<PAGE> 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 September 30, 1997
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 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 [X] No [ ]
The number of shares outstanding of registrant's common stock, par value $0.01
per share, at September 30, 1997 was 330,000,000.
1
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INTERNATIONAL HOME FOODS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed Consolidated Statements of Income 3
Three Months Ended September 30, 1997 and 1996
Nine Months Ended September 30, 1997 and 1996
Condensed Consolidated Balance Sheets as of 4
September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Cash Flows 5
Nine Months Ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 16
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Signatures 23
Item 6 Exhibits and Reports on Form 8-K 24
Exhibit 11. Computation of Per Share Earnings 25
Exhibit 12. Computation of Consolidated Ratio of 26
Earnings to Fixed Charges
Exhibit 27. Financial Data Schedule 27
</TABLE>
2
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INTERNATIONAL HOME FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 349,511 $ 254,805 $ 843,933 $ 704,103
Cost of sales 182,156 119,695 412,950 333,880
------------- ------------ ------------- -----------
Gross profit 167,355 135,110 430,983 370,223
Marketing expenses 69,140 47,090 178,394 140,168
Selling, general, and
administrative expenses 43,922 38,715 119,941 110,293
Stock compensation expense 44,763 -- 44,763 --
------------- ------------ ------------- -----------
Income from operations 9,530 49,305 87,885 119,762
------------- ------------ ------------- -----------
Interest expense 27,470 -- 79,235 --
Other income (expense), net 103 68 1,674 (18)
------------- ------------ ------------- -----------
(Loss)/Income before taxes (17,837) 49,373 10,324 119,744
(Benefit)/Provision for income taxes (7,031) 18,792 4,233 45,576
------------- ------------ ------------- -----------
Net (loss)/income $( 10,806) $ 30,581 $ 6,091 $ 74,168
============= ============ ============= ===========
Net (loss)/income per common share $( 0.03) $ 0.02
============= =============
Weighted average
shares outstanding 330,000,000 337,594,606
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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INTERNATIONAL HOME FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 63,720 $ 45,859
Accounts receivable, net of allowances 78,883 48,801
Inventories 200,262 129,205
Prepaid expenses and other current assets 8,297 8,197
Deferred income taxes 13,967 11,571
----------- -----------
Total current assets 365,129 243,633
Property, plant and equipment, net 200,929 186,002
Intangible assets, net 234,382 153,938
Deferred income taxes 347,694 353,034
Other assets 33,639 31,664
----------- -----------
Total assets $ 1,181,773 $ 968,271
=========== ===========
LIABILITIES
CURRENT LIABILITIES:
Due to banks $ 7,127 $ 9,278
Current portion of long-term debt 110,000 26,000
Amount payable to minority stockholder -- 16,556
Accounts payable 38,691 18,679
Accrued salaries, wages, and benefits 18,701 14,379
Accrued advertising and promotion 58,506 38,127
Accrued interest 22,798 10,843
Other accrued liabilities 38,304 28,151
----------- -----------
Total current liabilities 294,127 162,013
Long-term debt 1,081,500 1,044,000
Postretirement benefits obligation 18,511 16,689
Other noncurrent liabilities 1,072 9,764
----------- -----------
Total liabilities 1,395,210 1,232,466
Commitments and contingencies
STOCKHOLDERS' DEFICIENCY
Preferred stock - par value $.01 per share; authorized,
100,000,000 shares; no 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 (219,236) (263,999)
Retained earnings (Accumulated deficit) 4,493 (1,598)
Foreign currency translation adjustment (1,994) (1,898)
----------- -----------
Total stockholders' deficiency (213,437) (264,195)
----------- -----------
Total liabilities and stockholders' deficiency $ 1,181,773 $ 968,271
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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INTERNATIONAL HOME FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Net income $ 6,091 $ 74,168
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,921 13,717
Deferred income taxes 2,944 --
Stock option compensation 44,763 --
Changes in assets and liabilities, net of acquisition:
Accounts receivable (712) (10,059)
Inventories (7,289) 9,384
Other current assets 1,324 1,893
Accounts payable 6,284 3,885
Accrued liabilities 26,933 5,731
Other (15,427) 288
--------- --------
Net cash provided by operating activities 86,832 99,007
--------- --------
INVESTING ACTIVITIES:
Purchases of plant and equipment, net (8,609) (8,475)
Purchase of business, net of cash acquired (163,058) --
--------- --------
Net cash used in investing activities (171,667) (8,475)
--------- --------
FINANCING ACTIVITIES:
Decrease in due to banks (2,151) --
Change in former parent company's investment
and advances, net -- (90,632)
Issuance of long term bank debt for acquisition 80,000 --
Repayment of long-term debt (29,500) --
Borrowing from revolving credit facility for acquisition 86,000 --
Repayment for borrowing from revolving credit facility (15,000) --
Payment to minority stockholder (16,556) --
--------- --------
Net cash provided by (used in) financing activities 102,793 (90,632)
--------- --------
Effect of exchange rate changes on cash (97) 100
Increase in cash and cash equivalents 17,861 --
Cash and cash equivalents at beginning of period 45,859 --
--------- --------
Cash and cash equivalents at end of period $ 63,720 $ --
========= ========
Cash paid during the year for:
Interest $ 63,449 $ --
Income taxes $ 432 $ 13,902
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED 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 condensed consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's financial position as of September 30, 1997
and the results of operations and cash flows for the three months and nine
months ended September 30, 1997 and 1996. Certain reclassifications have
been made in the financial statements from amounts previously reported. The
results of operations for the three and nine month periods 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 condensed consolidated financial statements and notes
thereto included in the Company's 1996 Annual Report on Form 10-K.
Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during each
respective period. Proceeds from the exercise of the dilutive stock options
are assumed to be used to repurchase outstanding shares of the Company's
common stock at the estimated average fair market value during the period.
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 ("the 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 were indirectly
held by AHP and $264,000 was distributed to AHP. At December 31, 1996, the
Company had 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.
6
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Background and Basis of Presentation (Continued)
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 subsequent to November 1, 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 and nine months ended
September 30, 1996 assuming the Transaction had occurred at the beginning
of 1996, would have been $16,110 ($.05 per common share) and $28,120 ($.09
per common share), respectively. 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,
stock option compensation, deferred income taxes and tax valuation
allowances, restructuring charges, and contingencies, among other items.
7
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED 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 condensed 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, snacks, and canned fish, 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: September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Raw Materials $ 54,071 $ 29,932
Work-in-Progress 23,621 26,790
Finished Goods 122,570 72,483
--------- ---------
Total $ 200,262 $ 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 CONDENSED 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 September
30, 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 forecasts 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
condensed 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 condensed consolidated financial statements.
9
<PAGE> 10
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED 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. Royalty
costs for the three months ending September 30, 1997 and 1996 amounted to
$534 and $560, respectively. The accompanying condensed consolidated
statements of income include royalty costs which amounted to $1,569 and
$1,632 for the nine months ended September 30, 1997 and 1996, respectively.
There is also a royalty obligation related to the Company's licensing
agreement for its cereals business entered into in 1988. The agreement
includes a minimum annual royalty of $750, payable in quarterly
installments, as well as a $10,250 balloon payment payable in January,
1998. As of September 30, 1997 and December 31, 1996, $10,368 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 cereal 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
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
6. RELATED PARTY TRANSACTIONS
The condensed consolidated statement of income for the period ended
September 30, 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 and the nine months ended September 30, 1996 approximated $735
and $2,204, respectively. 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 and the ratio of the Company's
employees to total AHP domestic employees. The charges, which are reflected
in the accompanying condensed consolidated statement of income, amounted to
$2,709 and $8,598 for the three months and nine months ended September 30,
1996, respectively.
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 condensed consolidated
statement of income for the three months and the nine months ended
September 30, 1996 amounted to $9,724 and $42,974, respectively.
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 and certain operating expenses related to their
oversight activities. Fees under the agreement for the nine months ended
September 30, 1997 totaled $838. 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. The
Company incurred fees in the amount of $2,445 as a result of the financial
advisory agreement during the nine months ended September 30, 1997.
11
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. GUARANTOR FINANCIAL DATA
The Company's Senior Subordinated Notes are fully and unconditionally
guaranteed by each of the Company's subsidiaries, 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 Notes. Presented below is summarized combined financial
information of the subsidiary guarantors:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
Current Assets $ 190,786 $ 91,835
Noncurrent Assets 357,730 254,729
Current Liabilities 78,634 46,354
Noncurrent Liabilities 242,615 248,052
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 129,273 $ 35,774 $ 197,842 $ 98,437
Gross Profit 42,703 15,354 72,785 44,227
Net Income 2,377 2,266 3,208 1,465
Net cash provided by 22,678 25,613
operating activities
Net cash used in (5,404) (6,879)
investing activities
Net cash used in (14,464) (18,734)
financing activities
</TABLE>
8. STOCK OPTION COMPENSATION
In the third quarter of 1997, the Company recorded a non-cash stock option
compensation charge of $44,763 related to stock option compensation
including $44,734 related to indexed stock options granted to senior
management and other employees. When granted, these indexed options had
exercise prices ranging from $1.00 to $1.08 per share that increased over
time at a rate of 8% per year. In the third quarter of 1997 the variable
exercise price of these options was fixed. In addition, the Company has
recorded $4,525 related to unearned stock option compensation as a
reduction in Additional paid-in capital. This amount will be amortized to
compensation expense as the related options vest. Estimated charges to
income for the fourth quarter 1997 and the years 1998, 1999, and 2000 are
$370, $1,537, $1,537, and $1,081, respectively. In addition, in the fourth
quarter the Company will record an additional charge of $1,226 related to
stock options issued by the Company to the Chief Executive Officer and
other employees on November 13, 1997.
12
<PAGE> 13
9. 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.
In June 1996, Statement of Financial Accounting Standards No. 125 (SFAS
125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", was issued to provide accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. This statement became effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Company does not
anticipate that the adoption of this Statement will have a material effect
on the financial statements.
In March, 1997, SFAS 128, "Earnings Per Share", was issued to establish
standards for computing and presenting earnings per share ("EPS"). The
Statement applies to entities with publicly held common stock or potential
common stock and excludes entities whose publicly traded securities include
only debt. The Statement is effective for financial statements issued for
periods ending after December 15, 1997; earlier application is not
permitted. This statement will require presentation of basic and diluted
EPS. The Company anticipates that diluted EPS in accordance with this
statement would approximate EPS as reported.
In June 1997, SFAS 130, "Reporting Comprehensive Income", was issued to
establish standards for reporting and displaying of comprehensive income
and its components in a full set of general-purpose financial statements.
This statement requires disclosure of the components of comprehensive
income including, among other things, foreign currency translation
adjustments, minimum pension liability items and unrealized gains and
losses on certain investments in debt and equity securities. The Company
would be required to show components of comprehensive income in a financial
statement displayed as prominently as the other required financial
statements. The statement is effective for fiscal years beginning after
December 15, 1997. The Company anticipates compliance with this Statement
in 1998.
In June 1997, SFAS 131 "Disclosures About Segments of an Enterprise and
Related Information", was issued to establish standards for public business
enterprises reporting information regarding operating segments in annual
and interim financial statements issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is
to be restated.
13
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INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
10. ACQUISITIONS
On July 1, 1997, the Company consummated the acquisition of substantially
all of the assets (the "Assets") of Bumble Bee Seafoods, Inc. and its
wholly-owned subsidiaries, Bumble Bee International, Inc., Santa Fe Springs
Holding Company and Commerce Distributing Company (CDC) (collectively, the
"Sellers"), pursuant to the terms of an Asset Purchase and Sale Agreement
dated as of May 1, 1997 (the "Agreement") by and among the Sellers, on the
one hand, and the Company and its wholly-owned subsidiary, Bumble Bee
Acquisition Corporation, on the other hand. The aggregate consideration
paid for the assets, including fees, was approximately $163 million in cash
and the assumption of certain liabilities of the Sellers, including trade
payables ($13.7 million) and certain accrued liabilities ($21.8 million).
The Assets consist primarily of inventory ($63.8 million), accounts
receivable ($29.4 million), property, plant and equipment ($19.7 million),
intangible assets-trademarks ($51.5 million) and other assets ($3.7
million) formerly used by the Sellers for the processing and marketing of
canned seafood products, principally tuna and salmon, including processing
facilities in Puerto Rico, Ecuador and California. The excess of the
purchase price over the fair value of assets acquired and liabilities
assumed resulted in goodwill of approximately $30.5 million. Goodwill and
intangible assets are being amortized over 40 years. The transaction was
approved by an order of the Federal Bankruptcy Court for the Southern
District of California on June 19, 1997, as part of the bankruptcy
proceedings of the Sellers.
The Company intends to maintain the plant and equipment acquired for the
processing and canning of seafood products and to continue the employ of
substantially all of the Seller's former 1700 employees.
Concurrent with the acquisition of the Assets, the Company amended and
restated its existing credit agreement with Chase Manhattan Bank as of July
1, 1997. The existing senior secured bank facilities were increased from
$670 million (less a $13 million principal payment made in the first
quarter of 1997) to $737 million and the Company's revolving facility was
increased from $100 million to $140 million. The Company financed the
purchase of the Assets with the $80 million increase in the term facility,
a $30 million draw on the Company's revolving facility, and the balance of
the purchase price from the Company's available cash balances as of the
date of the closing.
The provisions of the new credit agreement provide that borrowings under
Tranches A and B are increased to $367.5 million, and $369.5 million
respectively and the previous Tranche C is included as part of Tranche B.
The final maturity dates of Tranche A, March 31, 2003, and the new Tranche
B, September 30, 2004, remained unchanged. Applicable margins on borrowings
which bear interest based on the London Interbank Offered Rate as defined,
have been changed from 2.5% to 2%, and from 3% to 2.25% on Tranche A and B,
respectively. The applicable margins under the alternate base rate, as
defined, have been changed from 1.5% to 1%, and 2% to 1.25% on Tranche A
and B, respectively. The new agreement also includes financial covenants
related to consolidated leverage ratio, as defined, consolidated interest
coverage, as defined, consolidated fixed charge coverage ratio, as defined,
and limitations on indebtedness, capital expenditures and payment of
dividends.
14
<PAGE> 15
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
Acquisitions (Continued)
Proforma unaudited results for the nine months ended September 30, 1997 and
1996, assuming the acquisition had occurred at the beginning of the
respective periods would have been as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Net sales $1,022,947 $ 1,016,331
Net (loss)/income (2,951) 75,734
Net (loss) per
common share $ (0.01) --
</TABLE>
In September 1997, the Company signed a letter of intent to acquire a
specialty canned seafood manufacturer and marketer for approximately $26.5
million in cash.
11. INITIAL PUBLIC OFFERING
In September 1997, the Company initiated the process of registering shares
of common stock under an initial public offering ("IPO"). The proceeds from
the sale of the securities would be used by the Company to pay off
borrowings under the Credit Agreement. In connection with the IPO, the
Company expects to amend its existing Credit Agreement, which is expected
to result in an extraordinary charge in the fourth quarter of 1997 of
approximately $11,100, net of related tax benefit.
Immediately prior to the IPO, the Company plans to effect a 5.3292 for one
reverse stock split of its current capital stock. In addition, the Company
will reduce the authorized shares of Common Stock to 300,000,000.
12. SUBSEQUENT EVENTS
On October 1, 1997, the Company acquired Productos Del Monte from an
affiliate of Hicks Muse for approximately 16,666,667 shares of Common
Stock. Productos Del Monte is a leading manufacturer and marketer of
branded catsup, canned vegetables and bottled salsa in Mexico. The
acquisition of Productos Del Monte will be accounted for as a combination
of entities under common control. Accordingly, the historical accounting
values of Productos Del Monte will be carried over for financial accounting
purposes.
On October 1, 1997, the Company acquired Creative Products, Inc. for
approximately $52 million in cash. Creative Products is the leading
manufacturer of cooking spray sold to private label customers and food
service operators. In addition, Creative Products manufactures on a
contract basis a number of health and beauty aid products, including hair
mousses, hair sprays and deodorants. The acquisition was funded through
borrowings under the Company's Revolving Credit Agreement, and will be
accounted for as a purchase for financial accounting purposes.
Historical sales and income from operations of these acquisitions are not
material to the Company's results in the nine months ended September 30,
1997.
15
<PAGE> 16
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - Three and nine months ended September 30, 1997 and 1996.
NET SALES - For the three months ended September 30, 1997, net sales were $349.5
million, an increase of $94.7 million, or 37.2%, over the comparable 1996
period. Approximately $99.9 million and $10.5 million of the three month
increase was related to Bumble Bee and Campfire sales, respectively, which were
not reflected in the 1996 amounts. Comparable brand sales for the three months
ended September 30, 1997 were $15.7 million lower, or 6.2%, than the comparable
1996 period. Lower sales for the quarter just ended were primarily attributable
to Canned Pasta ($9.0 million, or 9.7%), Export Sales ($4.5 million, or 35.6%),
the Specialty Brands ($2.4 million, or 6.1%), and Food Service ($1.0 million, or
8.2%), offset by increased sales in Private Label ($1.4 million, or 12.3%).
For the nine months ended September 30, 1997, net sales were $843.9 million, an
increase of $139.8 million, or 19.9%, over the comparable 1996 period.
Approximately $99.9 million and $32.7 million of the nine month increase was
related to Bumble Bee and Campfire sales, respectively, which are not reflected
in the 1996 amounts. The balance of the increase was primarily due to volume
increases in sales of Snacks ($6.6 million, or 16.7%), Private Label ($5.8
million, or 20.0%), and the Canadian Subsidiary ($3.3 million, or 8.8%), offset
by lower sales volume in the Specialty Brands ($10.4 million, or 8.4%).
COST OF SALES - For the three months ended September 30, 1997, cost of sales as
a percentage of net sales increased to 52.1% from 47.0% for the comparable 1996
quarter. This was primarily attributable to the inclusion of the results of the
Bumble Bee Business, which generally has lower gross margins than the Company's
other product lines, for the third quarter of 1997. The Bumble Bee Business cost
of goods sold as a percentage of net sales was 71.1% for the third quarter of
1997. Excluding the Bumble Bee Business, cost of goods sold for the three months
ended September 30, 1997 declined to 44.5% of net sales from 47.0% of sales for
the comparable 1996 quarter. The decline in cost of goods sold as a percentage
of net sales primarily resulted from a more favorable sales mix and continuing
overall reductions in the Company's manufacturing costs which reflect
management's cost reduction initiatives.
For the nine months ended September 30, 1997, cost of sales as a percentage of
net sales increased to 48.9% from 47.4% for the comparable 1996 period. This was
primarily attributable to the inclusion of the results of the Bumble Bee
Business, which generally has lower gross margins than the Company's other
product lines, for the third quarter of 1997. The Bumble Bee Business cost of
goods sold as a percentage of net sales was 71.1% for the third quarter of 1997.
Excluding the Bumble Bee Business, cost of goods sold for the nine months ended
September 30, 1997 declined to 46.0% of net sales from 47.4% of net sales for
the comparable 1996 period. This decline in cost of goods sold as a percentage
of net sales primarily resulted from a more favorable sales volume mix and
continuing overall reductions in the Company's manufacturing costs which reflect
management's cost reduction initiatives.
16
<PAGE> 17
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
MARKETING EXPENSES - Marketing expenses increased to $69.1 million for the three
months ended September 30, 1997, as compared to $47.1 million for the comparable
1996 period. Expressed as a percentage of net sales, marketing expenses
increased to 19.8% in the three months ended September 30, 1997 from 18.5% in
the 1996 period. The increase was primarily attributable to (i) the inclusion of
the Bumble Bee Business and Heritage, which have higher trade promotion expenses
as a percentage of net sales than the Company's other products, and (ii) trade
promotion expenses associated with securing retail shelf space for line
extensions of existing products and new products.
Total marketing expenses increased to $178.4 million for the nine months ended
September 30, 1997, as compared to $140.2 million for the comparable 1996
period. Expressed as a percentage of net sales, total marketing expenses
increased to 21.1% in the 1997 period from 19.9% in the 1996 period. The
increase was primarily attributable to (i) the inclusion of the Bumble Bee
Business and Heritage, which have higher trade promotion expenses as a
percentage of net sales than the Company's other products, and (ii) trade
promotion expenses associated with securing retail shelf space for line
extensions of existing products and new products.
OTHER OPERATING EXPENSES - Other operating expenses were $88.7 million for the
three months ended September 30, 1997, as compared to $38.7 million in the
comparable 1996 period, an increase of $50.0 million or 129.2%. Other operating
expenses for the third quarter of 1997 include a non-cash stock option
compensation charge of $44.8 million. Excluding this non-cash charge, total
operating expenses as a percentage of net sales declined to 12.6% in the third
quarter of 1997 from 15.2% in the comparable 1996 period, primarily reflecting
management's cost reduction initiatives.
In the third quarter of 1997, the Company recorded a non-cash stock option
compensation charge aggregating $44.8 million related to stock option
compensation including $44.7 million related to indexed stock options granted to
senior management and other employees. When granted, these indexed options had
exercise prices ranging from $1.00 to $1.08 per share that increased over time
at a rate of 8% per year. In the third quarter of 1997 the variable exercise
price of these options was fixed. The remaining $0.1 million relates to stock
options granted during the third quarter of 1997 having exercise prices below
the estimated fair market value of the Common Stock. In the fourth quarter of
1997 and the years 1998, 1999, and 2000, the Company expects to record
additional non-cash stock option compensation charges related to the grant of
stock options having exercise prices below fair market value, which is estimated
to be approximately $0.4 million, $1.5 million, $1.5 million, and $1.1 million,
respectively.
Other operating expenses were $164.7 million for the nine months ended September
30, 1997, as compared to $110.3 million in the comparable 1996 period, an
increase of $54.4 million or 49.3%. Other operating expenses for the nine months
ended September 30, 1997 include a non-cash stock option compensation charge of
$44.8 million. Excluding this non-cash charge, total other operating expenses as
a percentage of net sales declined to 14.2% for the nine months ended September
30. 1997 from 15.7% in the comparable 1996 period, primarily reflecting
management's cost reduction initiatives.
17
<PAGE> 18
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
INTEREST EXPENSE - Interest expense for the three months ended September 30,
1997 was $27.5 million. This amount represents $10.4 million of interest expense
on the Company's $400.0 million of publicly traded debentures at an annual
interest rate of 10.375%, interest and commitment fees of $15.2 million on
$720.5 million of the Company's Bank Debt, which as of September 30, 1997 had an
average interest rate of 7.87%, $0.4 million of interest expense on the
Company's $71 million outstanding Revolving Credit Agreement balance, and $1.5
million of amortization of deferred financing costs.
Interest expense for the nine months ended September 30, 1997 was $79.2 million.
This amount represents $31.1 million of interest expense on the Company's $400.0
million of publicly traded debentures at an annual interest rate of 10.375%,
interest and commitment fees of $44.0 million on $720.5 million the Company's
Bank Debt, which as of September 30, 1997 had an average interest rate of 7.87%,
$0.4 million of interest expense on the Company's $71 million outstanding
Revolving Credit Agreement balance, and $3.7 million of amortization of deferred
financing costs.
There was no interest expense in the comparable 1996 period, as all financing
activities of the Company were funded by the former parent company, American
Home Products, which did not allocate interest costs to its various
subsidiaries.
INTEREST INCOME AND OTHER, NET - The Company earned $0.1 million on short term
investments of its excess cash during the three months ended September 30, 1997.
The Company earned $1.6 million on short term investments of its excess cash
during the nine months ended September 30, 1997. As of September 30, 1997, the
Company's short term investments were $55.2 million, earning interest at a rate
of 6.3%.
PROVISION FOR INCOME TAXES - For the three months ended September 30, 1997,
income taxes decreased by $25.8 million over the comparable 1996 period due to
lower income before taxes. The effective tax rate increased to 39.4% in 1997
from 38.1% in 1996 primarily due to the impact of state and local taxes.
For the nine months ended September 30, 1997, income taxes decreased by $41.3
million over the comparable 1996 period due to lower income before taxes. The
effective tax rate increased to 41.0% in 1997 from 38.1% in 1996 due to the
impact of state and local taxes. The Company anticipates sufficient future
income to realize deferred tax assets recorded at September 30, 1997. 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.
18
<PAGE> 19
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
NET INCOME - For the three months and nine months ended September 30, 1997, net
income decreased by $41.4 million and $68.1 million, respectively, versus the
comparable 1996 periods, primarily reflecting the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - Net cash provided by operating activities for the nine months ended
September 30, 1997 was $86.8 million, or $12.2 million lower than the comparable
1996 period due to lower net income, offset by changes in assets and
liabilities, primarily as a result of the Bumble Bee acquisition.
The Company purchased substantially all of the assets of Bumble Bee for
approximately $163 million, and invested $8.6 million in capital expenditures in
the nine months ended September 30, 1997, an increase of $0.1 million over the
comparable 1996 period.
CAPITAL RESOURCES - On July 1, 1997 the Company amended and restated its
existing credit agreement (see Acquisitions section of Management & Discussion
and Analysis of Financial Condition and Results of Operations).
For the nine months ended September 30, 1997, the Company borrowed $86 million
under the terms of its Revolving Credit Facility and $80 million under its
Credit Agreement. The Company reduced its borrowings under the Revolving Credit
Facility by $15 million and in addition, reduced its Bank debt by $29.5 million,
representing mandatory principal repayments.
The Company paid $16.6 million to its minority shareholder, AHP in 1997.
Management currently believes that cash from operations and available financing
alternatives are adequate to meet anticipated requirements for working capital,
capital expenditures, mandatory principal and interest payments, and other cash
needs.
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 became effective on September 8, 1997 and
expires on December 8, 1998. The notional amount of the collar is $135 million
with the cap set at 8% and the floor set at 5.25%. The three month LIBOR rate at
September 8, 1997 was 5.71875%.
19
<PAGE> 20
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
ACQUISITIONS
On July 1, 1997, the Company consummated the acquisition of substantially all of
the assets (the "Assets") of Bumble Bee Seafoods, Inc. and its wholly-owned
subsidiaries, Bumble Bee International, Inc., Santa Fe Springs Holding Company
and Commerce Distributing Company (CDC) (collectively, the "Sellers"), pursuant
to the terms of an Asset Purchase and Sale Agreement dated as of May 1, 1997
(the "Agreement") by and among the Sellers, on the one hand, and the Company and
its wholly-owned subsidiary, Bumble Bee Acquisition Corporation, on the other
hand. The aggregate consideration paid for the assets, including fees, was
approximately $163 million in cash and the assumption of certain liabilities of
the Sellers, including trade payables ($13.7 million) and certain accrued
liabilities ($21.8 million). The Assets consist primarily of inventory ($63.8
million), accounts receivable ($29.4 million), property, plant and equipment
($19.7 million), intangible assets-trademarks ($51.5 million) and other assets
($3.7 million) formerly used by the Sellers for the processing and marketing of
canned seafood products, principally tuna and salmon, including processing
facilities in Puerto Rico, Ecuador and California. The excess of the purchase
price over the fair value of assets acquired and liabilities assumed resulted in
goodwill of approximately $30.5 million. Goodwill and intangible assets are
being amortized over 40 years. The transaction was approved by an order of the
Federal Bankruptcy Court for the Southern District of California on June 19,
1997, as part of the bankruptcy proceedings of the Sellers.
The Company intends to maintain the plant and equipment acquired for the
processing and canning of seafood products and to continue the employ of
substantially all of the Seller's former 1700 employees.
Concurrent with the acquisition of the Assets, the Company amended and restated
its existing credit agreement with Chase Manhattan Bank as of July 1, 1997. The
existing senior secured bank facilities were increased from $670 million (less a
$13 million principal payment made in the first quarter of 1997) to $737 million
and the Company's revolving facility was increased from $100 million to $140
million. The Company financed the purchase of the Assets with the $80 million
increase in the term facility, a $30 million draw on the Company's bank
revolver, and the balance of the purchase price from the Company's available
cash balances as of the date of the closing.
The provisions of the new credit agreement provide that borrowings under
Tranches A and B are increased to $367.5 million, and $369.5 million
respectively and the previous Tranche C is included as part of Tranche B. The
final maturity dates of Tranche A, March 31, 2003, and the new Tranche B,
September 30, 2004, remained unchanged. Applicable margins on borrowings which
bear interest based on the London Interbank Offered Rate as defined, have been
changed from 2.5% to 2%, and from 3% to 2.25% on Tranche A and B, respectively.
The applicable margins under the alternate base rate, as defined, have been
changed from 1.5% to 1%, and 2% to 1.25% on Tranche A and B, respectively. The
new agreement also includes financial covenants related to consolidated leverage
ratio, as defined, consolidated interest coverage, as defined, consolidated
fixed charge coverage ratio, as defined, and limitations on indebtedness,
capital expenditures and payment of dividends.
In September 1997, the Company signed a letter of intent to acquire a specialty
canned seafood manufacturer and marketer for approximately $26.5 million in
cash.
20
<PAGE> 21
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
INITIAL PUBLIC OFFERING
In September 1997, the Company initiated the process of registering shares of
common stock under an initial public offering ("IPO"). The proceeds from the
sale of the securities would be used by the Company to pay off borrowings under
the Credit Agreement. In connection with the IPO, the Company expects to amend
its existing Credit Agreement, which is expected to result in an extraordinary
charge in the fourth quarter of 1997 of approximately $11.1 million, net of
related tax benefit.
Immediately prior to the IPO, the Company plans to effect a 5.3292 for one
reverse stock split of its current capital stock. In addition, the Company will
reduce the authorized shares of Common Stock to 300,000,000.
SUBSEQUENT EVENTS
On October 1, 1997, the Company acquired Productos Del Monte from an affiliate
of Hicks Muse for approximately 16,666,667 shares of Common Stock. Productos Del
Monte is a leading manufacturer and marketer of branded catsup, canned
vegetables and bottled salsa in Mexico. The acquisition of Productos Del Monte
will be accounted for as a combination of entities under common control.
Accordingly, the historical accounting values of Productos Del Monte will be
carried over for financial accounting purposes.
On October 1, 1997, the Company acquired Creative Products, Inc. for
approximately $52 million in cash. Creative Products is the leading manufacturer
of cooking sprays sold to private customers and food service operators. In
addition, Creative Products manufactures on a contract basis a number of health
and beauty aid products, including hair mousses, hair sprays and deodorants. The
acquisition was funded through borrowings under the Company's Revolving Credit
Agreement, and will be accounted for as a purchase for financial accounting
purposes.
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.
21
<PAGE> 22
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Impact of Accounting Standards (Continued)
In June 1996, Statement of Financial Accounting Standards No. 125 (SFAS 125),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities", was issued to provide accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
This statement became effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The
Company does not anticipate that the adoption of this Statement will have a
material effect on the Financial Statements.
In March, 1997, SFAS 128, "Earnings Per Share", was issued to establish
standards for computing and presenting earnings per share ("EPS"). The Statement
applies to entities with publicly held common stock or potential common stock
and excludes entities whose publicly traded securities include only debt. The
Statement is effective for financial statements issued for periods ending after
December 15, 1997; earlier application is not permitted. This statement will
require presentation of basic and diluted EPS. The Company anticipates that
diluted EPS in accordance with this statement would approximate EPS as reported.
In June 1997, SFAS 130, "Reporting Comprehensive Income", was issued to
establish standards for reporting and displaying of comprehensive income and its
components in a full set of general-purpose financial statements. This statement
requires disclosure of the components of comprehensive income including, among
other things, foreign currency translation adjustments, minimum pension
liability items and unrealized gains and losses on certain investments in debt
and equity securities. The Company would be required to show components of
comprehensive income in a financial statement displayed as prominently as the
other required financial statements. The statement is effective for fiscal years
beginning after December 15, 1997. The Company anticipates compliance with this
Statement in 1998.
In June 1997, SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information", was issued to establish standards for public business enterprises
reporting information regarding operating segments in annual and interim
financial statements issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated.
22
<PAGE> 23
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)
/s/ C. DEAN METROPOULOS
Date: November 14, 1997 --------------------------------------
C. Dean Metropoulos
Chairman of the Board and
Chief Executive
/s/ N. MICHAEL DION
Date: November 14, 1997 --------------------------------------
N. Michael Dion
Senior Vice President and
Chief Financial Officer
23
<PAGE> 24
INTERNATIONAL HOME FOODS, INC.
Part II
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(11) Computation of per share earnings.
(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 July 16, 1997, under Item 2 (Acquisition or
disposition of assets) and Item 7 (Financial
Statements, Pro Forma Financial Information and
Exhibits).
Reports on Form 8-K/A:
Dated September 15, 1997, under Item 7 (a) (Financial
Statements of business acquired).
Dated September 16, 1997 under Item 7 (a) (Financial
Statements of business acquired).
Dated September 16, 1997, under Item 7 (a) (Financial
Statements of business acquired).
24
<PAGE> 1
INTERNATIONAL HOME FOODS, INC.
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Computation for statement of
earnings:
Net (loss) income $ (10,806) $ 6,091
============= ============
Computation for weighted
average common shares
outstanding
Weighted average common
shares outstanding 330,000,000 330,000,000
Incremental common shares
applicable to common
stock options and warrants
based on the estimated
fair value of the stock --(1) 7,594,606
Weighted average common
shares outstanding, as adjusted 330,000,000 337,594,606
============= ============
Primary and fully diluted
(loss) income per common
share $ (.03) $ .02
============= ============
</TABLE>
(1) Incremental shares are antidilutive and therefore not included.
25
<PAGE> 1
INTERNATIONAL HOME FOODS, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1997 1996
-------------- ------------
<S> <C> <C>
Income before provision for income taxes $10,324 $119,744
Add:
Interest on term loans and notes 75,488 --
Amortization of debt cost 3,747 --
Interest Portion of rentals 489 471
------- --------
Income as adjusted $90,048 $120,215
Fixed Charges
Interest on term loans and notes $75,488 --
Amortization of debt costs 3,747 --
Interest Portion of rentals $ 489 $ 471
------- --------
Total fixed charges $79,724 $ 471
Ratio of Earnings to Fixed Charges 1.13 255.23
======= ========
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 64
<SECURITIES> 0
<RECEIVABLES> 84
<ALLOWANCES> 5
<INVENTORY> 200
<CURRENT-ASSETS> 365
<PP&E> 343
<DEPRECIATION> 142
<TOTAL-ASSETS> 1,182
<CURRENT-LIABILITIES> 294
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> (216)
<TOTAL-LIABILITY-AND-EQUITY> 1,182
<SALES> 844
<TOTAL-REVENUES> 0
<CGS> 413
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 10
<INCOME-TAX> 4
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
