<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
1997
First Quarter
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997 Commission File Number: 333-18859
-----------
INTERNATIONAL HOME FOODS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3377322
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1633 LITTLETON ROAD, PARSIPPANY, N.J. 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 359-9920
-----------
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 [ ] No [X]
As of March 31, 1997 there were 330,000,000 outstanding shares of common stock,
par value $0.01 per share.
1
<PAGE> 2
INTERNATIONAL HOME FOODS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Income 3
Three Months Ended March 31, 1997 and 1996
Consolidated Balance Sheets 4
March 31, 1997 and December 31, 1996
Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of the 13-15
Results of Operations and Financial Condition
PART II OTHER INFORMATION
Exhibit 12. Computation of Consolidated Ratio of
Earnings to Fixed Charges 16
Exhibit 27. Financial Data Schedule 17
Signatures
</TABLE>
2
<PAGE> 3
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
--------- ---------
(unaudited)
<S> <C> <C>
Net sales $ 244,550 $ 227,259
Cost of sales 115,659 110,470
--------- ---------
Gross profit 128,891 116,789
Marketing expenses 52,775 50,644
Selling, general, and administrative expenses 38,669 38,473
--------- ---------
Income from operations 37,447 27,672
--------- ---------
Interest expense 25,907 --
Other income (expense), net 752 (59)
--------- ---------
Income before provision for income taxes 12,292 27,613
Provision for income taxes 4,746 10,511
--------- ---------
Net income $ 7,546 $ 17,102
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 55,096 $ 45,859
Accounts receivable, net of allowances 45,414 48,801
Inventories 117,344 129,205
Prepaid expenses and other current assets 4,076 8,197
Deferred income taxes 12,540 11,571
----------- -----------
Total current assets $ 234,470 $ 243,633
Property, plant and equipment, net 186,573 186,002
Intangible assets, net 152,425 153,938
Deferred income taxes 347,850 353,034
Other assets 31,657 31,664
----------- -----------
Total assets $ 952,975 $ 968,271
=========== ===========
LIABILITIES
CURRENT LIABILITIES:
Due to banks $ 3,916 $ 9,278
Current portion of long-term debt 28,500 26,000
Amount payable to minority stockholder -- 16,556
Accounts payable 18,739 18,679
Accrued salaries, wages, and benefits 12,020 14,379
Accrued advertising and promotion 41,069 38,127
Accrued interest 21,138 10,843
Other accrued liabilities 38,513 28,151
----------- -----------
Total current liabilities $ 163,895 $ 162,013
Long-term debt $ 1,028,500 $ 1,044,000
Postretirement benefits obligation 17,364 16,689
Other noncurrent liabilities -- 9,764
----------- -----------
Total liabilities $ 1,209,759 $ 1,232,466
Commitments and contingencies
STOCKHOLDERS' DEFICIENCY
Preferred stock - par value $.01 per share; authorized,
100,000,000 shares; non shares issued or outstanding $ -- $ --
Common stock - par value $.01 per share; authorized,
1,900,000,000 shares; issued and outstanding
330,000,000 shares 3,300 3,300
Additional paid-in capital (263,999) (263,999)
Retained earnings/(Accumulated deficit) 5,948 (1,598)
Foreign currency translation adjustment (2,033) (1,898)
----------- -----------
Total stockholders' deficiency (256,784) (264,195)
----------- -----------
Total liabilities and stockholders' deficiency $ 952,975 $ 968,271
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS,)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------- --------
(unaudited)
<S> <C> <C>
Net income $ 7,546 $ 17,102
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,865 4,587
Deferred income taxes 4,215 --
Changes in assets and liabilities:
Accounts receivable 3,343 2,464
Inventories 11,821 10,105
Other current assets 4,119 260
Accounts payable 87 871
Accrued liabilities 21,260 7,013
Other (10,168) 89
-------- --------
Net cash provided by operating activities $ 49,088 $ 42,491
INVESTING ACTIVITIES:
Purchases of plant and equipment, net (4,930) (1,337)
-------- --------
Net cash used in investing activities (4,930) (1,337)
FINANCING ACTIVITIES:
Decrease in due to banks (5,362) --
Change in former parent company's investment
and advances, net -- (40,969)
Repayment of long-term debt (13,000) --
Payment to minority stockholder (16,556) --
-------- --------
Net cash used in financing activities (34,918) (40,969)
Effect of exchange rate changes on cash (3) (185)
Increase in cash and cash equivalents 9,237 --
Cash and cash equivalents at beginning of period 45,859 --
Cash and cash equivalents at end of period 55,096 --
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE> 6
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, 1997 and the
results of operations and cash flows for the three months ended March
31, 1997 and 1996. The results of operations for the three month
period are not necessarily indicative of the results to be expected
for the full year. The accompanying consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1996 Annual
Report on Form 10-K.
2. DESCRIPTION OF BUSINESS, MERGER, AND ACQUISITION
Background and Basis of Presentation
On September 5, 1996, American Home Products Corporation ("AHP" or
"Former Parent") and AHP Subsidiary Holding Corporation and other
parties entered into an agreement ("Agreement") pursuant to which an
affiliate ("Parent") of Hicks, Muse, Tate & Furst Equity Fund III,
L.P. ("HM") acquired, effective November 1, 1996, an 80 percent
interest in American Home Food Products, Inc. ("AHFP") and its
subsidiary, M. Polaner, Inc., for approximately $1,226,000. In
connection with the merger transaction ("Transaction"), AHP
contributed all of its other food products businesses into AHFP.
Effective November 1, 1996, these entities and businesses constitute
International Home Foods, Inc. and subsidiaries ("Company"). In
connection with the Agreement, AHFP received $264,000 of equity
financing and incurred indebtedness of $1,070,000. Approximately
$962,000 was used to redeem shares of common stock of AHFP which
6
<PAGE> 7
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Background and Basis of Presentation (Continued)
were indirectly held by AHP and $264,000 was distributed to AHP. At
December 31, 1996, the Company has a liability to AHP of $16,556 for
the unpaid redemption amount. As a result of the redemption, AHP
continues to beneficially own approximately 20 percent of the Company.
The Transaction has been accounted for as a leveraged recapitalization
such that the Company's assets and liabilities remain at their
historical bases for financial reporting purposes; for income tax
purposes, the transaction has been treated as a taxable business
combination such that the consolidated financial statements reflect a
"step-up" in tax basis.
Earnings, advances, withdrawals, dividends, foreign currency
translation adjustments, and other transactions between the Company
and AHP for periods prior to November 1, 1996 are reflected in Former
Parent Company's Investment and Advances in the accompanying financial
statements which are presented on a combined basis prior to November
1, 1996 and on a consolidated basis from November 1, 1996 to December
31, 1996. The combined financial statements for the periods prior to
October 31, 1996 reflect the financial position, results of
operations, and cash flows of the Company as if the Company was a
stand-alone entity. The Company began presenting retained earnings
(accumulated deficit) as a separate component of stockholders'
deficiency effective November 1, 1996.
The effects of the Transaction are summarized as follows:
<TABLE>
<S> <C>
Redemption and distribution to AHP Subsidiary Holding Corporation ($1,225,556)
Issuance of common stock 264,000
Fees (21,256)
Recognition of postretirement benefits obligation (16,207)
Deferred income taxes 368,358
-----------
($ 630,661)
===========
</TABLE>
Pro forma unaudited net income for the three months ended March 31,
1996 assuming the Transaction had occurred at the beginning of 1996,
would have been $1,268. Decreases to reported net income result from
increased pro forma interest expense and the related tax effects. The
unaudited pro forma amounts do not purport to be indicative of what
the Company's actual results of operations would have been had the
Transaction been consummated on January 1, 1996 or to project the
Company's results of operations for any future period.
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, deferred income taxes and tax valuation
allowances, restructuring charges, and contingencies, among other
items.
7
<PAGE> 8
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Acquisition
Immediately after the Transaction and effective November 1, 1996, the
Company acquired Heritage Brands Holdings, Inc. and subsidiaries
("Heritage") for approximately $70,800, including the assumption of
approximately $40,800 of debt, in a transaction accounted for using
the purchase method of accounting. The excess of the purchase price of
Heritage over the fair value of assets acquired and liabilities
assumed resulted in goodwill and other intangible assets of
approximately $59,100 (an increase of approximately $25,000 over the
amount of Heritage's unamortized goodwill and intangible assets prior
to the acquisition) which are being amortized over 20 years. The
acquisition was not significant and, accordingly, pro forma financial
information has not been provided. The results of operations and cash
flows of Heritage have been included in the accompanying consolidated
financial statements of the Company since November 1, 1996.
Business
The Company operates in one business segment which manufactures and
markets a diversified portfolio of shelf-stable food products
including entrees, side dishes, spreadable fruit products, and snacks,
among others. The Company sells its products primarily in the United
States and Canada and is not dependent on any single or major group of
customers for its sales.
3. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of: March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Raw Materials $ 50,476 $ 53,670
Work-in-Progress 4,330 3,052
Finished Goods 62,538 72,483
-------- --------
Total $117,344 $129,205
======== ========
</TABLE>
4. INCOME TAXES
For federal and state income tax purposes, the Transaction (see Note
2) is a taxable business combination and is a qualified stock
purchase. The buyer and seller have elected jointly to treat the
Transaction as an asset acquisition under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended. A preliminary allocation of
the purchase price to the tax bases of assets and liabilities based on
their respective estimated fair values at November 1, 1996 was made
for income tax purposes
8
<PAGE> 9
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
INCOME TAXES (Continued)
and will be finalized during 1997. In connection with the Transaction,
the Company recorded a deferred tax asset of approximately $368,000 at
November 1, 1996 related to future tax deductions for the net excess
of the tax bases of the assets and liabilities over the financial
statement carrying amounts with a corresponding credit to additional
paid-in capital. Historically, the Company has generated operating
income and realization of the deferred tax assets is dependent upon
the Company's ability to generate sufficient future taxable income
which management believes is more likely than not.
The Company anticipates future taxable income after debt service and
adjusting for the effects of the Transaction and acquisition discussed
in Note 1 sufficient to realize the deferred tax assets existing at
March 31, 1997. Future taxable income is based on management's
forecasts of the operating results of the Company and there can be no
assurance that such results will be achieved. Management continually
reviews such forecast in comparison with actual results and expected
trends. 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.
The Company's consolidated financial statements for periods prior to
November 1, 1996 do not reflect deferred income taxes as all such
taxes were provided for by AHP. Deferred tax assets and liabilities
existing prior to the Transaction and those established as a result of
the Transaction and the purchase of Heritage were reflected on the
accompanying consolidated balance sheet, effective November 1, 1996,
as an adjustment to the Former Parent Company's Investment and
Advances account or goodwill, as appropriate.
The Company's operations were included in the consolidated income tax
returns of AHP through October 31, 1996. The Company was charged by
AHP based on the statutory tax rates adjusted for permanent
differences, but without regard for temporary differences. Deferred
tax assets and liabilities prior to the Transaction would have
reflected temporary differences between assets and liabilities for
financial reporting purposes and income tax purposes. Such temporary
differences were primarily attributable to depreciation, allowances
for doubtful accounts, and nondeductible reserves and were not
significant through October 31, 1996. The income tax provision on a
stand-alone basis for periods prior to November 1, 1996 would not
differ materially from the income tax provision reflected in the
accompanying consolidated financial statements.
9
<PAGE> 10
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
INCOME TAXES (CONTINUED)
Effective November 1, 1996, the Company's operations were included in
the consolidated federal income tax returns of its Parent. For the
period November 1, 1996 to December 31, 1996, the company's income tax
provision was prepared on a separate return basis, with deferred
income taxes provided for differences in the financial statement and
tax bases of assets and liabilities. The tax effects of the temporary
differences which resulted from the "step-up" in tax basis (see Note
2) have been reflected in stockholders' deficiency as of November 1,
1996. The Company intends to permanently reinvest its undistributed
Canadian earnings in the Canadian operations; accordingly, deferred
income taxes, which would not be significant, have not been provided
for the repatriation of such undistributed earnings.
5. COMMITMENTS AND CONTINGENCIES
The Company has ongoing royalty arrangements with several parties,
primarily representing licensing agreements for its wet spices
business and for the use of characters in the Company's canned pasta
business. The accompanying consolidated statement of income include
royalty costs which amounted to $528 and $536 for the three months
ended March 31, 1997 and 1996, respectively.
There is also a royalty obligation related to the Company's
acquisition of its cereals business in 1988. The agreement includes a
minimum annual royalty of $750, payable annually, as well as a $10,250
balloon payment payable in January, 1998. As of March 31, 1997 and
December 31, 1996, $10,228 and $10,155, respectively has been accrued
towards the annual minimum royalty for the period and the appropriate
share of the balloon obligation. There are no minimum royalty
requirements after December 31, 1997; however, an ongoing royalty of
ten percent of net sales will continue.
In the ordinary course of business, the Company enters into contracts
for the purchase of certain of its raw materials and is involved in
various pending or threatened litigation and claims. The Company has
responsibility for environmental, safety, and cleanup obligations
under various local, state and federal laws, including the
Comprehensive Environmental Response, Compensation and Liability Act,
commonly known as Superfund. The Company has been identified as a
potentially responsible party at two Superfund sites. Although the
outcome of any legal proceeding cannot be predicted with certainty,
management believes through its discussions with counsel and the
United States Environmental Protection Agency that its proportionate
share of any liability arising from such matters, or the resolution of
any other pending or threatened litigation or claims, in the aggregate
will not have a material adverse effect on the consolidated financial
position, results of operations, or cash flows of the Company.
10
<PAGE> 11
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
6. RELATED PARTY TRANSACTIONS
The consolidated statement of income for the period ended March 31,
1996 included the cost of certain administrative and other services
provided by AHP. These services included treasury, tax, personnel,
legal, environmental, safety, public relations, audit, and other
related costs. The charges to the Company for corporate administration
for the three months ended March 31, 1996 approximated $735. Such
charges are representative of costs which would have been incurred by
the Company on a stand alone basis.
AHP also charged the Company for its share of group insurance costs
(medical, dental, basic life, etc.) based on AHP's historical claim
experience and current claim trends and the ratio of the Company's
employees to total AHP domestic employees. The charges, which are
reflected in the accompanying consolidated statement of income,
amounted to $2,841 for the three months ended March 31, 1996.
The Company purchased advertising through a wholly-owned subsidiary of
AHP through 1996. The rates at which the company purchased advertising
reflected the rates obtained by the consolidated purchasing of AHP.
The charges, which are reflected in the accompanying consolidated
statement of income for the three months ended March 31, 1996 amounted
to $10,741.
Effective November 1, 1996, the Company entered into a ten year
monitoring and oversight agreement with an affiliate of its indirect
majority stockholder, HM. The agreement provides for an annual fee of
the greater of $1,000 or 0.1 percent 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 percent of the transaction value, as defined, for each
add-on transaction, as defined. In the three months ended March 31,
1997, the Company incurred expenses of $250.
7. GUARANTOR FINANCIAL DATA
The Notes are fully and unconditionally guaranteed by each of the
Company's subsidiaries, on a joint and several basis. Presented below
is summarized combined financial information of the subsidiary
guarantors:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Current Assets $ 83,280 $ 91,835
Noncurrent Assets 255,384 254,729
Current Liabilities 44,155 46,354
Noncurrent Liabilities 233,543 248,052
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net Sales $ 37,363 $33,194
Gross Profit 15,632 14,742
Net Income/(Loss) 71 (160)
Net cash provided by operating
activities 15,085 7,694
Net cash used in investing
activities (1,837) (745)
Net cash used in financing activities $(12,326) (6,949)
</TABLE>
11
<PAGE> 12
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. NEW ACCOUNTING STANDARDS
The American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities"
("SOP 96-1") in October 1996. SOP 96-1 provides authoritative guidance
on specific accounting issues in connection with recognizing,
measuring and disclosing environmental cleanup liabilities. The Company
adopted this SOP during the first quarter of 1997; there was no impact
on the Company's results of operations or financial position upon
adoption.
9. SUBSEQUENT EVENT
On May 2, 1997 the Company agreed to acquire the ongoing canned
seafood business of Bumble Bee Seafoods, Inc. for approximately $163
million in cash plus the assumption of certain liabilities estimated
to be between $30 and $40 million.
Bumble Bee is one of the world's largest distributors of canned
seafood products. Bumble Bee's principal products include canned tuna
and salmon. To expedite completion of the sale, Bumble Bee has filed
for protection under Chapter 11 of the Federal Bankruptcy Code. It is
anticipated that under the reorganization, Bumble Bee will continue to
function on a business as usual basis. Bumble Bee has obtained
debtor-in-possession financing of $83.5 million, which should allow
Bumble Bee to maintain normal day to day operations, including payment
of its trade obligations. Closing is subject to approval of the
Bankruptcy Court.
12
<PAGE> 13
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, 1997 and 1996.
NET SALES - IHF's net sales for the three months ended March 31, 1997 of
$244.6 million increased $17.3 million, or 7.6%, over the comparable period of
the prior year. Approximately $10.3 million of the sales increase was due to
sales of the Company's Campfire marshmallows and crisped rice snacks. This
brand was acquired in November of 1996 and therefore the reported sales for the
first quarter of 1996 do not reflect Campfire's sales for the comparable
period. The balance of the increase in sales was due primarily to increases in
sales of the Company's Crunch `n Munch product.
COST OF SALES - Cost of sales as a percentage of net sales, for the three
months ended March 31, 1997 declined to 47.3% from 48.6% for the comparable
1996 period. The improvement came from lower price adjustments in 1997 as well
as overall reductions in the Company's manufacturing costs which are reflective
of management's cost reduction initiatives.
OPERATING EXPENSES - For the three months ended March 31, 1997, operating
expenses as a percentage of net sales declined to 37.4% from 39.2% for the
comparable 1996 period. Marketing expenses increased from $50.6 million for the
1996 first quarter to $52.8 million for the comparable 1997 quarter primarily
due to the higher sales level in 1997. Selling, general, and administrative (S,
G, & A) expenses were comparable for the 1996 and 1997 first quarters.
Amortization of intangibles in the 1997 first quarter was $1.4 million versus
$0.7 million in the 1996 comparable period due to the additional intangibles
arising from the acquisition of Heritage. Excluding intangible amortizations,
S, G, & A and marketing expenses as a percentage of net sales decreased from
38.9% in the first quarter 1996 to 36.9% in the comparable 1997 quarter.
INCOME FROM OPERATIONS - Income from operations for the three months ended
March 31, 1997 increased $9.8 million to $37.4 million or 35.3% over the
comparable 1996 period. The improvement in income from operations is primarily
related to improved gross margins and reduced operating expenses. As a
percentage of net sales, income from operations increased from 12.2%
for the 1996 period to 15.3% for the comparable 1997 period.
INTEREST EXPENSE - Interest expense for the three months ended March 31, 1997
was $25.9 million related to the Company's 10.375% $400.0 million Senior
Subordinated Notes and the Company's Bank Debt, which as of March 31, 1997 had
an average interest rate of 8.55%. There were no interest costs in 1996 as all
financing activities of the Company were funded by the parent company, American
Home Products, Inc ("AHP") and interest costs were not allocated to the
Company.
13
<PAGE> 14
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
OTHER INCOME - The Company earned $0.7 million on short term investments of
excess cash during the three months ended March 31, 1997. As of March 31, 1997,
the Company's short term investments in commercial paper were $49.1 million
earning interest at an average annual rate of 5.42%.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - Net cash provided by operating activities for the three months
ended March 31, 1997 was $49.1 million versus $42.5 million for the comparable
1996 period. The increase was primarily attributable to additional depreciation,
amortization, deferred taxes and changes in operating assets and liabilities
partially reduced by a decrease in net income. Cash used in investing activities
included $4.9 million in capital expenditures in the first quarter of 1997, an
increase of $3.8 million as compared to the 1996 period.
Cash flows used for financing activities in the first quarter of 1997 included
a reduction of Bank Debt of $13.0 million which represented the first
mandatory payment. Also in the first quarter, the Company paid $16.6 million
to its minority shareholder, AHP. This payment represented the final Working
Capital Adjustment as defined in the purchase and sale agreement for the 80%
interest in the fund businesses of AHP.
CAPITAL RESOURCES
The Company has a $100.0 million revolving credit facility of which $.6
million has been utilized for a Letter of Credit as of March 31, 1997.
Management currently believes that cash from operations and existing financing
arrangements are adequate to meet anticipated requirements for working
capital, capital expenditures, mandatory principal and interest payments, and
other cash needs. In addition, management believes that any incremental capital
requirements could be met through external debt financing.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT STRATEGIES
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 Company's Credit Agreement, 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 is subject to either fixed
interest rate or interest rate protection through December 1998. In order to
comply with required interest rate protection provisions, the Company entered
into an interest rate collar transaction that becomes effective in September
1997 and expires in December 1998. The notional amount of the collar is
$135,000 with the cap set at 8% and the floor set at 5.25%.
14
<PAGE> 15
INTERNATIONAL HOME FOODS, INC.
Part 1 Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
SUBSEQUENT EVENT
On May 2, 1997 the Company agreed to acquire the ongoing canned seafood
business of Bumble Bee Seafoods, Inc. for approximately $163 million in cash
plus the assumption of certain liabilities estimated to be between $30 and $40
million.
Bumble Bee is one of the world's largest distributors of canned seafood
products. Bumble Bee's principal products include canned tuna and salmon. To
expedite completion of the sale, Bumble Bee has filed for protection under
Chapter 11 of the Federal Bankruptcy Code. It is anticipated that under the
reorganization, Bumble Bee will continue to function on a business as usual
basis. Bumble Bee has obtained debtor-in-possession financing of $83.5 million,
which should allow Bumble Bee to maintain normal day to day operations,
including payment of its trade obligations. Closing is subject to approval of
the Bankruptcy Court.
IMPACT OF RECENT ACCOUNTING STANDARDS
The American Institute of Certified Public Accountants issued Statement of
Position 96-1, "Environmental Remediation Liabilities" ("SOP 96-1") in October
1996. SOP 96-1 provides authoritative guidance on specific accounting issues in
connection with recognizing, measuring and disclosing environmental cleanup
liabilities. The Company adopted this SOP during the first quarter of 1997;
there was no impact on the Company's results of operations or financial position
upon adoption.
15
<PAGE> 16
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 15, 1997 /s/ C. DEAN METROPOULOS
-----------------------------
C. Dean Metropoulos
Chairman of the Board and
Chief Executive
Date: May 15, 1997 /s/ N. MICHAEL DION
-----------------------------
N. Michael Dion
Senior Vice President and
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
12 Computation of Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
INTERNATIONAL HOME FOODS, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
EXHIBIT 12 COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Income before provision for income taxes $11,867 $27,613
Add (subtract):
Interest on term loans and notes 24,747 --
Amortization of debt cost 1,160 --
Portion of rents representative of interest 163 157
------- -------
Income as adjusted $37,937 $27,770
Fixed Charges
Interest on term loans and notes 24,747 --
Amortization of debt costs 1,160 --
Portion of rents representative of interest 163 157
------- -------
Total fixed charges $26,070 $ 157
Consolidated Ratio of Earnings to Fixed Charges 1.46 176.88
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 55
<SECURITIES> 0
<RECEIVABLES> 49
<ALLOWANCES> 4
<INVENTORY> 117
<CURRENT-ASSETS> 234
<PP&E> 323
<DEPRECIATION> 136
<TOTAL-ASSETS> 953
<CURRENT-LIABILITIES> 164
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> (260)
<TOTAL-LIABILITY-AND-EQUITY> 953
<SALES> 245
<TOTAL-REVENUES> 0
<CGS> 116
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 12
<INCOME-TAX> 5
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
