sales $1,021,768 $ 63,276 $1,085,044
Operating income $ 129,792 $ 369 $ 130,161
Net income $ 48,706 $ (1,175) $ 47,531
Earnings per share:
Basic $ 0.66 $ (0.01) $ 0.65
Diluted $ 0.64 $ (0.01) $ 0.63
(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 for the three months ended June 30,
2000 and 1999 and $1,158 and $974 for the six months ended June 30, 2000
and 1999, respectively. In addition, the Company incurred financial
advisory fees of $0 for the three and six months ended June 30, 2000. The
Company incurred financial advisory fees of $0 and $546 for the three and
six months ended June 30, 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:
JUNE 30, 2000 Non-
(unaudited) Guaranteeing Guaranteeing
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Current assets $ 31,593 $ 401,388 $ 83,672 $ -- $ 516,653
Non-current assets 1,107,843 693,981 10,329 (801,444) 1,010,709
Current liabilities 169,222 153,085 13,645 -- 335,952
Non-current liabilities 986,656 45,071 28,727 (68,997) 991,457
DECEMBER 31, 1999
(unaudited)
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
FOR THE THREE MONTHS ENDED
JUNE 30, 2000 Non-
(unaudited) Guaranteeing Guaranteeing
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ 249,277 $ 477,961 $ 52,875 $ (249,468) $ 530,645
Gross profit 147,254 249,926 27,004 (164,017) 260,167
Net income (loss) 9,620 20,020 (688) -- 28,952
FOR THE THREE MONTHS ENDED
JUNE 30, 1999
(unaudited)
Net sales $ 218,861 $ 236,982 $ 56,731 $ -- $ 512,574
Gross profit 131,288 90,033 19,138 -- 240,459
Net income (loss) (1,879) 25,381 2,587 -- 26,089
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Guarantor Financial Data, (Continued)
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 Non-
(unaudited) Guaranteeing Guaranteeing
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ 514,927 $ 992,202 $ 100,008 $ (515,118) $ 1,092,019
Gross profit 302,246 518,737 44,306 (336,881) 528,408
Net income 24,247 31,069 162 -- 55,478
Net cash provided by (used)
in operating activities 12,816 59,985 (105) -- 72,696
Net cash provided by (used)
in investing activities 157 (26,573) (737) -- (27,153)
Net cash provided by (used)
in financing activities 28,326 (67,896) (4,250) -- (43,820)
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
(unaudited)
Net sales $ 439,532 $ 488,236 $ 98,992 $ -- $ 1,026,760
Gross profit 260,141 182,249 31,893 -- 474,283
Net income (loss) 12,869 41,754(1) 3,997 -- 58,620(1)
Net cash provided by (used)
in operating activities 44,955 15,623 (10,184) -- 50,394
Net cash provided by (used)
in investing activities (2,735) 6,476 (35,198) -- (31,457)
Net cash provided by (used)
in financing activities (47,876) (15,365) 46,054 -- (17,187)
The 1999 amounts have been restated 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, EXCEPT PER SHARE AMOUNTS)
9. IMPACT OF RECENT ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition", which provides
guidelines in applying generally accepted accounting principles to selected
revenue recognition issues. The SAB is effective in the fourth fiscal
quarter of fiscal years beginning after December 15, 1999, or as of October
1, 2000 in the Company's case. The Company does not expect this statement
to have a material impact on its financial statements.
In May 2000 and July 2000, the Emerging Issues Task Force ("EITF") issued
guidance on how to classify certain revenues and costs in a company's
financial statements. EITF No. 00-10 "Accounting for Shipping and Handling
Revenues and Costs" requires that companies classify all amounts billed to
customers related to shipping and handling cost as revenue. This statement
will be effective in the fourth quarter of 2000 and is not expected to have
any effect on the financial statements. EITF No. 00-14 "Accounting for
Coupons, Rebates and Discounts" requires that manufacturing companies
classify these costs as a reduction in net sales rather than as a marketing
expense. This statement will also be effective in the fourth quarter of
2000 and is not expected to have a material effect on the financial
statements. It will result in a reduction of marketing expense and net
sales but will be neutral to overall net income.
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.
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 For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Numerator:
Net income available to common
shares $ 28,952 $ 26,089 $ 55,478 $ 58,620
Denominator:
Average number of shares outstanding 74,082 73,428 74,000 73,366
Effect of dilutive stock options 2,088 2,354 2,100 2,426
---------- ---------- ---------- ----------
Total number of shares outstanding 76,170 75,782 76,100 75,792
Basic earnings per share $ 0.39 $ 0.36 $ 0.75 $ 0.80
Diluted earnings per share $ 0.38 $ 0.34 $ 0.73 $ 0.77
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 June 30, 2000, $2.5 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 $8.6 million have been made to date, including $0.5
million and $0.7 million for the three months and six months ended June
30, 2000, respectively.
12. 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 June 30, 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.
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.
14
15
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Financial Instruments, (Continued)
As of June 30, 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 $6.4 5/00-5/04 4.75% or less N/A 5.65% 3 month LIBOR
>4.75% to <5.65% N/A 3 month LIBOR 3 month LIBOR
5.65% to <7.00% N/A 5.65% 3 month LIBOR
7.00% or greater N/A 3 month LIBOR 3 month LIBOR
$200 $(1.4) 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 $ 0.3 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
----
$5.3
====
13. OTHER EVENTS
On June 23, 2000, ConAgra signed a definitive agreement to acquire
International Home Foods, in a transaction valued at approximately $2.9
billion, including the assumption of $1.3 billion in debt. International
Home Foods shareholders will receive $22 per share, half of which will be
paid in cash and half of which will be paid in ConAgra stock. The stock
portion of the consideration will be determined by dividing $11 by an
average of ConAgra stock price for a fixed period prior to the closing,
but will be no more than .61111 shares nor less than .50 shares for each
International Home Foods share. The sale, which is subject to approval by
International Home Foods shareholders, regulatory approvals, and other
customary closing conditions, is expected to close in the third quarter of
calendar 2000. A special meeting of shareholders is scheduled for August
22, 2000 to vote on the proposed merger.
A Registration Statement on Form S-4 has been filed with the Securities
and Exchange Commission in connection with the proposed merger. It
contains a proxy statement/ prospectus with information about ConAgra,
International Home Foods, the sale, and about persons soliciting proxies
in the sale, including officers and directors of International Home Foods,
and their interest in the sale. C.Dean Metropoulos, International Home
Foods chairman and chief executive officer and certain investment
partnerships controlled by Hicks, Muse, Tate & Furst Incorporated, holders
of an aggregate of approximately 43% of the International Home Foods
shares, have entered into agreements to vote for the merger.
15
16
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - Three and Six Months Ended June 30, 2000 and 1999.
NET SALES - The Company's net sales were $530.6 million for the three months
ended June 30, 2000, an increase of $18.1 million or 3.5%, from the comparable
1999 quarter. Approximately $25.7 million of the increase was related to sales
of Louis Kemp, which was acquired in July 1999 and was not reflected in the 1999
amounts. Excluding the aforementioned, declines related to Seafood ($9.6
million) and All Other ($6.9 million) were partially offset by increases in the
Company's Branded Products ($4.3 million) and Private Label and Food Service
($4.7 million) segments. (See "Results by Segment").
The Company's net sales were $1,092.0 million for the six months ended June 30,
2000, an increase of $65.3 million or 6.4%, from the comparable 1999 period.
Approximately $51.2 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 $5.0 million of lower sales due
to the sale of Polaner in February 1999. The remaining $19.0 million increase
primarily reflects increases in sales of Branded Products ($18.9 million) and
Private Label and Foodservice ($5.4 million). Excluding acquisitions and the
divestiture, the increase in All Other ($2.5 million) is offset by Seafood's
decrease ($7.7 million). (See "Results by Segment").
COST OF GOODS SOLD - Cost of goods sold was $270.5 million for the three months
ended June 30, 2000 as compared to $272.1 million for the three months ended
June 30, 1999. Expressed as a percentage of net sales, cost of goods sold
decreased to 51.0% from 53.1% in 1999. The improvement in cost of goods sold as
a percentage of net sales primarily is due to the savings associated with the
Company's previously announced restructuring program, lower purchasing costs,
continued improvement in operating efficiencies and product mix.
Cost of goods sold was $563.6 million for the six months ended June 30, 2000 as
compared to $552.5 million for the six months ended June 30, 1999. Expressed as
a percentage of net sales, cost of goods sold decreased to 51.6% from 53.8% in
1999. Excluding the results of the acquired and divested businesses during 1999,
cost of goods sold declined to 50.5% of net sales from 52.1% in 1999. The
improvement in cost of goods sold as a percentage of net sales primarily is due
to the savings associated with the Company's previously announced restructuring
program, lower purchasing costs, continued improvement in operating efficiencies
and product mix.
MARKETING EXPENSES - Marketing expenses increased by $8.5 million to $120.0
million for the three months ended June 30, 2000 from $111.5 million in 1999.
Expressed as a percentage of net sales, marketing expenses increased to 22.6%
from 21.8% from the comparable 1999 period. The increase was primarily
attributable to Seafood ($5.4 million), of which $2.7 million relates to Louis
Kemp which was not reflected in 1999, and Ro*Tel ($2.0 million) to support its
increased distribution.
Marketing expenses increased by $27.4 million to $248.6 million for the six
months ended June 30, 2000 from $221.2 million in 1999. Expressed as a
percentage of net sales, marketing expenses increased to 22.8% from 21.5% from
the comparable 1999 period. The increase was primarily attributable to the 1999
acquisitions ($11.0 million), Ro*Tel ($8.0 million) to support its increased
distribution, Libby's canned meats ($4.4 million) and Chef Boyardee ($3.9
million), mostly due to incremental investments in introductory promotion
allowances to launch new products.
16
17
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
SELLING, GENERAL AND ADMINISTRATIVE ("S,G & A") EXPENSES - S,G & A expenses were
$68.9 million for the three months ended June 30, 2000 as compared to $62.0
million in 1999, an increase of $6.9 million. S,G & A expenses as a percentage
of net sales increased to 13.0% in the three months ended June 30, 2000 from
12.1% in the comparable 1999 quarter. The 1999 acquisitions contributed $4.1
million to the increase of S,G & A expenses. The remainder of the increase is
primarily due to higher distribution costs.
S,G & A expenses were $140.4 million for the six months ended June 30, 2000 as
compared to $123.0 million in 1999, an increase of $17.4 million. S,G & A
expenses as a percentage of net sales increased to 12.9% in the six months ended
June 30, 2000 from 12.0% in the comparable 1999 period. The 1999 acquisitions
contributed $8.0 million to the increase of S,G & A expenses. The remainder of
the increase is primarily due to the increase in sales volume and higher
distribution costs.
INTEREST EXPENSE - Interest expense for the three months ended June 30, 2000 was
$24.3 million as compared to $24.6 million for the same period in 1999. The
decrease in interest expense is attributable to lower average outstanding debt
levels.
Interest expense for the six months ended June 30, 2000 was $49.3 million as
compared to $50.4 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).
PROVISION FOR INCOME TAXES - Income taxes increased to $17.7 million for the
three months ended June 30, 2000 from $16.7 million in the comparable 1999
quarter due to higher income before taxes. Income taxes decreased to $34.0
million for the six months ended June 30, 2000 from $37.5 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% for the three and six month periods ended June 30, 2000 from 39.0% in the
comparable 1999 periods, 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
June 30, 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.
17
18
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
NET INCOME - For the three month period ended June 30, 2000, net income was
$29.0 million, an increase of $2.9 million over the comparable 1999 period due
to the factors discussed above. Basic earnings per share were $0.39 and $0.36
for the three months ended June 30, 2000 and 1999, respectively, and diluted
earnings per share were $0.38 and $0.34 for the three months ended June 30, 2000
and 1999, respectively.
For the six month period ended June 30, 2000, net income was $55.5 million, a
decrease of $3.1 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 $0.75
and $0.80 for the six months ended June 30, 2000 and 1999, respectively, and
diluted earnings per share were $0.73 and $0.77 for the six months ended June
30, 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 $4.3
million, or 2.0% for the three months ended June 30, 2000 versus the comparable
1999 period. This increase is primarily due to increased sales of Chef Boyardee
($3.8 million), Ro*Tel ($1.6 million) and Libby's canned meats ($1.1 million),
partially offset by lower sales of Crunch 'n Munch ($2.2 million).
Sales of the Chef Boyardee brand increased approximately 3.8% for the three
months ended June 30, 2000 versus the comparable 1999 period. Canned pasta sales
increased 6.3% partially offset by a decline in Pizza Kits and Dinners, while
microwave was flat. The increase in sales of canned pasta is due to the national
launch of four new items (two new offerings in each of the Homestyle and
Overstuffed product lines). Libby's canned meat sales increased 4.1%, primarily
due to increased distribution of several new products. Ro*Tel salsa sales
increased as distribution expanded. Crunch 'n Munch experienced a slower than
anticipated roll-out of the direct store delivery ("DSD") program which resulted
in lower sales.
The Branded Products segment operating income increased $2.6 million largely
reflecting the factors discussed above. As a percentage of net sales, segment
operating income increased to 19.3% during the three months ended June 30, 2000
from 18.4% for the same period in 1999.
The Branded Products segment net sales increased $18.9 million, or 4.5% for the
six months ended June 30, 2000 versus the comparable 1999 period. This increase
is primarily due to increased sales of Chef Boyardee ($18.0 million), Libby's
canned meats ($4.5 million), Ro*Tel ($3.1 million), partially offset by lower
sales of Crunch 'n Munch ($4.3 million) and Campfire marshmallows ($1.9
million).
18
19
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Results by Segment (continued)
BRANDED PRODUCTS
Sales of the Chef Boyardee brand increased approximately 8.7% for the six months
ended June 30, 2000 versus the comparable 1999 period. Canned pasta sales
increased 11.4% partially offset by a slight decline in microwave and dinners,
while pizza kits were flat. The increase in sales of canned pasta is driven by
new products and a new advertising campaign focusing on mothers and teens.
Libby's canned meat sales increased 9.3% for the six months ended June 30, 2000
verses the comparable 1999 period, primarily due to increased distribution of
several new products. Ro*Tel salsa also experienced increasing distribution.
Crunch 'n Munch experienced a slower than anticipated roll-out of the direct
store delivery ("DSD") program.
The Branded Products segment operating income increased $4.1 million largely
reflecting the factors discussed above. As a percentage of net sales, segment
operating income increased slightly to 19.0% during the six months ended June
30, 2000 from 18.9% for the same period in 1999.
SEAFOOD - The Seafood segment net sales for the three months ended June 30, 2000
increased $16.0 million or 10.4% over the comparable 1999 period, due to the
acquisition of Louis Kemp ($25.7 million), partially offset by decreases in
Bumble Bee sales ($4.3 million) and Clover Leaf/Paramount sales ($5.4 million).
Bumble Bee's sales decline resulted from an industry-wide list price rollback on
light meat tuna, in response to lower raw material costs, and competitive
pricing pressures in the white meat category. Clover Leaf/Paramount's reduction
resulted from the planned exit from the low margin international seafood
business. The Seafood segment operating income increased $1.2 million or 12.1%.
As a percentage of net sales, segment operating income increased from 6.2%
during the three months ended June 30, 1999 to 6.3% for the same period in 2000.
The Seafood segment net sales for the six months ended June 30, 2000 increased
$43.5 million or 13.9% over the comparable 1999 period, due to the acquisition
of Louis Kemp ($53.2 million), offset by decreases in Bumble Bee sales ($7.7
million) and Clover Leaf/Paramount sales ($2.1 million). Bumble Bee's sales
decline resulted from an industry-wide list price rollback on light meat tuna,
in response to lower raw material costs, and competitive pricing pressures in
the white meat category. Clover Leaf/Paramount's reduction resulted from the
planned exit from the low margin international seafood business. The segment
operating income increased $4.4 million or 22.5%, reflecting the Company's focus
on optimizing seafood profitability, driven by operating efficiencies associated
with the integration of the 1999 acquisitions. As a percentage of net sales,
segment operating income increased from 6.2% during the six months ended June
30, 1999 to 6.7% for the same period in 2000, reflecting the addition of the
higher margin Louis Kemp surimi products.
19
20
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Results by Segment (continued)
PRIVATE LABEL AND FOODSERVICE - Net sales of the Private Label and Foodservice
segment increased $4.7 million to $75.7 million for the three months ended June
30, 2000. Segment operating income increased $4.5 million, or 45.8%. As a
percentage of net sales, segment operating income increased from 13.8% during
the three months ended June 30, 1999 to 18.9% for the same period in 2000,
primarily reflecting a margin improvement in private label canned pasta.
Net sales of the Private Label and Foodservice segment increased $5.4 million to
$155.0 million for the six months ended June 30, 2000. Segment operating income
increased $7.9 million, or 39.3%. As a percentage of net sales, segment
operating income increased from 13.5% during the six months ended June 30, 1999
to 18.2% for the same period in 2000, reflecting a higher mix of high margin
private label canned pasta and operating efficiencies.
The All Other net sales decreased $6.9 million, or 8.9% for the three months
ended June 30, 2000, due to a decrease in Puerto Rico ($3.3 million) and a
decline in low-margin third-party contract manufacturing sales ($3.9 million).
Segment operating income decreased only slightly to $7.6 million.
The All Other net sales decreased $2.5 million, or 1.7% for the six months ended
June 30, 2000, primarily due to higher sales in Mexico ($6.2 million) and Canada
($1.7 million) offset by a decline in low-margin third-party contract
manufacturing sales ($5.6 million). Also, the Company sold its Polaner business
in February 1999, and accordingly, sales for Polaner decreased $5.0 million as
compared to the comparable 1999 period. Segment operating income decreased
slightly to $13.1 million.
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 June 30, 2000, $2.5 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 totaling
$8.6 million have been made to date, including $0.5 million and $0.7 million for
the three months and six months ended June 30, 2000, respectively.
20
21
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 six months ended
June 30, 2000 was $72.7 million, a $22.3 million increase from the comparable
1999 period, due to improvement in working capital levels, primarily accounts
receivable and inventory.
Net cash used by investing activities for the six months ended June 30, 2000 was
$27.2 million compared to $31.5 million for the same period in 1999. Capital
expenditures decreased $0.3 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 $38.1 million,
net of cash acquired and received $30.0 million in proceeds from the sale of
Polaner.
Cash used in financing activities was $43.8 million for the six month period
ended June 30, 2000, versus $17.2 million in the comparable 1999 period. In
2000, the Company borrowed $133.1 million from its revolving credit facility and
repaid $125.5 million and $51.5 million under the terms of its revolving credit
facility and its Senior Bank Facilities, respectively. In 1999, the Company
repaid $31.3 million and $40.9 million under the terms of its revolving credit
facility and its Senior Bank Facilities, respectively, and borrowed $45.0
million, of which $13.1 million was 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 June 30, 2000, maturing in 2004, (ii) a $149.8 million Tranche B
term loan facility of which $149.0 million is outstanding at June 30, 2000,
maturing in 2005, (iii) a $100.0 million Tranche B-1 term loan facility of which
$99.6 million is outstanding at June 30, 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 June 30, 2000, the outstanding
balance of the Senior Bank Facilities was $746.1 million, which included $85.2
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. In March 2000, the Company repurchased
and immediately retired $15.0 million of Notes, at slightly above par value, the
results of which were not material.
21
22
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
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 June 30, 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.
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.
22
23
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Financial Instruments, (Continued)
As of June 30, 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 $ 6.4 5/00-5/04 4.75% or less N/A 5.65% 3 month LIBOR
>4.75% to <5.65% N/A 3 month LIBOR 3 month LIBOR
5.65% to <7.00% N/A 5.65% 3 month LIBOR
7.00% or greater N/A 3 month LIBOR 3 month LIBOR
$200 $(1.4) 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 $ 0.3 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
-----
$ 5.3
=====
IMPACT OF RECENT ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101 "Revenue Recognition", which provides guidelines in
applying generally accepted accounting principles to selected revenue
recognition issues. The SAB is effective in the fourth fiscal quarter of fiscal
years beginning after December 15, 1999, or as of October 1, 2000 in the
Company's case. The Company does not expect this statement to have a material
impact on its financial statements.
In May 2000 and July 2000, the Emerging Issues Task Force ("EITF") issued
guidance on how to classify certain revenues and costs in a company's financial
statements. EITF No. 00-10 "Accounting for Shipping and Handling Revenues and
Costs" requires that companies classify all amounts billed to customers related
to shipping and handling cost as revenue. This statement will be effective in
the fourth quarter of 2000 and is not expected to have any effect on the
financial statements. EITF No. 00-14 "Accounting for Coupons, Rebates and
Discounts" requires that manufacturing companies classify these costs as a
reduction in net sales rather than as a marketing expense. This statement will
also be effective in the fourth quarter of 2000 and is not expected to have a
material effect on the financial statements. It will result in a reduction of
marketing expense and net sales but will be neutral to overall net income.
23
24
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
IMPACT OF RECENT ACCOUNTING STANDARDS (continued)
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.
OTHER EVENTS
On June 23, 2000, ConAgra signed a definitive agreement to acquire International
Home Foods, in a transaction valued at approximately $2.9 billion, including the
assumption of $1.3 billion in debt. International Home Foods shareholders will
receive $22 per share, half of which will be paid in cash and half of which will
be paid in ConAgra stock. The stock portion of the consideration will be
determined by dividing $11 by an average of ConAgra stock price for a fixed
period prior to the closing, but will be no more than .61111 shares nor less
than .50 shares for each International Home Foods share. The sale, which is
subject to approval by International Home Foods shareholders, regulatory
approvals, and other customary closing conditions, is expected to close in the
third quarter of calendar 2000. A special meeting of shareholders is scheduled
for August 22, 2000 to vote on the proposed merger.
A Registration Statement on Form S-4 has been filed with the Securities and
Exchange Commission in connection with the proposed merger. It contains a proxy
statement/prospectus with information about ConAgra, International Home Foods,
the sale, and about persons soliciting proxies in the sale, including officers
and directors of International Home Foods, and their interest in the sale. C.
Dean Metropoulos, International Home Foods Chairman and Chief Executive Officer
and certain investment partnerships controlled by Hicks, Muse, Tate & Furst
Incorporated, holders of an aggregate of approximately 43% of the International
Home Foods shares, have entered into agreements to vote for the merger.
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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The matters described under item 4 (c) below were submitted to a
vote of security holders, through the solicitation of proxies
pursuant to Section 14 under the Securities Exchange Act of 1934, as
amended, at the Annual Meeting of Stockholders held on May 3, 2000
(the "Annual Meeting").
(b) Not applicable
(c) The following describes the matters voted upon at the Annual Meeting
and sets forth the number of votes cast for, against or withheld and
the number of abstentions as to each such matter:
(i) Election of directors:
Not Voted/
Nominee For Against Abstain Withheld
------- --- ------- ------- ----------
C. Dean Metropoulos 60,642,109 193,903 2,596,395 10,531,285
Thomas O. Hicks
(ii) Ratification of the appointment of PricewaterhouseCoopers
LLP as independent auditors for 2000:
Not Voted/
For Against Abstain Withheld
--- ------- ------- --------
63,355,190 46,075 31,142 10,531,285
(d) Not applicable
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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:
Dated June 23, 2000 under Item 5 (Other Events) and Item 7
(Financial Statements and Exhibits).
26
27
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: August 11, 2000 /s/ C. Dean Metropoulos
------------------------------------
C. Dean Metropoulos
Chairman of the Board and
Chief Executive Officer
Date: August 11, 2000 /s/ Lawrence K. Hathaway
------------------------------------
Lawrence K. Hathaway
President and
Chief Operating Officer
Date: August 11, 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