<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Special Financial Report For Only The Fiscal Year Ended December 31, 1996
Commission File Number: 333-18859
---------------------
INTERNATIONAL HOME FOODS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3377322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1633 LITTLETON ROAD, PARSIPPANY, N.J. 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201 359-9920)
Securities registered Pursuant to Section 12(b) of the Act: None
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]
---------------------
<PAGE> 2
INTERNATIONAL HOME FOODS, INC.
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The consolidated financial statements and report of the
independent accountants for the fiscal year 1996 only are included in
this Special Financial Annual Report.
<TABLE>
<CAPTION>
Page No.
<S> <C>
Consolidated balance sheet as of December 31, 1996 1
Consolidated statement of income for the year ended 2
December 31, 1996
Consolidated statement of stockholders' deficiency for 3
the year ended December 31, 1996
Consolidated statement of cash flows for the year 4
ended December 31, 1996
Notes to consolidated financial statements 5-23
Report of Independent Accountants 24
FINANCIAL STATEMENT SCHEDULES
</TABLE>
All financial statement schedules have been omitted either because the
information is not required or is otherwise included in the financial
statements and notes thereto.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) Financial Statements - See index above.
b) Exhibits - Exhibits to this report are filed as part of
this report as set forth in the Index to Exhibits on pages 1 and
2 hereof.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Parsippany, State of New Jersey.
INTERNATIONAL HOME FOODS, INC.
By: /s/ C. DEAN METROPOULOS
--------------------------------------------
C. Dean Metropoulos, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C.DEAN METROPOULOS
- ----------------------------------- Chairman of the Board and Chief Executive May 15, 1997
C. Dean Metropoulos Officer (Principal Executive Officer)
/s/ N. MICHAEL DION
- ----------------------------------- Chief Financial Officer May 15, 1997
N. Michael Dion (Principal Financial and Accounting Officer)
/s/ L. HOLLIS JONES
- ----------------------------------- Director May 15, 1997
L. Hollis Jones
THOMAS O. HICKS
- ----------------------------------- Director May 15, 1997
Thomas O. Hicks
/s/ CHARLES W. TATE
- ----------------------------------- Director May 15, 1997
Charles W. Tate
/s/ ALAN B. MENKES
- ----------------------------------- Director May 15, 1997
Alan B. Menkes
/s/ MICHAEL J. LEVITT
- ----------------------------------- Director May 15, 1997
Michael J. Levitt
M. L. LOWENKRON
- ----------------------------------- Director May 15, 1997
M. L. Lowenkron
ROGER T. STAUBACH
- ----------------------------------- Director May 15, 1997
Roger T. Staubach
</TABLE>
<PAGE> 4
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 45,859
Accounts receivable, net of allowances 48,801
Inventories 129,205
Prepaid expenses and other current assets 8,197
Deferred income taxes 11,571
---------------
Total current assets 243,633
Property, plant and equipment, net 186,002
Intangible assets, net 153,938
Deferred income taxes 353,034
Other assets 31,664
---------------
Total assets $ 968,271
===============
LIABILITIES
CURRENT LIABILITIES:
Due to banks $ 9,278
Current portion of long-term debt 26,000
Amount payable to minority stockholder 16,556
Accounts payable 18,679
Accrued salaries, wages, and benefits 14,379
Accrued advertising and promotion 38,127
Accrued interest 10,843
Other accrued liabilities 28,151
---------------
Total current liabilities 162,013
Long-term debt 1,044,000
Postretirement benefits obligation 16,689
Other noncurrent liabilities 9,764
---------------
Total liabilities 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
Additional paid-in capital (263,999)
Accumulated deficit (1,598)
Former Parent Company's investment and advances --
Foreign currency translation adjustment (1,898)
---------------
Total stockholders' deficiency (264,195)
---------------
Total liabilities and stockholders' deficiency $ 968,271
===============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 5
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Net sales $942,792
Cost of sales 444,879
--------
Gross profit 497,913
Marketing expenses 191,527
Selling, general, and administrative expenses 148,903
Provision for restructuring and other charges 4,308
--------
Income from operations 153,175
Interest expense 17,072
Interest income and other, net 177
--------
Income before provision for income taxes 136,280
Provision for income taxes 53,319
--------
Net income $ 82,961
========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 6
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Common Stock:
Balance at beginning of year $ --
Effect of merger transaction - issued
330,000,000 shares 3,300
---------------
Balance at end of year $ 3,300
===============
Additional Paid-in Capital:
Balance at beginning of year $ --
Effect of merger transaction (263,999)
---------------
Balance at end of year ($ 263,999)
===============
Foreign Currency Translation Adjustment:
Balance at beginning of year $ --
Effect of merger transaction (1,662)
Translation adjustment for the period
November 1, 1996 to December 31, 1996 (236)
---------------
Balance at end of year ($ 1,898)
===============
Former Parent Company's Investment and Advances:
Balance at beginning of year $ 384,997
Net income 84,559 *
Other activity, net ** (101,256)
Effect of merger transaction (630,661)
Transfer to Common Stock, Additional Paid-in
Capital, and Foreign Currency Translation
Adjustment on November 1, 1996 262,361
---------------
Balance at end of year $ --
===============
Accumulated Deficit:
Balance at beginning of year $ --
Net loss for the period November 1, 1996 to
December 31, 1996 (1,598)
---------------
Balance at end of year ($ 1,598)
===============
</TABLE>
* For the period January 1, 1996 to October 31, 1996
** Consists principally of advances, withdrawals, dividends, and foreign
currency translation adjustments.
See accompanying notes to consolidated financial statements.
3
<PAGE> 7
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income $ 82,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,019
Deferred income taxes (1,032)
Provision for restructuring and other charges 4,308
Changes in assets and liabilities:
Accounts receivable 1,253
Inventories 14,970
Other current assets (3,133)
Accounts payable (352)
Accrued liabilities 30,298
Other (2,342)
---------------
Net cash provided by operating activities 145,950
---------------
INVESTING ACTIVITIES:
Purchases of plant and equipment, net (11,905)
Purchase of business, net of cash acquired (29,136)
---------------
Net cash used in investing activities (41,041)
---------------
FINANCING ACTIVITIES:
Increase in due to banks 9,278
Dividends paid to American Home Products Corporation (1,539)
Redemption of common stock of AHFP and distribution
to American Home Products Corporation (1,209,000)
Change in former parent company's investment
and advances, net (99,121)
Issuance of long-term bank debt 670,000
Issuance of Senior Subordinated Notes, 400,000
Payment of debt issuance costs (30,649)
Retirement of Heritage long-term debt and accrued
interest (40,763)
Issuance of common stock, net of issuance costs 242,744
---------------
Net cash used in financing activities (59,050)
---------------
Effect of exchange rate changes on cash --
---------------
Increase in cash and cash equivalents 45,859
Cash and cash equivalents at beginning of year --
---------------
Cash and cash equivalents at end of year $ 45,859
===============
Cash paid during the year for:
Interest $ 5,568
Income taxes $ 827
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 8
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) 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 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 (see Note 8).
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 period January 1,
1996 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>
5
<PAGE> 9
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Background and Basis of Presentation (Continued)
Pro forma unaudited net income (loss) for the year ended December 31,
1996, assuming the Transaction had occurred at the beginning of 1996,
would have been $31,241. The unaudited pro forma income does 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.
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. The Company's canned pasta product line
accounted for approximately 40-50 percent of consolidated sales for
the year ended December 31, 1996.
6
<PAGE> 10
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination/Consolidation
For periods through October 31, 1996, the accompanying financial
statements included the operations of the following indirect
wholly-owned subsidiaries of AHP: American Home Food Products, Inc.
and its subsidiary M. Polaner, Inc., American Home Foods, Inc., Luck's
Incorporated, Canadian Home Products Limited, and certain related
assets owned by AHP and its subsidiaries. Effective November 1, 1996,
the consolidated operations of the Company include the aforementioned
entities and Heritage (see Note 1). All significant intercompany
balances and transactions have been eliminated in the combined and
consolidated financial statements. The accompanying combined and
consolidated financial statements are referred to herein as
"consolidated" financial statements.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months
or less are considered to be cash equivalents. The Company's cash and
cash equivalents at December 31, 1996 consist of cash in banks and
investments in the commercial paper of several companies.
Inventories
Inventories are valued at the lower of cost or market, determined on a
first-in, first-out basis, and consist of materials, labor, and
manufacturing overhead.
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Normal maintenance
and repairs are expensed. Additions and improvements to provide
necessary capacity, improve production efficiency, or modernize
facilities are capitalized. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related
assets, generally 40 years for buildings; 15 years for machinery and
equipment; and five to 20 years for furniture and fixtures.
Intangible and Other Assets
Goodwill represents the excess of cost over the fair value of net
assets acquired and is being amortized using the straight-line method
over periods of 20-40 years. Deferred financing costs relate to costs
incurred in connection with the agreements for bank and other
indebtedness. Such costs are being amortized over the terms of the
financings using the interest or straight-line method, as appropriate.
Amortization of deferred financing costs is included in interest
expense in the accompanying consolidated financial statements.
7
<PAGE> 11
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Intangible and Other Assets (Continued)
The Company periodically reviews goodwill to evaluate whether changes
have occurred that would suggest that goodwill may be impaired based
on the estimated cash flows of the entity acquired over the remaining
amortization period. If this review indicates that the goodwill is not
recoverable over its remaining useful life, the carrying amount of the
goodwill is reduced by the estimated shortfall of cash flows on a
discounted basis.
During 1995, Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", was issued. The Company's
adoption of this pronouncement in 1996 did not have a significant
effect on the consolidated financial statements.
Research and Development
Research and development costs are charged to expense as incurred and
amounted to $3,823 for the year ended December 31, 1996.
Advertising
Advertising costs are charged to expense as incurred and amounted to
$58,551 for the year ended December 31, 1996.
Former Parent Company's Investment and Advances
Former Parent Company's Investment and Advances includes the
stockholder's equity of the individual AHP subsidiaries as described
in Note 1. The equity of the individual subsidiaries represents the
original investment by AHP, plus accumulated earnings and advances,
less withdrawals and dividends, and foreign currency translation
adjustments. For periods prior to November 1, 1996, cash receipts were
transferred to AHP by daily cash sweeps, and AHP made funds available
for operating expenses.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiary,
Canadian Home Products Limited, are translated into United States
dollars at year-end exchange rates. Income, expense, and cash flow
amounts are translated using monthly average exchange rates.
Translation adjustments were accumulated in Former Parent Company's
Investment and Advances through October 31, 1996 and, effective
November 1, 1996, are accumulated as a separate component of
stockholders' deficiency. Transaction gains and losses are reflected
in other income (expense), net and have not been significant.
Financial Instruments
The cost of interest rate collars is amortized as interest expense
over the terms of the related agreements. Interest expense is adjusted,
if required, to reflect the interest rates included in these collar
agreements.
8
<PAGE> 12
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income Taxes
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.
Accordingly, the Company's financial statements for periods prior to
the Transaction do not reflect deferred tax assets or liabilities
since those amounts were being provided for by AHP. 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.
Effective November 1, 1996, the Company's operations are 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 has been 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 Notes
1 and 8) 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.
(3) INVENTORIES
Inventories as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
Raw materials $ 53,670
Work in progress 3,052
Finished goods 72,483
---------
Total $ 129,205
=========
</TABLE>
9
<PAGE> 13
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Land $ 4,589
Buildings and improvements 107,923
Machinery and equipment 185,867
Furniture and fixtures 19,917
----------
318,296
Accumulated depreciation and amortization 132,294
----------
$ 186,002
==========
</TABLE>
Depreciation expense aggregated $15,683 for the year ended December
31, 1996.
(5) INTANGIBLE AND OTHER ASSETS
Intangible assets as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Goodwill and tradenames $169,749
Accumulated amortization 15,811
--------
$153,938
========
</TABLE>
Amortization of goodwill and tradenames aggregated $2,675 for the year
ended December 31, 1996.
Other assets at December 31, 1996 include deferred financing fees
incurred in connection with the Company's issuance of long-term debt.
Such costs aggregated $32,149; the related accumulated amortization at
December 31, 1996 and amortization expense for the period November 1,
1996 (date of debt issuance) to December 31, 1996 was $661.
(6) ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS AND ALLOWANCES
The allowance for doubtful accounts and sales returns and allowances
and their related activity for the year ended December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Write-Offs and
Beginning Charged Reductions, Net of Ending
Balance to Expense Recoveries Balance
--------- ---------- ------------------ ---------
<S> <C> <C> <C> <C>
$4,064 $563 $296 $4,331
</TABLE>
10
<PAGE> 14
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(7) BUSINESS RESTRUCTURING AND OTHER CHARGES
In December 1996, a pretax charge was recorded for severance costs of
$3,240 and other charges (principally noncash) of $1,068.
The severance charge covers both voluntary and involuntary
terminations of approximately 125 employees, including management,
sales and marketing, technical, and administrative personnel. Employee
separations were substantially completed prior to December 31, 1996.
During 1996, cash payments of $437 were charged against the business
restructuring reserve. Management believes that the remaining reserves
for business restructuring of $2,871 at December 31, 1996 are adequate
to complete its plans. The remaining balance will result in future
cash payments over the next year.
(8) INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Period from Period from
November 1,1996 to January 1, 1996 to
December 31, 1996 October 31, 1996
------------------ ------------------
<S> <C> <C>
Current:
Federal $ -- $ 46,136
Foreign 41 1,228
State 2 6,944
--------------- ---------------
43 54,308
--------------- ---------------
Deferred:
Federal (802) --
Foreign (76) --
State (154) --
--------------- ---------------
(1,032) --
--------------- ---------------
($ 989) $ 54,308
=============== ===============
</TABLE>
For federal and state income tax purposes, the Transaction (see Note
1) 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 has been
made for income tax purposes and will be finalized during 1997. In
connection with the Transaction, the Company has 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.
11
<PAGE> 15
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(8) INCOME TAXES (Continued)
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
November 1, 1996 and December 31, 1996. 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.
As discussed in Note 2, 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 have been 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 components of deferred tax assets at December 31, 1996 and
November 1, 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 November 1, 1996
--------------- ---------------
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts $ 1,771 $ 2,196
Inventory reserves 2,850 14,813
Other accruals 6,950 2,557
--------------- ---------------
Net current deferred tax assets 11,571 19,566
Noncurrent deferred tax assets:
Property, plant, and equipment 15,607 15,668
Tradenames 187,689 189,909
Goodwill 137,813 139,874
Other 855 829
Net operating loss carryforwards 14,070 727
Valuation allowance (3,000) (3,000)
--------------- ---------------
Net noncurrent deferred tax assets 353,034 344,007
--------------- ---------------
Net deferred tax assets $ 364,605 $ 363,573
=============== ===============
</TABLE>
At December 31, 1996, the Company had a net operating loss for federal
and state income tax purposes of approximately $35,500 which expires
principally in 2011. The Company has established a $3,000 valuation
allowance related to certain deferred tax assets for state purposes
due to state limitations regarding the utilization of net operating
loss carryforwards.
12
<PAGE> 16
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(8) INCOME TAXES (Continued)
A reconciliation between the U. S. Federal statutory income tax rate
and the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Period from Period from
November 1, 1996 January 1, 1996
to December 31, 1996 to October 31, 1996
-------------------- --------------------
<S> <C> <C>
U. S. federal statutory
income tax rate 35% 35%
State income taxes, net of
federal benefit 4% 4%
Nondeductible amortization
of intangible assets - -
Other, net (1%) -
---- ----
Effective income tax rate 38% 39%
==== ====
</TABLE>
(9) LONG-TERM DEBT
Long-term debt at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Senior secured bank facilities:
Tranche A $ 300,000
Tranche B 200,000
Tranche C 170,000
------------
670,000
Senior Subordinated Notes 400,000
------------
1,070,000
Less: Current portion 26,000
------------
Long-term debt $ 1,044,000
============
</TABLE>
In connection with the purchase of an 80 percent interest in the
Company by an affiliate of HM from a subsidiary of AHP and the
acquisition of Heritage and related assumption of Heritage's debt (see
Note 1), the Company entered into a $770,000 Credit Agreement with
Chase Manhattan Bank, Bankers Trust Company, and Morgan Stanley Senior
Funding, Inc. and issued $400,000 of 10-3/8 percent Senior
Subordinated Notes ("Notes"). The Credit Agreement provides for term
loans ("Term Loans") in three tranches aggregating $670,000 and a
revolving credit loan facility ("Revolver") of $100,000. At December
31, 1996, there were no borrowings under the Revolver nor were any
letters of credit outstanding.
Tranche A of the Term Loans is a $300,000, 6-1/2-year facility;
Tranche B of the Term Loans is a $200,000, eight-year facility; and
Tranche C of the Term Loans is a $170,000, nine-year facility. Each
tranche requires semi-annual principal payments in increasing amounts,
and amounts paid under the Term Loans may not be reborrowed.
Borrowings under the Term Loans and the Revolver bear interest based
on either the London Interbank Offered Rate ("LIBOR"), or an Alternate
Base Rate, as defined, plus applicable margins which range from 0.5
percent to 3.5 percent. At December 31,
13
<PAGE> 17
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) LONG-TERM DEBT (Continued)
1996, the rates in effect on Tranches A, B, and C were 8.0 percent,
8.6 percent, and 9.1 percent, respectively. In accordance with the
Credit Agreement, in February 1997, the Company entered into interest
rate protection agreements to the extent necessary to provide that,
when combined with the Notes, at least 50 percent of the Company's
aggregate indebtedness is subject to either a fixed interest rate or
interest rate protection through December 1998. Included in the Term
Loans are certain Eurodollar loans which qualify as fixed interest
under the terms of the Credit Agreement. In order to comply with
required interest rate protection provisions, the Company also 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 percent and the floor set
at 5.25 percent. The agreement is with a financial institution having
a credit rating (Moody's/S&P) of Aa3/A+, which minimizes
non-performance risk.
Borrowings and letters of credit issued under the Revolver are
available to the Company until the earlier of March 31, 2003 or the
date on which the Tranche A Term Loans mature or are repaid in full.
The Company pays a commitment fee of 0.5 percent on the unused portion
of the Revolver.
The Company is required to make mandatory prepayments on the Term
Loans and credit commitments under the Revolver will be mandatorily
reduced based on (a) excess levels of cash flow, as defined; (b) all
of the net proceeds from certain asset or subsidiary dispositions; and
(c) the issuance of capital stock or the incurrence of certain
indebtedness. At the Company's option, loans may be prepaid and credit
commitments under the Revolver may be permanently reduced.
Obligations under the Credit Agreement are unconditionally and
irrevocably guaranteed by each of the Company's domestic subsidiaries.
In addition, such obligations are collateralized by first priority or
equivalent collateral interests in (a) all of the capital stock of, or
other equity interests in, each domestic subsidiary of the Company and
65 percent of the capital stock, or other equity interests in, each
foreign subsidiary of the Company and (b) all tangible and intangible
assets of the Company and its subsidiaries, subject to certain
exceptions and qualifications.
The Credit Agreement also contains a number of significant covenants
that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, repay other
indebtedness, pay dividends, make investments or acquisitions, engage
in mergers or consolidations, make capital expenditures, or engage in
certain transactions with affiliates, and otherwise restrict corporate
activities. In addition, under the Credit Agreement, effective
beginning March 31, 1997, the Company is required to comply with
specified minimum interest coverage, maximum leverage, and minimum
fixed charge coverage ratios, as defined.
14
<PAGE> 18
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) LONG-TERM DEBT (Continued)
The Notes are due on November 1, 2006 and require semi-annual interest
payments. The Notes may be redeemed prior to November 1, 2000 in up to
an aggregate principal amount of $160,000 with the proceeds of one or
more equity offerings, as defined, by the Company under certain
conditions at a redemption price of 110.375 percent. The Notes may
also be redeemed prior to November 1, 2001 at a redemption price of
100 percent upon the occurrence of a change in control, as defined.
Except as discussed above, the Notes are not redeemable prior to
November 1, 2001. The Notes will be redeemable, in whole or in part,
at the Company's option at redemption prices decreasing from 105.188
percent at November 1, 2001 to 100 percent on November 1, 2004 and
thereafter.
Each of the Company's subsidiaries (I.H.F.P., Inc., Luck's
Incorporated, Canadian Home Products Limited, M. Polaner, Inc., and
Heritage) fully and unconditionally guarantee the Notes, on a joint
and several basis.
The Notes contain certain restrictive covenants limiting, among other
things (a) the incurrence of additional indebtedness; (b) the
declaration or payment of dividends or other capital stock
distributions or redemptions; (c) the redemption of certain
subordinated obligations; (d) investments; (e) sales of assets; and
(f) consolidations, mergers, and transfers of all or substantially all
of the Company's assets.
The Company filed a registration statement on Form S-4 pursuant to the
Securities Act of 1933, which became effective on February 19, 1997,
to register the Notes. The Company has issued a Prospectus to offer to
exchange the unregistered Notes for registered Notes. The exchange
offer expired on March 27, 1997 and all of the Notes have been
exchanged.
The fair value of the Company's debt at December 31, 1996 approximates
its carrying value.
Future principal payments on the Company's long-term debt at December
31, 1996 are as follows:
<TABLE>
<S> <C> <C>
1997 $ 26,000
1998 31,000
1999 41,000
2000 51,000
2001 58,500
Thereafter 862,500
-------------
$ 1,070,000
=============
</TABLE>
15
<PAGE> 19
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(10) EMPLOYEE BENEFIT PLANS
The Company sponsors various retirement plans for substantially all of
its employees. The Company sponsors two insignificant defined benefit
pension plans for collectively-bargained employees of its Highspire
and Canadian operations. It is the Company's policy to contribute the
amounts necessary to meet the minimum funding requirements of defined
benefit plans under applicable laws. The aggregate accumulated benefit
obligation, projected benefit obligation, plan assets, and accrued
pension costs of the Highspire and Canadian plans were $153, $154,
$136, and $19, respectively, at December 31, 1996. Net periodic
pension cost for the Highspire and Canadian plans was insignificant
for the period presented. Assumptions used in accounting for these
plans included a weighted-average discount rate of 7.5 percent, an
expected long-term rate of return on plan assets of 7.5 percent, and a
rate of increase in compensation levels of 0-3.5 percent.
For the AHP defined benefit pension plans in which the Company
participated prior to the Transaction, the amounts charged to the
Company by AHP aggregated $3,188 for the period January 1, 1996 to
October 31, 1996.
Effective January 1, 1997, the Company established defined benefit
plans for its salaried and collectively-bargained employees. Benefits
earned under the plans will include service from November 1, 1996 to
December 31, 1996; prior service cost for the two-month period was
insignificant. Benefits under the plans will be based primarily on
compensation levels and years of service.
The Company provides certain health care and life insurance benefits
for most of its retired employees. Generally, employees become
eligible for benefits after attaining specified age and service
requirements. In connection with the Transaction, at November 1, 1996,
the Company has recorded its postretirement benefits obligation with a
corresponding charge to paid-in capital. The following table sets
forth the plan's funded status reconciled with amounts reported in the
Company's consolidated balance sheet:
<TABLE>
<CAPTION>
December 31, 1996 November 1, 1996
----------------- ----------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ - $ -
Fully eligible participants - -
Other active participants ( 16,855) (16,207)
-------- --------
Total benefits earned (16,855) (16,207)
Plan assets at fair value - -
-------- --------
Funded status (16,855) (16,207)
Unrecognized net loss 166 -
-------- --------
Accrued postretirement benefit obligation ($16,689) ($16,207)
======== ========
</TABLE>
16
<PAGE> 20
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(10) EMPLOYEE BENEFIT PLANS (Continued)
Net periodic postretirement benefit cost for the period from November
1, 1996 to December 31, 1996 consisted of the following components:
<TABLE>
<S> <C>
Service cost $245
Interest cost on postretirement benefit obligation 237
----
Net periodic postretirement benefit cost $482
====
</TABLE>
The discount rate used to measure the accumulated postretirement
benefit obligation as of November 1, 1996 and December 31, 1996 was
7.5 percent. The assumed health care cost trend rate used to measure
the expected cost of benefits was 8.5 percent for 1996 and is assumed
to trend downward to 6.0 percent for 2010 and thereafter. The health
care trend rate has a significant effect on the amounts reported. For
example, increasing the health care cost trend rate by one percentage
point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1996 by $3,686 and the service
cost and interest components of the net periodic postretirement
benefit cost for the period from November 1, 1996 to December 31, 1996
by $100. The postretirement health care costs relating to the
Company's participation in the AHP postretirement plan represented
charges for actual retiree benefit costs based on the ratio of the
Company's participants to total AHP participants and aggregated $3,239
for the period January 1, 1996 to October 31, 1996.
Effective November 1, 1996, the Company also sponsors a 401(k) defined
contribution plan for nonunion employees. Contributions for the period
November 1, 1996 to December 31, 1996 were insignificant. In periods
prior to November 1, 1996, the Company participated in certain defined
contribution plans sponsored by AHP. Expense recognized for these
plans aggregated $955 for the period from January 1, 1996 to October
31, 1996.
The Company also participates in union-sponsored multiemployer
pension, life insurance and health and welfare plans which provide
benefits to union employees located at the Company's facility in
Vacaville, CA. The Company's contributions to these plans were $2,993
for the year ended December 31, 1996.
(11) RELATED PARTY TRANSACTIONS
The consolidated statements of income for periods through October 31,
1996 included the costs 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
on an annualized basis approximated $2,500 through October 31, 1996.
Such charges are representative of costs which would have been
incurred by the Company on a stand alone basis.
17
<PAGE> 21
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(11) RELATED PARTY TRANSACTIONS (Continued)
AHP also charged the Company for its share of group insurance costs
(medical, dental, basic life, etc.) based on AHP's historical claims
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 $9,143 for the 10 months ended October 31, 1996.
The consolidated statements of income include rent for 35,000 square
feet of space in AHP's corporate headquarters. The rent expense
related to this space amounted to $946 for the year ended December 31,
1996. The Company vacated this space and relocated its corporate
headquarters at the end of 1996.
Various self-insurance coverages were provided to the Company through
AHP's consolidated programs through October 31, 1996. Auto, property,
product liability, and other insurance coverages provided by AHP were
allocated to the Company based on past claims history, exposure,
trends, and judgment. The charges, which are reflected in the
accompanying consolidated statement of income for the 10 months ended
October 31, 1996 amounted to $346.
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 year ended December 31, 1996 amounted to
$45,186.
Effective November 1, 1996, the Company entered into a transition
services agreement with AHP under which AHP, until six months after
November 1, 1996, provides to the Company, for a fee, certain
facilities and services. In addition, AHP agreed to assist the Company
for 90 days after November 1, 1996 with the administration of welfare
benefit plans for payment by the Company to AHP based on past
practices. Charges by AHP to the Company under these arrangements for
the period November 1, 1996 to December 31, 1996 were insignificant.
Effective November 1, 1996, the Company entered into a 10-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 1996, the Company incurred
financial advisory fees of $167 and paid transaction fees of $19,320
to such affiliate relating to the Transaction (see Note 1).
18
<PAGE> 22
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(11) RELATED PARTY TRANSACTIONS (Continued)
Included in prepaid expenses and other current assets at December 31,
1996 is a receivable of approximately $3,600 from AHP.
Following is an analysis of the activity in the Parent Company's
Investment and Advances account for the ten months ended October 31,
1996:
<TABLE>
<S> <C>
Beginning Balance:
Parent Company's Investment and Advances $ 384,997
Net Income 84,559
Distribution and other activity through Parent Company's (116,492)
Investment and Advances account
Changes in other assets & liabilities through the account:
Depreciation and amortization 15,093
Accounts receivable (6,585)
Inventories 10,903
Prepaid expenses and other current assets (820)
Other noncurrent assets 34
Accounts payable 1,334
Accrued salaries, wages and benefits 2,248
Accrued advertising and promotion (168)
Other accrued liabilities 672
Other (329)
Purchases of plant and equipment, net (7,146)
Ending Balance:
Parent Company's Investment and Advances $ 368,300
</TABLE>
(12) STOCK COMPENSATION PLANS
During 1996, certain employees of the Company were granted stock
options under the AHP stock option plans. These options had a ten-year
term and generally vested one year from date of grant. The AHP stock
options awarded to Company employees during 1996 or prior were
exercised, canceled, or settled in cash by January 31, 1997.
Effective November 1, 1996, the Company adopted the International Home
Foods, Inc. 1996 Stock Option Plan ("the IHF Plan") which provides for
the grant of stock options at fair value on the date of grant.
Generally, stock options have a ten-year term and vest immediately or
ratably over three years. Certain options have been granted with an
exercise price which increases by 8 percent per year until the
exercise date. The total number of shares of common stock authorized
for grant under the IHF Plan is 45,000,000.
19
<PAGE> 23
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) STOCK COMPENSATION PLANS (Continued)
The Company has adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation", but applies Accounting
Principles Board Opinion No. 25 and related interpretations in
accounting for its plans. No compensation expense was recognized for
1996. If the Company had elected to recognize compensation cost based
on the fair value of the options at the grant dates, consistent with
the method prescribed by SFAS No. 123, 1996 net income would have been
reduced to the pro forma amount indicated below:
<TABLE>
<S> <C> <C>
Net income As reported $82,961
Pro forma $81,735
</TABLE>
Note: The pro forma disclosure shown above is not representative of
the effects on net income in future years.
The fair value of the AHP stock options used to compute 1996 pro forma
net income is the estimated present value at grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<S> <C>
Expected volatility 15.0%
Expected term 4 years
Dividend yield 4.3%
Risk-free interest rate 6.4%
</TABLE>
IHF options granted on November 1, 1996 were valued using the minimum
value method permitted under SFAS No. 123 for companies which do not
have publicly traded equity securities and the following assumptions:
expected term of four years, zero percent dividend yield, and six
percent risk-free interest rate.
20
<PAGE> 24
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) STOCK COMPENSATION PLANS (Continued)
Presented below is a summary of the status of the AHP fixed stock
options held by the Company's employees, and IHF stock options, for
1996:
<TABLE>
<CAPTION>
Weighted
Shares Average Exercise
(000's) Price Per Share
------- ----------------
<S> <C> <C>
AHP options:
Outstanding at
beginning of year 1,471 $33.11
Granted 171 $52.99
Exercised 758 $32.64
Forfeited/Expired 12 $45.11
Settled 150 *
Outstanding at
end of year 722 $34.20
IHF indexed options:
Granted 25,750 $ 1.00
Forfeited** -- --
Outstanding at
December 31, 1996** 25,750 $ 1.01
IHF options exercisable
at end of year 18,750 $ 1.01
IHF non-indexed options:
Granted 9,330 $ 1.00
Forfeited -- --
Outstanding at
December 31, 1996 9,330 $ 1.00
IHF options exercisable
at end of year 210 $ 1.00
</TABLE>
*150 options were settled for $61.19 per option which represents
the stock's fair value at November 1, 1996.
**7,000 options were forfeited by an officer upon termination in
February 1997.
The weighted-average fair value of AHP stock options granted during
1996 is $7.21 per option. The weighted-average fair value of IHF
non-indexed options granted on November 1, 1996 is $.21 per option.
The IHF indexed options, which provide for an eight percent per annum
increase in exercise price, have no value under the minimum value
method.
As of December 31, 1996, the 35,080,000 stock options outstanding
under the IHF plan have exercise prices ranging from $1.00 to $1.01
and a weighted-average exercise price of $1.01. Such options have a
remaining contractual life of 10 years and 18,960,000 were exercisable
at December 31, 1996.
21
<PAGE> 25
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(13) 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 $2,113 for the year ended December 31,
1996.
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 December 31, 1996,
$10,155, 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.
The Company leases certain facilities and equipment under operating
leases. Rental expense, including rent related to the Company's lease
with AHP (see Note 11), aggregated $1,884 for the year ended December
31, 1996. Future minimum lease payments under noncancelable operating
leases at December 31, 1996 are as follows:
<TABLE>
<S> <C> <C>
1997 $ 1,956
1998 1,548
1999 1,306
2000 1,066
2001 and later years 6,451
---------
$ 12,327
=========
</TABLE>
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.
22
<PAGE> 26
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(14) 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>
December 31, 1996
-----------------
<S> <C>
Current Assets $ 91,835
Noncurrent Assets 254,729
Current Liabilities 46,354
Noncurrent Liabilities 248,052
</TABLE>
<TABLE>
<CAPTION>
For the year ended
December 31, 1996
------------------
<S> <C>
Net Sales $136,873
Gross Profit 58,382
Net Loss (1,054)
Net cash provided by operating activities 11,540
Net cash used in investing activities (11,457)
Net cash provided by financing activities 1,029
</TABLE>
Federal, state and foreign income taxes included in the above data
have been allocated based on estimated separate return amounts and the
preliminary allocation of the purchase price to the tax bases of
assets and liabilities discussed in Note 8.
(15) 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.
23
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of International Home
Foods, Inc.:
We have audited the accompanying consolidated balance sheet of
International Home Foods, Inc. and subsidiaries as of December 31,
1996 and the related consolidated statements of income, changes in
stockholders' deficiency, and cash flows for the year ended December
31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of International Home Foods, Inc. and subsidiaries as of December 31,
1996 and the consolidated results of their operations and their cash
flows for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
April 18, 1997 except as to Note 15,
which is as of May 2, 1997
24
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1* - - Agreement of Sale and Plan of Merger (the "Merger
Agreement") entered into among AHP subsidiary
Holding Corporation, American Home Food Products,
Inc., AHFP Holding Corporation and AHFP Acquisition
Corporation dated as of September 5, 1996+
2.2* - - First Amendment to Agreement of Sale and Plan of
Merger dated as of October 31, 1996+
3.1* - - Certificate of Incorporation; Certificate of
Amendment to Certificate of Incorporation of
International Home Foods, Inc. filed with the
Delaware Secretary of State on October 30, 1996
3.2* - - Bylaws of International Home Foods, Inc.
3.3* - - Certificate of Incorporation of American Home Foods,
Inc.
3.4* - - Bylaws of American Home Foods, Inc.
3.5* - - Certificate of Incorporation of Luck's, Incorporated
3.6* - - Bylaws of Luck's, Incorporated
3.7* - - Certificate of Incorporation of M. Polaner, Inc.
3.8* - - Bylaws of M. Polaner, Inc.
3.9* - - Certificate of Continuance of Canadian Home Products
Limited
3.10* - - By-Laws of Canadian Home Products Limited
3.11* - - Certificate of Incorporation of Heritage Brands
Holdings, Inc.
3.12* - - Bylaws of Heritage Brands Holdings, Inc.
3.13* - - Certificate of Incorporation of Heritage Brands,
Inc.
3.14* - - Bylaws of Heritage Brands, Inc.
3.15* - - Certificate of Incorporation of Campfire, Inc.
</TABLE>
1
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.16* - - Bylaws of Campfire, Inc.
4.1* - - Registration Rights Agreement made as of November 1,
1996 by and among International Home Foods, Inc.
(formerly American Home Food Products, Inc.), AHP
Subsidiary Holding Corporation and AHFP Holding
Corporation
4.2* - - Indenture dated as of November 1, 1996 between the
Company and United States Trust Company of New York
10.1* - - Traditional Services Agreement dated as of November
1, 1996 between American Home Products Corporation
and International Home Foods, Inc.
10.2* - - Financial Advisory Agreement dated as of November 1,
1996 by and between International Home Foods, Inc.
and Hicks, Muse & Company Partners, L.P. ("HMCo")
10.3* - - International Home Foods, Inc. 1996 Stock Option
Plan
10.4* - - Nonqualified Stock Option Agreement dated November
1, 1996 by and between International Home Foods,
Inc. and C. Dean Metropoulos
10.5* - - Nonqualified Stock Option Agreement dated November
1, 1996 by and between International Home Foods,
Inc. and Kenneth J. Martin
10.6* - - Nonqualified Stock Option Agreement dated November
12, 1996 by and between International Home Foods,
Inc. and M. L. Lowenkron
10.7* - - Nonqualified Stock Agreement dated November 12, 1996
by and between International Home Foods, Inc. and
Roger T. Staubach
10.8* - - Indemnification Agreement dated November 1, 1996
between International Home Foods, Inc. and C. Dean
Metropoulos, together with a schedule identifying
substantially identical documents and setting forth
the material details in which those documents differ
from the foregoing documents
10.9* - - Credit Agreement among International Home Foods,
Inc., as Borrower, the Several Lenders, Morgan
Stanley Senior Funding, Inc., as Document Agent,
Bankers Trust Company, as Syndication Agent, and The
Chase Manhattan Bank as Administrative Agent dated
as of November 1, 1996
10.10* - - Monitoring and Oversight Agreement dated as of
November 1, 1996 by and between International Home
Foods, Inc. and HMCo.
11.11* - - Nonqualified Stock Option Agreement dated January 3,
1997, by and between International Home Foods, Inc.
and L. Hollis Jones
12.1** - - Computation of Consolidation Ratio of Earnings to
Fixed Charges
16.1* - - Letter regarding change to certifying accountants
21.1* - - Subsidiaries of the Company
27.1** - - Financial Data Schedule
</TABLE>
- ------------
* Incorporated by reference to the Company's Registration Statement on
Form S-4
** Filed herewith
+ The Company will furnish upon request of the Commission
any omitted schedule.
2
<PAGE> 1
EXHIBIT 12.1 - COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the year ended
December 31, 1996
(000's)
------------------
<S> <C>
Income before provision for income taxes $ 136,280
Add (subtract):
Interest on term loans and notes 16,411
Amortization of debt costs 661
Portion of rents representative of interest 628
----------
Income as adjusted $ 153,980
Fixed Charges:
Interest on term loans and notes $ 16,411
Amortization of debt costs 661
Portion of rents representative of interest 628
----------
Total fixed charges $ 17,700
Ratio of Consolidated Earnings to Fixed Charges 8.70
==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 46
<SECURITIES> 0
<RECEIVABLES> 53
<ALLOWANCES> 4
<INVENTORY> 129
<CURRENT-ASSETS> 244
<PP&E> 318
<DEPRECIATION> 132
<TOTAL-ASSETS> 968
<CURRENT-LIABILITIES> 162
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> (267)
<TOTAL-LIABILITY-AND-EQUITY> 968
<SALES> 943
<TOTAL-REVENUES> 0
<CGS> 445
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 136
<INCOME-TAX> 53
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
