<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 March 31, 1998
OR
[ ] TRANSITION REPORT PURUSANT 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: (973) 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 March 31, 1998 was 77,330,852.
1
<PAGE> 2
INTERNATIONAL HOME FOODS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income 3
Three Months Ended March 31, 1998 and 1997
Condensed Consolidated Balance Sheets 4
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 1998 and 1997
Condensed Consolidated Statements of 6
Comprehensive Income
Three Months Ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 17
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit 12. Computation of Consolidated Ratio of 24
Earnings to Fixed Charges
Exhibit 27. Financial Data Schedule 25
</TABLE>
2
<PAGE> 3
INTERNATIONAL HOME FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 388,451 $ 244,550
Cost of sales 201,762 115,659
----------- -----------
Gross profit 186,689 128,891
Marketing expenses 81,014 52,775
Selling, general, and administrative expenses 51,441 38,669
----------- -----------
Income from operations 54,234 37,447
Interest expense 22,087 25,907
Interest income and other, net 600 752
----------- -----------
Income before provision for income taxes 32,747 12,292
Provision for income taxes 12,934 4,746
----------- -----------
Net income $ 19,813 $ 7,546
=========== ===========
Basic earnings per share (1):
Net income $ 0.26 $ 0.12
----------- -----------
Shares used in computing basic earnings per share 77,226,185 61,922,990
----------- -----------
Diluted earnings per share (1):
Net income $ 0.24 $ 0.12
----------- -----------
Shares used in computing diluted earnings per share 81,078,048 61,922,990
----------- -----------
</TABLE>
(1) Per share and share amounts are restated to give effect to the 5.3292 for
one reverse stock split on November 17, 1997.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
INTERNATIONAL HOME FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 19,842 $ 11,872
Accounts receivable, net of allowances 113,470 108,132
Inventories 218,488 220,565
Prepaid expenses and other current assets 23,309 16,661
Deferred income taxes 21,102 21,102
----------- -----------
Total current assets 396,211 378,332
Property, plant and equipment, net 220,715 210,195
Intangible assets, net 324,410 308,846
Deferred income taxes 335,698 343,016
Other assets 14,959 14,911
----------- -----------
Total assets $ 1,291,993 $ 1,255,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Due to banks $ 13,290 $ 12,228
Current portion of long-term debt 33,900 27,400
Revolving credit facility 50,000 40,000
Accounts payable 48,267 38,871
Accrued salaries, wages and benefits 15,447 16,591
Accrued advertising and promotion 54,586 50,308
Accrued interest 18,103 7,844
Other accrued liabilities 31,712 36,954
----------- -----------
Total current liabilities 265,305 230,196
Long-term debt 922,400 942,600
Postretirement benefits obligation 20,272 19,545
Other noncurrent liabilities, primarily accrued royalties 1,952 2,079
----------- -----------
Total liabilities 1,209,929 1,194,420
----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY (1)
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,
300,000,000 shares; issued and outstanding
77,330,852 and 77,155,550 shares 773 772
Additional paid-in capital 54,165 52,202
Retained earnings 31,097 11,284
Accumulated other comprehensive income (loss) (3,971) (3,378)
----------- -----------
Total stockholders' equity 82,064 60,880
----------- -----------
Total liabilities and stockholders' equity $ 1,291,993 $ 1,255,300
=========== ===========
</TABLE>
(1) Per share and share amounts are restated to give effect to the 5.3292 for
one reverse stock split on November 17, 1997.
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
INTERNATIONAL HOME FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 19,813 $ 7,546
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 8,363 6,865
Deferred income taxes 7,688 4,215
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (5,338) 3,343
Inventories 3,992 11,821
Other current assets (6,648) 4,119
Accounts payable 9,396 87
Accrued liabilities 8,151 21,260
Other 4,578 (10,168)
-------- --------
Net cash provided by operating activities 49,995 49,088
-------- --------
INVESTING ACTIVITIES:
Purchases of plant and equipment, net (5,984) (4,930)
Purchase of businesses, net of cash acquired (34,463) --
-------- --------
Net cash used in investing activities (40,447) (4,930)
-------- --------
FINANCING ACTIVITIES:
Increase (Decrease) in due to banks 1,062 (5,362)
Repayment of long-term debt (13,700) (13,000)
Borrowings from revolving credit facility 35,000 --
Repayment of borrowings from revolving credit facility (25,000) --
Payment to minority stockholder -- (16,556)
Proceeds from exercise of stock options 1,967 --
-------- --------
Net cash used in financing activities (671) (34,918)
-------- --------
Effect of exchange rate changes on cash (907) (3)
Increase in cash and cash equivalents 7,970 9,237
Cash and cash equivalents at beginning of period 11,872 45,859
-------- --------
Cash and cash equivalents at end of period $ 19,842 $ 55,096
======== ========
Cash paid during the period for:
Interest 11,466 10,369
Income taxes 3,395 625
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
INTERNATIONAL HOME FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Net income $ 19,813 $ 7,546
Other comprehensive income, net of tax:
Foreign currency translation (593) (135)
-------- --------
Total other comprehensive income (loss) (593) (135)
-------- --------
Comprehensive income $ 19,220 $ 7,411
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
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 March 31, 1998
and the results of operations and cash flows for the three months ended
March 31, 1998 and 1997. The results of operations for the three month
period are not necessarily indicative of the results to be expected for
the full year. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1997
Annual Report on Form 10-K.
Accumulated Other Comprehensive Income (Loss)
In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income", which required the Company to reclassify, for
financial reporting purposes only, certain amounts shown below which
were previously included as a separate component of stockholders'
equity, and are now reported as Accumulated other comprehensive income
(loss) on the Condensed Consolidated Balance Sheets. Pursuant to SFAS
130, the following amounts are included in Accumulated other
comprehensive income (loss) at March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Foreign currency translation $(3,971) $(3,378)
------- -------
Accumulated other comprehensive
income (loss) $(3,971) $(3,378)
======= =======
</TABLE>
7
<PAGE> 8
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Accumulated Other Comprehensive Income (Loss) Continued
The changes in other comprehensive income (loss), and the related tax
effects, are as follows:
<TABLE>
<CAPTION>
Amount
Amount Income Tax Net of
Before Taxes Benefit Taxes
------------ ---------- --------
<S> <C> <C> <C>
For the three months ended
March 31, 1998
Foreign currency translation $(963) $ 370 $(593)
----- ----- -----
Total other comprehensive
income (loss) $(963) $ 370 $(593)
===== ===== =====
For the three months ended
March 31, 1997
Foreign currency translation $(135) $ -- $(135)
----- ----- -----
Total other comprehensive
income (loss) $(135) $ -- $(135)
===== ===== =====
</TABLE>
2. DESCRIPTION OF BUSINESS, MERGER, AND ACQUISITION
Background and Basis of Presentation
The Company was previously an indirect wholly-owned subsidiary of
American Home Products Corporation ("American Home Products"). On
September 5, 1996, American Home Products entered into an agreement
pursuant to which an affiliate ("Hicks Muse Holding") of Hicks, Muse,
Tate & Furst Equity Fund III, L.P. ("Hicks Muse") acquired (the "IHF
Acquisition") an 80% interest in the Company. The IHF Acquisition was
consummated on November 1, 1996.
In connection with the IHF Acquisition, the Company received equity
financing of $264,000 from Hicks Muse Holding and incurred indebtedness
of approximately $1,070,000. These aggregate proceeds were used, in
part, to (i) effect a $264,000 distribution to American Home Products,
(ii) redeem shares of the Company's common stock held by American Home
Products for approximately $962,000, and (iii) pay fees and expenses
incurred in connection with the IHF Acquisition. Immediately following
consummation of the IHF Acquisition, including the redemption effected
in connection therewith, Hicks Muse Holding and American Home Products
beneficially owned 80% and 20%, respectively, of the Company's
outstanding shares of common stock. In connection with the Company's
initial public offering of common stock consummated in November 1997,
both of these ownership percentages have decreased.
8
<PAGE> 9
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Background and Basis of Presentation (Continued)
The IHF Acquisition was accounted for as a leveraged recapitalization.
Accordingly, the Company's assets and liabilities retained their
historical bases for financial reporting purposes. For tax purposes,
the IHF Acquisition was treated as a taxable business combination
resulting in a "step-up" in the tax bases of the Company's assets and
liabilities.
Immediately after the IHF Acquisition and effective November 1, 1996,
the Company acquired Heritage Brands Holdings, Inc. and subsidiaries
("Heritage") from an affiliate of Hicks Muse for approximately $70,800,
including the assumption of approximately $40,800 of debt which was
repaid immediately following consummation of the acquisition, 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 which are being amortized
over 20 years.
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.
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, Canada and Mexico, and is not dependent on any single or
major group of customers for its sales.
3. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of: March 31, December 31,
1998 1997
----------- -------------
<S> <C> <C>
Raw materials $ 52,664 $ 46,127
Work in progress 16,314 20,770
Finished goods 149,510 153,668
-------- --------
Total $218,488 $220,565
======== ========
</TABLE>
9
<PAGE> 10
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4. INCOME TAXES
For federal and state income tax purposes, the IHF Acquisition (Note 2)
is a taxable business combination and is a qualified stock purchase.
The buyer and seller have elected jointly to treat the IHF Acquisition
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. During 1997, finalization of the purchase price
allocation resulted in an increase of $2,220 in additional paid-in
capital. In connection with the IHF Acquisition, the Company recorded a
deferred tax asset 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 sufficient to realize the recorded deferred tax assets.
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 intends to permanently reinvest the undistributed earnings
of the Canadian operations; accordingly, deferred income taxes, which
would not be significant, have not been provided for the repatriation
of such undistributed earnings.
5. COMMITMENTS AND CONTINGENCIES
The Company has ongoing royalty arrangements with several parties,
primarily representing licensing agreements for its wet spices business
and for the use of characters in the Company's canned pasta business.
The accompanying condensed consolidated statements of income include
royalty costs which amounted to $107 and $528 for the three months
ended March 31, 1998 and 1997, respectively.
In 1995, the water treatment plant in Mayaguez, Puerto Rico that is 30%
owned by the Company entered into a consent decree pursuant to which it
agreed to implement remedial capital improvements to improve its
waste-water discharge. The Company will be responsible for 30% of the
costs of these improvements, which are not expected to be material to
the Company.
10
<PAGE> 11
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Commitments and Contingencies (Continued)
Based upon its experience to date, the Company believes that the future
cost of compliance with existing environmental laws, including the
Comprehensive Environmental Response, Compensation and Liability Act,
commonly known as Superfund, regulations and decrees and liability for
known environmental claims, will not have a material adverse effect on
the Company's financial statements as a whole. However, future events,
such as changes in existing laws and regulations or their
interpretation, and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures or liabilities that
could be material.
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. Although the
outcome of any legal proceeding cannot be predicted with certainty,
management believes that any liability arising from, or the resolution
of any 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.
6. RELATED PARTY TRANSACTIONS
Effective November 1, 1996, the Company entered into a 10-year
monitoring and oversight agreement with an affiliate of its majority
stockholder. The agreement provides for an annual fee of the greater of
$1,000 or 0.1% of the budgeted consolidated net sales of the Company
for the current year. In addition, effective November 1, 1996, the
Company entered into a financial advisory agreement with the affiliate
under which the affiliate will be entitled to a fee of 1.5% of the
transaction value, as defined, for each add-on transaction, as defined.
The Company incurred monitoring and oversight fees of $400 and $250 and
financial advisory fees of $744 and $0 for the three months ended March
31, 1998 and 1997, respectively.
11
<PAGE> 12
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 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 Senior Subordinated Notes. Presented below is summarized
combined financial information of the subsidiary guarantors:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- ------------------
(unaudited)
<S> <C> <C>
Current assets $270,796 $262,531
Noncurrent assets 444,942 426,396
Current liabilities 93,865 80,108
Noncurrent liabilities 277,753 269,591
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
(unaudited)
<S> <C> <C>
Net sales $ 176,415 $ 37,363
Gross profit 62,226 15,632
Net income 5,666 71
Net cash provided by 18,616 15,085
operating activities
Net cash used in (3,924) (1,837)
investing activities
Net cash used in (12,950) (12,326)
financing activities
</TABLE>
8. IMPACT OF RECENT ACCOUNTING STANDARDS
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. The Company is currently
evaluating the reporting requirements of this statement and the impact
on its existing segment reporting.
12
<PAGE> 13
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Impact of Recent Accounting Standards (Continued)
In February 1998, SFAS 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits", was issued to standardize employers'
disclosures about pension and other postretirement benefit plans. This
Statement is effective for fiscal years beginning after December 15,
1997. The Company is currently evaluating the impact of adoption of
this Statement on its financial statements, and anticipates compliance
in 1998.
On March 4, 1998 Statement of Position (SOP) No. 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use",
was issued. The SOP was issued to address diversity in practice
regarding whether and under what conditions the costs of internal-use
software should be capitalized. SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. The Company is
currently evaluating the impact of adoption of this SOP on its
financial statements, and anticipates compliance in 1999.
9. ACQUISITIONS
Effectively 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
(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, the Company and its wholly-owned subsidiary,
Bumble Bee Acquisition Corporation. The aggregate consideration paid
for the Assets was approximately $163,000 in cash and the assumption of
certain liabilities of the Sellers, including trade payables and
certain accrued liabilities. The Assets consist primarily of inventory,
accounts receivable, property, plant and equipment and trademarks
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 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 financed the purchase of the
Assets with approximately $110,000 borrowings under its Senior Bank
Facilities and the balance of the purchase price from the Company's
available cash balances as of the date of the closing.
On October 1, 1997, the Company acquired Productos Del Monte (PDM) from
an affiliate of Hicks Muse for 3,127,415 shares of Common Stock. The
shares issued for PDM were valued at their estimated fair value of
approximately $40,000, which approximated the purchase price that the
Hicks Muse affiliate paid for PDM in 1996. PDM is a leading
manufacturer and marketer of branded catsup, canned vegetables and
bottled salsa in Mexico. The acquisition of PDM was treated as a
combination of
13
<PAGE> 14
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Acquisitions (Continued)
entities under common control. Accordingly, the historical accounting
values of PDM were carried over for financial accounting purposes. In
February 1998, the Company received $5,000 in settlement of a dispute
between the Hicks Muse affiliate and PDM's former owners. The
settlement has been recorded as a reduction of the purchase price paid
by the Hicks Muse affiliate.
On October 1, 1997, the Company acquired all of the stock of Creative
Products, Inc. of Rossville ("Creative Products") for approximately
$52,000 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. On November 21, 1997 the Company
acquired substantially all of the assets of Orleans Seafood, Inc. for
$26,900, including transaction fees. Orleans is a specialty canned
seafood manufacturer and marketer. The acquisitions were funded through
borrowings under the Company's Senior Bank Facilities.
On March 9, 1998, the Company, through its Canadian subsidiary,
International Home Foods (Canada), Inc., purchased certain assets
relating to the Puritan stews and canned meats business from Unilever's
T. J. Lipton Canada division for a total purchase price of
approximately $35.2 million ($CN 50.8 million). The Company entered
into a Canadian dollar forward contract on January 26, 1998 to hedge
the purchase of the Puritan acquisition. The gain on the transaction
(approximately $600) was recorded as a reduction of the cost of the
acquisition. The acquisition was funded with borrowings under the
Company's revolving credit facility. Puritan is the largest processor
and marketer of canned stews and meats in Canada, with products
marketed under the Puritan and Fraser Farms brand names.
The excess of cost over fair value of net assets acquired for the above
acquisitions will be amortized over 40 years. The information below
includes non-cash investing and financing activities supplemental to
the consolidated statements of cash flows.
14
<PAGE> 15
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Acquisitions (Continued)
These acquisitions have been accounted for using the purchase method of
accounting, and the operating results of the acquired companies have been
included in the consolidated financial statements from the dates of acquisition.
A summary of the excess of cost over fair value of net assets acquired resulting
from preliminary purchase price allocations for the acquisitions is as follows:
<TABLE>
<CAPTION>
Bumble Bee Productos Creative Orleans
Seafoods, Inc. Del Monte Products, Inc. Seafoods, Inc. Puritan
<S> <C> <C> <C> <C> <C>
Cost of acquisition, including
transaction fees $163,058 $40,000 (1) $ 51,924 $ 26,920 $ 35,207
Less: acquired assets:
Current assets 94,129 24,903 12,858 12,866 3,586
Property, plant and equipment 18,986 4,210 4,133 215 6,473
Intangible assets including
tradenames 20,941 21,077 -- 810 --
Other assets 2,718 -- 18 -- --
Add: Liabilities assumed 36,169 10,190 4,253 557 --
-------- -------- -------- -------- --------
Excess of cost over net assets
acquired $ 62,453 $ (1) $39,168 $ 13,586 $ 25,148
======== ======== ======== ======== ========
</TABLE>
(1) Productos Del Monte was acquired from an entity under common control and
accordingly, the historical values were carried over for financial
accounting purposes.
The following unaudited proforma consolidated results of operations have been
prepared as if the acquisitions of Bumble Bee and the Other Acquisitions (PDM,
Creative Products and Orleans Seafood) had occurred as of the beginning of 1997:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1997
-----------------------------------------
Other
Bumble Bee Acquisitions Total
-----------------------------------------
<S> <C> <C> <C>
Net sales $ 334,610 $ 27,725 $ 362,335
Net income $ 3,564 $ 1,528 $ 5,092
Earnings per share:
Basic $ 0.06 $ 0.02 $ 0.08
Diluted $ 0.06 $ 0.02 $ 0.08
</TABLE>
The proforma consolidated results do not purport to be indicative of results
that would have occurred had the acquisitions been in effect for the period
presented, nor do they purport to be indicative of the results that will be
obtained in the future. The acquisition of Puritan was not significant, and
accordingly proforma financial information has not been provided.
15
<PAGE> 16
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
10. EARNINGS PER SHARE
Basic Earnings Per Share ("EPS") is based upon the weighted average
number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if options to issue
common stock are assumed to be exercised or converted into common
stock.
The EPS computations are based on the following amounts:
<TABLE>
<CAPTION>
For the
Three Months Ended
March 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Basic EPS computation:
Net income available to common shares $ 19,813 $ 7,546
Average number of shares outstanding 77,226,185 61,922,990
Basic earnings per share $ 0.26 $ 0.12
Diluted EPS computation:
Net income available to common shares $ 19,813 $ 7,546
Average number of shares outstanding 77,226,185 61,922,990
Effect of dilutive stock options 3,851,863 --
----------- -----------
Total number of shares outstanding 81,078,048 61,922,990
Diluted earnings per share $ 0.24 $ 0.12
</TABLE>
11. SUBSEQUENT EVENTS
On April 14, 1998 the Company completed the acquisition of Grist Mill
Co. The total value of the transaction is approximately $105 million.
The Company financed the acquisition with borrowings under its existing
revolving credit facility. Grist Mill is a manufacturer and distributor
of store brand and value-priced branded food products including
ready-to-eat cereals, fruit snacks, granola bars, fruit-filled cereal
bars, crisp rice marshmallow bars and preformed pie crusts. For the
fiscal year ended May 31, 1997, Grist Mill reported net income of $2.8
million on sales of $108.5 million. For the nine-month period ended
February 28, 1998, Grist Mill reported net income of $4.0 million on
sales of $79.9 million.
16
<PAGE> 17
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS - Three Months Ended March 31, 1998 and 1997.
NET SALES - The Company's net sales were $388.5 million for the three months
ended March 31, 1998 as compared to $244.6 million in the comparable 1997
quarter, an increase of $143.9 million, or 58.8%. Approximately $111.2 million,
$14.1 million, $13.5 million, $5.4 million and $1.4 million of the increase was
related to Bumble Bee Seafood, Creative Products, Productos Del Monte, Orleans
Seafood and Puritan sales, respectively, which were not reflected in the 1997
amounts, offset by $1.7 million of lower sales of the Company's existing brands,
due primarily to the timing of product and promotional program initiatives
scheduled for launch in the spring and fall of 1998.
COST OF GOODS SOLD - Cost of goods sold was $201.8 million for the three months
ended March 31, 1998 as compared to $115.7 million in the comparable 1997
quarter. Expressed as a percentage of net sales, cost of goods sold increased to
51.9% from 47.3% in 1997. This was primarily attributable to the inclusion of
the 1997 acquisitions as compared to the Company's historical margins. Excluding
the 1997 acquisitions, cost of sales declined to 42.6% of net sales from 47.3%
of net sales in 1997. This decline in cost of goods sold as a percentage of net
sales primarily resulted from the continuing overall reductions in the Company's
manufacturing costs, which reflect management's continuing cost reduction
initiatives.
TOTAL MARKETING EXPENSES - Total marketing expenses increased to $81.0 million
for the three months ended March 31, 1998 as compared to $52.8 million in 1997.
Expressed as a percentage of net sales, total marketing expenses decreased to
20.9% from 21.6% from the comparable 1997 period. The increase of $28.2 million
was attributable to the inclusion of the newly acquired Companies in 1997,
primarily Bumble Bee Seafood ($22.2 million), Productos Del Monte ($2.3
million), Orleans Seafood ($0.5 million) and Creative Products ($0.3 million) as
well as higher media expenditures in 1998 for existing brands ($7.0 million,
primarily Canned Pasta, Chef Jr., Dennisons, Pam and Polaner), offset by lower
consumer and other marketing expenses ($4.1 million).
TOTAL OTHER OPERATING EXPENSES - Other operating expenses were $51.4 million for
the three months ended March 31, 1998 as compared to $38.7 million in 1997.
Total other operating expenses as a percentage of net sales declined to 13.2% in
the three months ended March 31, 1998 from 15.8% in the comparable 1997 quarter,
primarily reflecting management's cost reduction initiatives.
INTEREST EXPENSE - Interest expense for the three months ended March 31, 1998
was $22.1 million as compared to $25.9 million for the comparable 1997 period.
The decrease in interest expense reflects a lower outstanding debt balance
during the quarter ended March 31, 1998 as compared to the comparable 1997
quarter as well as a lower weighted average interest rate for the period.
17
<PAGE> 18
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
PROVISION FOR INCOME TAXES - Income taxes increased to $12.9 million for the
three months ended March 31, 1998 from $4.7 million in 1997 due to higher income
before taxes. The effective tax rate increased to 39.5% in 1998 from 38.6% in
1997 due to the impact of non-deductible goodwill and foreign taxes relating to
acquisitions that were not reflected in the 1997 amounts. The Company
anticipates sufficient future income to realize deferred tax assets recorded at
March 31, 1998. In the event management determines that sufficient future
taxable income may not be generated to fully realize the deferred tax assets,
the Company will provide a valuation allowance by a charge to income tax expense
in the period of such determination.
NET INCOME - For the three month period ended March 31, 1998, net income
increased by $12.3 million over the comparable 1997 period, primarily reflecting
the factors discussed above.
Basic earnings per share were $0.26 and $0.12 for the three months ended March
31, 1998 and 1997, respectively, and diluted earnings per share were $0.24 and
$0.12 for the three months ended March 31, 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - Net cash provided by operating activities for the three months
ended March 31, 1998 was $50.0 million, or $0.9 million higher than the
comparable 1997 period due to higher net income ($12.3 million), additional
depreciation and amortization ($1.5 million) and deferred income taxes ($3.5
million), offset by changes in assets and liabilities ($16.4 million).
The Company through its Canadian subsidiary, International Home Foods (Canada),
Inc., purchased substantially all of the assets relating to the Puritan stews
and canned meats business from Unilever's T. J. Lipton Canada division for
approximately $34.5 million, and invested $6.0 million in capital expenditures
in the three month period ended March 31, 1998, an increase of $1.1 million over
the comparable 1997 period.
Cash used in financing activities was $0.7 million for the three month period
ended March 31, 1998, compared to $34.9 million in the comparable 1997 period.
The Company borrowed $35.0 million to fund the Puritan acquisition and repaid
$25.0 million and $13.7 million under the terms of its Revolving Credit Facility
and its Senior Bank Facilities, respectively.
Management believes that cash generated from operations and borrowings under the
Senior Bank Facilities will be sufficient to satisfy working capital
requirements and required capital expenditures. Further expansion of the
business through acquisitions may require the Company to incur additional
indebtedness or issue equity securities. There can be no assurance that
additional debt or equity will be available to the Company, or if available,
will be on terms acceptable to the Company.
18
<PAGE> 19
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
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 Senior Bank Facilities, the Company is required to enter
into interest rate protection agreements to the extent necessary to provide
that, when combined with the Company's Senior Subordinated Notes, at least 50%
of the Company's aggregate indebtedness is subject to either fixed interest rate
or interest rate protection through December 1998. Accordingly, 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 $135,000 with the cap set at 8% and the floor set at 5.25%.
IMPACT OF RECENT ACCOUNTING STANDARDS
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 adopted the provisions of this statement in
the first quarter of 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. Historically, the
Company reported one business segment which manufactures and markets a
diversified portfolio of shelf-stable food products. The Company is currently
evaluating the reporting requirements of SFAS 131 and the impact on its existing
segment reporting.
In February 1998, SFAS 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", was issued to standardize employers' disclosures about
pension and other postretirement benefit plans. This Statement is effective for
fiscal years beginning after December 15, 1997. The Company is currently
evaluating the impact of adoption of this Statement on its financial statements,
and anticipates compliance in 1998.
On March 4, 1998 Statement of Position (SOP) No. 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use", was issued. The
SOP was issued to address diversity in practice regarding whether and under what
conditions the costs of internal-use software should be capitalized. SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
The Company is currently evaluating the impact of adoption of this SOP on its
financial statements, and anticipates compliance in 1999.
19
<PAGE> 20
INTERNATIONAL HOME FOODS, INC.
Item 2
Management's Discussion And Analysis of
Financial Condition and Results of Operations
SUBSEQUENT EVENT
On April 14, 1998 the Company completed the acquisition of Grist Mill Co. The
Company financed the acquisition with borrowings under its existing revolving
credit facility. Grist Mill is a manufacturer and distributor of store brand and
value-priced branded food products including ready-to-eat cereals, fruit snacks,
granola bars, fruit-filled cereal bars, crisp rice marshmallow bars and
preformed pie crusts. For the fiscal year ended May 31, 1997, Grist Mill
reported net income of $2.8 million on sales of $108.5 million. For the
nine-month period ended February 28, 1998, Grist Mill reported net income of
$4.0 million on sales of $79.9 million.
20
<PAGE> 21
INTERNATIONAL HOME FOODS, INC.
PART II
ITEM 6 EXHIBITS AND REPORT ON FORM 8-K
-------------------------------
(a) Exhibits:
(12) Statements showing computation of ratio of earnings to
fixed charges based on SEC Regulation S-K, Item 503.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
Dated March 16, 1998, under Item 5 (Other Events) and Item 7
(Financial Statements and Exhibits).
21
<PAGE> 22
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
International Home Foods, Inc.
(Registrant)
Date: May 15, 1998 /S/ C. DEAN METROPOULOS
------------------------------------
C. Dean Metropoulos
Chairman of the Board and
Chief Executive Officer
Date: May 15, 1998 /S/ N. MICHAEL DION
-------------------------------------
N. Michael Dion
Senior Vice President and
Chief Financial Officer
22
<PAGE> 23
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------ -------
12 Computation of Consolidated Ratio of Earnings to
Fixed Charges
27 Financial Data Schedule
<PAGE> 1
INTERNATIONAL HOME FOODS, INC.
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
EXHIBIT 12 COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Income before provision for income taxes $32,747 $12,292
Add (subtract):
Interest on term loans and notes 21,732 24,747
Amortization of debt cost 355 1,160
Portion of rents representative of interest 558 163
------- -------
Income as adjusted $55,392 $38,362
Fixed Charges
Interest on term loans and notes $21,732 $24,747
Amortization of debt costs 355 1,160
Portion of rents representative of interest 558 163
------- -------
Total fixed charges $22,645 $26,070
Consolidated Ratio of Earnings to Fixed Charges 2.45 1.47
======= =======
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 120
<ALLOWANCES> (7)
<INVENTORY> 218
<CURRENT-ASSETS> 396
<PP&E> 378
<DEPRECIATION> (157)
<TOTAL-ASSETS> 1,292
<CURRENT-LIABILITIES> 265
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 81
<TOTAL-LIABILITY-AND-EQUITY> 1,292
<SALES> 388
<TOTAL-REVENUES> 388
<CGS> 202
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 33
<INCOME-TAX> 13
<INCOME-CONTINUING> 20
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.24
</TABLE>
