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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
For The Fiscal Year Ended December 31, 1999 Commission File Number: 001-13537
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 identification number)
incorporation or organization)
100 NORTHFIELD STREET
GREENWICH, C.T. 06830
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (203-622-6010)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange where registered
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Common Stock par value
$0.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) 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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to its Form 10-K [ ].
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
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Aggregate market value
Outstanding at held by non-affiliates at
Class February 29, 2000 February 29, 2000
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Common stock, par value $0.01 73,959,286 $698,308,481
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's Annual Report to Stockholders for the year
ended December 31, 1999 are incorporated into Part II.
2. Portions of the registrant's Proxy Statement to be furnished in
connection with the 2000 Annual Meeting of Stockholders are
incorporated into Part III.
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TABLE OF CONTENTS
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PART I Page Number
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Item 1. Business 1
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder 21
Matters
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial Condition and 21
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on Accounting and 21
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners and Management 22
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
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PART I
ITEM 1. BUSINESS
THE COMPANY
The Company is a leading North American manufacturer and marketer of a
diversified, well-established portfolio of shelf-stable food products with
popular brand names. Prior to November 1, 1996, the Company was an indirect
wholly-owned subsidiary of American Home Products Corporation. Effective on
November 1, 1996, an affiliate of Hicks, Muse, Tate & Furst ("Hicks Muse")
acquired 80% of the Company's outstanding capital stock from American Home
Products for approximately $1,225.6 million in cash in a transaction treated as
a recapitalization for financial accounting purposes. Also effective on November
1, 1996, the Company acquired all of the outstanding capital stock of Heritage
Brands Holdings, Inc. from an affiliate of Hicks Muse for approximately $70.8
million in cash in a transaction treated as a purchase for financial accounting
purposes. Heritage manufactures and markets the Company's Campfire marshmallows.
In connection with these transactions, the Company incurred approximately
$1,070.0 million of indebtedness, consisting of $670.0 million of borrowings
under the Company's Senior Bank Facilities and the issuance of $400.0 million of
Senior Subordinated Notes due 2006 ("Senior Subordinated Notes").
On July 1, 1997, the Company consummated the acquisition of substantially
all of the assets of Bumble Bee Seafoods for approximately $163.1 million in
cash, including transaction fees and expenses, and the assumption of certain
liabilities, including trade payables and certain accrued liabilities, including
accrued pension cost. Bumble Bee(R) is one of the leading brands of premium
canned seafood in the U.S. and the leading brand of canned white meat tuna and
canned salmon in the U.S. The assets acquired consisted primarily of inventory,
accounts receivable, property, plant and equipment and trademarks used by Bumble
Bee Seafoods for the processing and marketing of the Company's Bumble Bee canned
seafood products. Prior to this transaction, Bumble Bee Seafoods was highly
leveraged and had capital constraints which limited its ability to source raw
materials and most effectively market its products. To facilitate the Company's
purchase of the Bumble Bee Business free and clear of existing liens, Bumble Bee
Seafoods filed for bankruptcy. In connection with the transaction, the Company
increased its borrowings under the Senior Bank Facilities by $110.0 million. The
remainder of the purchase price was provided from the Company's available cash
on hand.
On October 1, 1997, the Company acquired Productos Del Monte S.A. de C.V.
("PDM") from an affiliate of Hicks Muse for 3,127,415 shares of common stock.
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 entities under common control. Accordingly, the historical accounting values
of PDM were carried over for financial accounting purposes. In February 1998, a
dispute between the Hicks Muse affiliate and PDM's former owners was settled.
The settlement was received by the Company and resulted in a reduction of
goodwill recorded by the Company.
On October 1, 1997, the Company acquired Creative Products, Inc. for
approximately $52.0 million in cash. The Company funded the acquisition through
borrowings under the Senior Bank Facilities and available cash on hand. Creative
Products is the leading manufacturer of cooking spray sold to private label
customers and foodservice operators. In addition, Creative Products manufactures
on a contract basis a number of health and beauty aid products, including hair
mousses, hair sprays and deodorants. The acquisition of Creative Products was
treated as a purchase for financial accounting purposes.
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THE COMPANY (Continued)
In November 1997, the Company completed an initial public offering of its
common stock for proceeds of approximately $224.9 million, net of issuance
costs.
On November 21, 1997, the Company acquired substantially all of the assets
of Orleans Seafood, Inc. ("Orleans") for $26.9 million, including transaction
fees. Orleans(R) is a specialty canned seafood manufacturer and marketer. The
acquisition was funded through borrowings under the Senior Bank Facilities and
available cash on hand, and was treated as a purchase for financial accounting
purposes.
On March 9, 1998, the Company, through its Canadian subsidiary, purchased
certain assets relating to the Puritan(R) stews and canned meats business from
Unilever's T. J. Lipton Canada division for a total purchase price of
approximately $41.0 million, including transaction fees. The acquisition was
funded with borrowings under the Senior Bank Facilities and available cash on
hand. Puritan is the largest processor and marketer of canned stews and meats in
Canada, with products marketed under the Puritan and Fraser Farms(R) brand
names.
On April 14, 1998, the Company acquired all of the stock of Grist Mill Co.
("Grist Mill") for approximately $112.8 million, including transaction fees. The
Company financed the acquisition with borrowings under the Senior Bank
Facilities and available cash on hand. Grist Mill(R) 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.
On September 8, 1998, the Company, through its subsidiary Trenton Home
Foods, Inc. acquired the Libby's(R) brand of retail and international canned
meat products, the Spreadables(R) and Broadcast(R) brands, and the Trenton,
Missouri manufacturing facility for those products ("Libby's"), from Nestle USA,
Inc. for approximately $129.0 million, including transaction fees. Through a
fifteen year license agreement with Nestle, the Company will continue to use the
Libby's trademark. In addition, the Company entered into a long-term supply
agreement with Nestle through December 31, 2002, with three additional one-year
terms at the option of Nestle, under which the Company will continue to
manufacture Nestle foodservice products at the facility in Trenton, Missouri.
This supply agreement provides that the Company is reimbursed for the variable
cost per case, as defined, for all product which has been produced and packaged
by the Company and shipped on behalf of Nestle, plus an amount paid quarterly
which approximates the Company's fixed costs for such period. The Company
financed the acquisition of the Libby's canned meat business with borrowings
under the Senior Bank Facilities and available cash on hand. Libby's is a
leading domestic manufacturer, importer and global marketer of canned meat
products, including Vienna sausages, corned beef, salmon, hash and chili.
On January 19, 1999, the Company, through its subsidiary Bumble Bee
Seafoods, acquired the Clover Leaf(R) and Paramount(R) canned seafood brands and
business of British Columbia Packers from George Weston, Ltd. of Canada for
approximately $40.4 million, including transaction fees. Clover Leaf is the
number one brand of tuna and salmon in Canada. The Company funded the
acquisition through borrowings under the Senior Bank Facilities and available
cash on hand.
On February 5, 1999, the Company sold its Polaner(R) fruit spread and spices
business to B&G Foods, Inc. for approximately $30.0 million in cash.
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THE COMPANY (Continued)
On July 19, 1999, the Company, through its subsidiary Bumble Bee Seafoods,
acquired the manufacturing, sales distribution and marketing operations of Louis
Kemp from Tyson Foods, Inc. for $68.8 million, including transaction fees. The
Company financed this acquisition with borrowings under the Senior Bank
Facilities and available cash on hand. Louis Kemp(R) is the leading branded
specialty seafoods product in the fast-growing refrigerated sector. Specialty
seafoods products are made from North Pacific ocean pollock and whiting fish
meats. These products are primarily sold under the tradename Louis Kemp and
other tradenames such as Captain Jac(R), Seafest(R) and Pacific Mate(R).
The excess of cost over fair value of net assets acquired for the above
acquisitions will be amortized over 15 to 40 years. These acquisitions have been
accounted for using the purchase method of accounting, with the exception of
PDM, and the operating results have been included in the consolidated financial
statements from the dates of acquisition.
BUSINESS STRATEGY
The Company's business strategy is to increase sales and profits by:
Leveraging the Company's Leading Brands. The Company intends to expand its
product offerings by leveraging its existing portfolio of leading brands. The
Company's management believes that:
o Chef Boyardee(R), Bumble Bee, Louis Kemp and Libby's brands can serve as
strong platforms to expand and extend the Company's product lines into
other quick-meal products;
o Ro*Tel(R)can be utilized to develop a broader southwestern cuisine
business; and
o Crunch 'n Munch(R), Campfire(R) and Jiffy pop(R) can be the cornerstone
of a diversified snack foods business.
In addition, the Company has formulated a number of new products in its
existing product lines to capitalize on the growing trends toward convenient
foods. As a part of its business strategy, the Company has introduced several
new products under its existing brand names including:
o Chef Boyardee Overstuffed Ravioli, 99% fat-free ravioli and a line of
Homestyle pastas which include Ravioli Primavera, Cannelloni and
Rigatoni;
o a line of Bumble Bee specialty shellfish products;
o Libby's canned Beef Stew, and an expanded line of Libby's luncheon and
canned meats;
o PAM(R)lemon and garlic flavored cooking spray;
o a line of Luck's(R) baked beans and fat-free beans, Ranch Style(R) baked
beans and refried beans;
o Gulden's(R) honey mustard;
o Crunch 'n Munch Toffee Pretzels; and
o Ro*Tel Pico de Gallo salsas.
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BUSINESS STRATEGY, (Continued)
Refocusing Marketing Efforts. To enhance the Company's established brand
names, management has refocused its marketing and packaging efforts.
Specifically, the Company has:
o redirected its marketing efforts to more effectively address the
Company's target audiences, increase usage of its products and support
new product introductions;
o introduced a performance-based trade promotion structure for the
non-seafood categories;
o increased consumer awareness and promotional activity through
partnerships with the World Wrestling Federation(R) and Joe Gibbs
Racing(TM) Stock Car Program; and
o updated packaging and improved product quality.
Since 1996, the Company has refocused its marketing efforts for many of its
principal brands by emphasizing consumer advertising and performance-based trade
promotions. The Company has introduced several new television advertising
campaigns, such as those promoting Chef Boyardee as an ideal "fourth meal" to be
served after school and PAM cooking spray as a flavor enhancer and a healthy
alternative to cooking oils, butter and margarine. In addition, the Company has
begun television and radio advertising for Ro*Tel canned tomatoes and Pico de
Gallo salsas. The Company has also redesigned the packaging of a majority of its
products to emphasize the brand name, contemporize the presentation and make the
products visually more appealing to consumers.
Expanding into Foodservice and Private Label. The Company believes that the
foodservice and private label businesses offer significant growth
opportunities. The Company believes that it can further develop these businesses
by utilizing its established sales and distribution capabilities. As part of
this strategy, the Company acquired Creative Products, the leading manufacturer
of cooking spray sold to private label and foodservice customers in the U.S.,
and Grist Mill, a leading manufacturer of private label cereal and fruit snack
products. Through these acquisitions, the Company has significantly expanded its
private label product offerings. In addition, the Company believes that Grist
Mill's manufacturing facility can be used to produce other cereal bar products
and can serve as a foundation to consolidate other private label producers of
similar products.
Expanding Internationally. The Company believes that attractive
opportunities exist to expand its sales in international markets with growing
economies and attractive demographics. In October 1997, the Company acquired
PDM, a leading producer and distributor of branded catsup, canned vegetables and
bottled salsa in Mexico. The Company has successfully begun to leverage the
infrastructure of PDM as a platform to expand its Ranch Style and PAM product
lines in Mexico. In March 1998, the Company acquired Puritan, the largest
processor and marketer of canned stews and meatballs in Canada; and in January
1999, the Company acquired the Clover Leaf and Paramount brands. Clover Leaf is
the number one brand of tuna and salmon in Canada. Paramount is a leading tuna
brand in Australia. The acquisition also gave the Company a presence in the
private label business in the United Kingdom.
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BUSINESS STRATEGY, (Continued)
Completing Strategic Acquisitions. The Company will continue to pursue
opportunities to make acquisitions that complement and expand its core
businesses or that enable it to enter new markets. The Company believes that its
strong cash flow from operations and its relatively low capital expenditure
requirements will provide financial resources necessary to fund this growth
strategy. Since the Company's leveraged recapitalization, it has more
aggressively pursued acquisitions and has completed the following acquisitions
at attractive prices:
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BUSINESS ACQUIRED DATE OF ACQUISITION ACQUISITION PRICE
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(IN MILLIONS)
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Bumble Bee Seafoods July 1997 $163.1
Creative Products October 1997 52.0
Productos Del Monte October 1997 40.0
Orleans Seafood November 1997 26.9
Puritan March 1998 41.0
Grist Mill April 1998 112.8
Libby's September 1998 129.0
Clover Leaf/Paramount January 1999 40.4
Louis Kemp July 1999 68.8
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The Company's infrastructure and management expertise have allowed it to
integrate these acquisitions in a timely and cost-effective manner. These
acquisitions were acquired for a total purchase price of $674.0 million.
Continuing to Achieve Cost Savings. In each year since 1997, the Company has
achieved annualized net cost savings in excess of $20 million from both its core
business operations and the operations of businesses acquired through:
o reducing overhead and duplicative administrative, sales and other
personnel;
o streamlining production, distribution, research and administrative
functions; and
o savings in purchasing and brokerage expense.
PRODUCTS AND MARKETS
The Company has three reportable business segments - Branded Products,
Seafood, and Private Label and Foodservice. Branded Products is defined as U.S.
grocery sales for the following brands: Chef Boyardee, Libby's and Dennison's
canned meats, Southwest brands (Luck's, Ro*Tel, and Ranch Style Brands),
Specialty brands (PAM, Gulden's, Maypo(R), Wheatena(R), Maltex(R), and G.
Washington's(R)) and Snack brands (Crunch 'n Munch, Jiffy pop and Campfire).
Seafood includes all sales for the Bumble Bee, Orleans, Libby's, Clover Leaf,
Paramount and Louis Kemp brands of seafood products, as well as private label
and foodservice seafood sales. Private Label and Foodservice includes all
private label canned pasta, cooking spray, fruit snacks, ready-to-eat cereals,
wholesome snack bars, pie crust and personal care products and the sales to
foodservice distributors. The All Other category is comprised of sales of
Polaner products, sales to the military, contract sales to Nestle and
international sales, which includes branded, private label and foodservice sales
in Canada, Mexico and Puerto Rico and other export sales.
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PRODUCTS AND MARKETS, (Continued)
The Company sells the products in each of its segments primarily to grocery
wholesalers and distributors, grocery stores and supermarkets, convenience
stores, drug and mass merchants and warehouse clubs.
Additional financial information about the Company's business segments is
incorporated by reference from Note 9 of the Notes to Consolidated Financial
Statements on pages 39 and 40 of the 1999 Annual Report.
References to market, category, segment sales, market share percentages and
market positions reflect grocery sales dollars for the 52-week period ended
January 15, 2000, as gathered by A.C. Nielsen for United States markets, and the
52-week period ended January 29, 2000 for Canada.
BRANDED PRODUCTS
CHEF BOYARDEE. The Chef Boyardee product line consists of canned pasta,
microwave pasta, pizza kits, dry dinners and spaghetti sauces. Management
believes that Chef Boyardee products appeal to families with children because
they are generally convenient, nutritionally sound and inexpensive relative to
other quick meal and snacking alternatives.
The Company separates the canned pasta category into two categories: "All
Family" and "Kids." The "All Family" category represents canned pasta products
primarily consumed by children. The "Kids" category represents canned pasta
products typically in the shapes of popular cartoon and comic book characters
that are primarily consumed by children age six and under. The Company's "All
Family" canned pasta line consists primarily of Beef Ravioli, Overstuffed
Ravioli and Mini-Ravioli, in both regular and 99% fat-free product offerings,
the Homestyle line, which consists of Ravioli Primavera, Cannelloni and
Rigatoni, as well as Spaghetti & Meatballs and Beefaroni, and accounts for
approximately 90% of its branded canned pasta sales. The Company's "Kids" canned
pasta line includes shapes such as ABCs and 123s, dinosaurs, adventures of the
sea, micro-ravioli, flying saucers and aliens and licensed characters such as
Spiderman. The Kids line accounts for approximately 10% of its branded canned
pasta sales.
As the table below indicates, Chef Boyardee is the leading brand in the
canned pasta category with a 58% market share, followed by the Campbell Soup
Company's Franco American brand at 31%. The remaining 11% is primarily private
label.
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CHEF FRANCO
SEGMENT SIZE BOYARDEE AMERICAN OTHER
(IN MILLIONS)
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"All Family" $366 79% 9% 12%
"Kids" 196 19% 73% 8%
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Total Canned Pasta $562 58% 31% 11%
===
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As indicated in the table above, Chef Boyardee holds a strong position in
its core "All Family" category while Franco American products have the number
one position in the "Kids" category. Management believes that its "All Family"
products compete primarily within the broader category of prepared or quick
meals.
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BRANDED PRODUCTS, (Continued)
The Company intends to continue to build Chef Boyardee's brand equity
through new product introduction, targeted advertising spending and increased
distribution that aggressively promote the Chef Boyardee brand name. In
addition, the Company believes that sales of Chef Boyardee products will
continue to be enhanced by (i) targeting advertising campaigns toward moms and
children ages 9 to 13, the older segment of the brand's traditional consumer
base, (ii) encouraging greater use of Chef Boyardee products, particularly as an
after school snack and (iii) age extending the category through the introduction
of differentiated new products that appeal to older children and adults.
SPECIALTY BRANDS. The Company's Specialty brands include PAM cooking spray,
Gulden's mustard, Maypo, Wheatena and Maltex hot cereals, and G. Washington's
dry seasonings and broths.
PAM. The Company's PAM products include Original, Butter, Olive Oil, Lemon
and Garlic non-stick cooking sprays. The Company's advertising and marketing
strategy for PAM emphasizes use of the product as a flavor enhancer and as an
all-natural cooking spray for healthy, low-fat cooking. As a result of PAM's
image and performance, the brand enjoys a loyal customer base.
In grocery outlets, the non-stick cooking spray category has grown at a
compound annual rate of approximately 9% from 1993 to 1999. The Company believes
that this rapid sales growth has been driven by a trend toward healthier eating
and cooking. Several well-known chefs and numerous cookbook and magazine recipes
have advocated cooking sprays in lieu of fattier oils and spreads. PAM is the
market leader in the $190.2 million non-stick cooking spray category with 52% of
the market, while CPC International, Inc.'s Mazola, Procter & Gamble's Crisco
and Unilever's Shedd's have market shares of 13%, 3% and 1%, respectively.
Private label accounts for most of the remaining market share with approximately
23%, of which Creative Products produces the majority.
The Company intends to capitalize on PAM's premium image and the trend
toward healthier eating by identifying and promoting new usage occasions through
advertising campaigns and on-package and in-store recipe suggestions. In 1998,
the Company introduced two new flavors, garlic and lemon, which, combined,
currently have approximately a 5% market share, and a barbecue grill spray that
is formulated to withstand higher heat.
Gulden's. Gulden's mustard is the leader in the brown mustard segment with a
42% market share, followed by French's brown mustard with a 22% market share.
Brown mustard is a $45.0 million segment of the $297.6 million mustard category.
The brown mustard grocery segment grew at a compound annual rate of 7% between
1993 and 1999. The Company continued to build its presence within the category
with the introduction of Gulden's zesty honey mustard which will extend to new
markets in 2000. Gulden's will also be the official mustard of Major League
Baseball in 2000.
Other Brands. A number of smaller brands complete the Company's specialty
brands portfolio, including Maypo and Wheatena hot cereals and G. Washington's
dry seasonings and broths.
SNACK BRANDS. In the snack food category, the Company's brands include
Crunch 'n Munch glazed popcorn and pretzels, Campfire marshmallows and Jiffy pop
unpopped popcorn.
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SNACK BRANDS, (Continued)
Crunch 'n Munch. Crunch 'n Munch, a combination of popcorn and fresh dry
roasted peanuts coated with a butter toffee glaze, is offered in four flavors
consisting of Buttery Toffee, Caramel, Almond Supreme and Fat-Free Buttery
Toffee. Crunch 'n Munch is positioned as a snack to satisfy the salty and sweet
cravings of consumers. The Company is offering new snack pack sizes that can be
found in convenience stores, at the checkout line and on shelves of grocery
stores to address the impulse buying conscience of the consumer. Moreover,
management believes that the brand can achieve significantly higher levels of
sales through expansion of its direct-store-delivery system and its new product
introductions.
Glazed snacks is a $130.4 million category. Crunch 'n Munch has a 31.0%
market share, followed by Cracker Jack at 30.6%. No other competitor accounts
for more than 10% of the market.
Campfire. The Campfire brand name enjoys broad consumer recognition, as it
is the oldest brand name in the marshmallow category. Campfire marshmallow is
the second leading brand in the $120.1 million grocery marshmallow market with a
10% market share. The Jet Puffed brand is the market leader with a 46% market
share, with private label accounting for the balance of the market.
CANNED MEATS. Canned meats includes the Libby's product line and Dennison's
chili. Similar to the Company's other canned product lines, the Company believes
that canned meat products appeal to consumers because they are convenient to
prepare and provide nutritional benefits at an affordable price.
Libby's. Libby's is a leading domestic manufacturer, importer and global
marketer of canned meat products. Libby's canned product line includes vienna
sausage, corned beef, hash, potted meat, sandwich spreads, roast beef and
sausage and gravy. Libby's is the leader in the $44.3 million corned beef
segment with a 35% market share followed by Hormel at 17%, and is second in the
$126.3 million Vienna sausage segment with a 24% market share.
The Company has recently improved the product quality and packaging graphics
across most of the existing line. The canned meat category was approximately
$1.2 billion in 1999 and is comprised of several segments. The segments in which
Libby's competes represent less than 25% of the canned meat category. In the
fourth quarter, the Company launched several new entries into those segments
where they did not previously compete. These entries include three
reformulations, chili with and without beans and sloppy joe sauce, and six new
entries which include ham, turkey and chicken chunk meats, ham spreads, beef
stew and luncheon meat.
Dennison's. The product line consists of various varieties of chili,
including Chili con Carne with and without beans, Hot Chili and Chunky Chili.
Over the last few years, the Company has also introduced Fat-Free Beef Chili,
Turkey Chili, Chicken Chili and Vegetarian Chili, all designed to appeal to the
health conscious California consumer. Dennison's has traditionally been marketed
in the West, where it has a 25% share of the region's $86.2 million chili
market.
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SOUTHWEST BRANDS. The Company offers products in the growing southwestern
cuisine market on a national basis with tomato-based items and on a regional
basis with beans and chili. Canned beans and chili were $1,031.3 million and
$320.6 million categories in 1999, respectively, with the Western and Southern
regions representing approximately 74% of total U.S. chili volume. Diced and
chopped tomatoes was a $219.1 million category in 1999, within the $510.2
million canned tomato category.
Ranch Style. The Ranch Style product line consists of pork 'n beans, baked
beans, refried beans, ingredient beans, chili and beef-stew. The brand is
marketed primarily in the southwestern U.S. where it leads the region with a 29%
share of the canned bean category, followed by Bush's Best, which is second in
the category at a 16% share. With ingredients that are low in fat and high in
protein, Ranch Style products are positioned to satisfy the growing trend toward
healthy eating. The Company expanded the line offering by introducing two new
baked bean items and a line of refried beans. Ranch Style has had a presence in
Mexico for over five years and management believes that sales of the brand can
be further expanded in this market.
Luck's. Luck's is the leader in the $76.0 million miscellaneous bean market
in the Southeast with a 32% market share. The Luck's product line, which
primarily includes bean products known for their traditional southern-style
flavor, also includes four flavors of baked beans under the Luck's brand.
Ro*Tel. The Company's Ro*Tel brand, which consists of flavored diced
tomatoes such as, with green chilies, Mexican and Italian, has a 19% market
share and is second to Del Monte who lead the category with a 24% market share.
The brand is known as a zesty, robust and flavorful tomato ingredient used
primarily in combination with processed cheese as a dip for tortilla chips. The
Company's marketing strategy for Ro*Tel has primarily consisted of print
advertising campaigns and on-package recipes which feature Ro*Tel as the secret
ingredient that can be used to enhance traditional dishes.
Since 1996, the Company has introduced four product extensions to its Ro*Tel
line, "mild," "extra hot," Mexican Fiesta and Italian Harvest. In 1999, the
Company introduced Ro*Tel Pico de Gallo salsas into several markets in the
Southwest, and in 2000, the Company plans to launch nationally all diced tomato
flavors and expand the salsa distribution. The Company anticipates that these
product extensions will be supported by radio, television and billboard
advertising as well as coupons and in-store promotions.
SEAFOOD
The Company's portfolio of seafood products includes all grocery, private
label and foodservice sales for the Bumble Bee, Orleans, Libby's, Clover Leaf
and Paramount brands of canned seafood and Louis Kemp specialty seafoods
products.
Bumble Bee. Bumble Bee is one of the leading brands of premium canned
seafood products in the U.S. The Bumble Bee product line consists principally of
canned white meat tuna, canned light meat tuna and canned salmon. Bumble Bee
holds number one shares of the canned white meat tuna market and the canned
salmon market and is the third leading brand in the canned light meat tuna
market. Similar to the Company's Chef Boyardee product line, the Company
believes that Bumble Bee products appeal to consumers because they are
convenient to prepare and more nutritious relative to other quick meal and
snacking alternatives.
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SEAFOOD, (Continued)
The canned tuna market in the U.S. is approximately $1.2 billion and is
generally segmented into two main categories, white meat, $488 million, and
light meat, $634 million. White meat tuna is processed from albacore tuna and
has a superior quality image and premium price compared to light meat tuna
(which is processed from skipjack and yellowfin tuna), due to its milder flavor,
lighter color and firmer texture. The Company's canned white meat tuna product
has significantly higher gross margins than its light meat tuna products.
As the table below indicates, Bumble Bee is the market leader in the white
meat canned tuna segment with a 37% market share, followed by H.J. Heinz
Company's Starkist brand and the Chicken of the Sea brand. In the light meat
canned tuna segment, Bumble Bee is the third leading brand with a 16% market
share behind segment leader Starkist and Chicken of the Sea. Private label
represents 6% and 14% of the canned white meat market and canned light meat tuna
market, respectively. In addition to Bumble Bee's leading market positions in
canned tuna, Bumble Bee is also the market leader in canned salmon with a 19%
market share. In 1998, the Company acquired the Libby's brand of canned salmon.
<TABLE>
<CAPTION>
MARKET SHARE
------------------------------------------------------
CHICKEN
SEGMENT SIZE BUMBLE BEE STARKIST OF THE SEA OTHER
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Canned White Meat Tuna $488 37% 34% 16% 13%
Canned Light Meat Tuna $634 16% 50% 17% 17%
</TABLE>
Orleans. In November 1997, the Company expanded its seafood segment with the
acquisition of Orleans Seafood, the leading marketer of canned shrimp and canned
crabmeat in the U.S. Orleans markets its products primarily under the Bumble
Bee, Orleans and Harris brand names and has a 38% share of the domestic canned
shrimp market and a 28% share of the domestic canned crabmeat market. Orleans'
product line also includes canned mackerel, sardines, kippers, oysters and
clams.
Clover Leaf and Paramount Brands. In January 1999, the Company further
expanded its seafood segment internationally with the acquisition of the Clover
Leaf and Paramount brand names. Clover Leaf is the number one brand of tuna and
salmon in Canada. The business also has a strong international presence
primarily in the United Kingdom through private label sales to supermarket
chains and in Australia under the Paramount label.
Louis Kemp. In July 1999, the Company expanded the seafood segment into the
fast-growing refrigerated and frozen categories through the acquisition of Louis
Kemp surimi seafood products. Surimi-based products are made from 100% North
Pacific ocean pollock and white fish meats. The blended fish meats are further
processed by adding desired flavors, forming different shapes and pre-cooking
the final product. Louis Kemp is the number one surimi seafoods brand with a 55%
market share. This has allowed the Company to build upon its seafood strategy of
growing beyond the can.
In 1999, the Company also entered into an agreement with Norway Foods to
distribute King Oscar(R), the leading brand of brisling sardines and anchovies
in the United States.
The Company's Branded Products and Seafood segments is complemented by its
growing Private Label and Foodservice segment, and a strong presence in Canada,
Mexico and Puerto Rico and sales to the U.S. Military.
10
<PAGE> 13
PRIVATE LABEL AND FOODSERVICE
Private Label. The primary products that the Company manufactures under
private labels are prepared pasta, cooking spray, canned meats, marshmallows,
ready-to-eat cereals, cereal bars and fruit snacks. Private label continues to
represent an additional opportunity for growth. The Company believes the
additional product offerings resulting from the acquisitions of Creative
Products, Grist Mill and Libby's combined with its position as the leading
supplier of private label canned pasta allows the Company to offer retailers a
strategic solution to category management, including single-source supply and
consolidated logistics. The Company also introduced several new items under
private labels including higher-end products like granola and fruit snacks,
energy bars, canned meats and athlete-endorsed cereals.
Foodservice. The Company supplies many of its products to restaurants,
institutions, schools, ballparks, the vending trade, distributors and chain
accounts. In addition, the Company has implemented a number of initiatives to
expand the penetration of its branded products in the foodservice industry,
including broadening its product lines to meet the specialized needs of the
foodservice industry and increasing its marketing and sales efforts.
ALL OTHER
Canada. The Company manufactures and markets Chef Boyardee canned pasta, PAM
cooking spray, Crunch 'n Munch glazed popcorn, Puritan stews and canned meats
and certain other products in Canada. The Company commands the number one market
share position in canned pasta and cooking spray sales in Canada, with its Chef
Boyardee and PAM brands, respectively. In March 1998, the Company acquired
Puritan. Puritan is the leading brand in the canned and bottled stews category
with a 64% market share.
Mexico and Puerto Rico. Through its subsidiary, PDM, the Company is a
leading manufacturer and marketer of branded catsup, canned vegetables and
bottled salsa in Mexico. The Company intends to expand sales of its U.S.
products in Mexico, initially targeting PAM and Ranch Style, and plans to use
PDM's sales and distribution capabilities to achieve this strategy. In 1999, the
Company introduced PAM cooking spray into Mexico. PDM also manufactures the
Ro*Tel Pico de Gallo salsa line for export into the United States. In addition,
the Company markets Chef Boyardee canned pasta, Crunch 'n Munch glazed popcorn
and Jiffy pop in Puerto Rico.
Military. The Company sells its products to U.S. military bases both in the
U.S. and internationally.
INDUSTRY
The U.S. food industry is characterized by relatively stable growth based on
modest price and population increases. Over the last ten years, the industry has
experienced consolidation as competitors have shed non-core business lines and
made strategic acquisitions to complement category positions, maximize economies
of scale in raw material sourcing and production and expand retail distribution.
The importance of sustaining strong relationships with retailers has become a
critical success factor for food companies and is driving many initiatives such
as category management and continuous replenishment programs. Food companies
with category leadership positions and strong retail relationships have
increasingly benefited from these initiatives as a way to maintain shelf space
and maximize distribution efficiencies.
11
<PAGE> 14
MARKETING AND SALES
The Company's marketing programs consist of advertising, consumer promotions
and trade promotions. The Company's advertising program is comprised of
television, newspaper and magazine advertising aimed at increasing consumer
awareness of the Company's brands and building customer loyalty. Consumer
promotions include targeted coupons and on-package offers designed to generate
trial usage and increase purchase frequency. The Company's trade promotions
focus on obtaining retail display support, achieving key price points and
securing retail shelf space. The Company intends to continue to focus marketing
efforts towards building brand equity through consumer advertising, trial
generating activities and performance-based retail promotion programs rather
than discounting.
The Company sells its products in the U.S. through a direct sales force and
a network of food brokers. The Company maintains U.S. regional sales offices in
New Jersey, North Carolina, Georgia, Illinois, Texas, California, Arkansas, Ohio
and Florida. The Company's products reach all major classes of trade, including
grocery wholesalers and distributors, grocery stores and supermarkets,
convenience stores, drug and mass merchants and warehouse clubs.
RAW MATERIALS
The primary raw materials used in the Company's operations include metal
food cans, aerosol cans, flour, meat, tomatoes, tuna, pollock, salmon, tomato
paste, oils and shortenings, sweeteners, corrugated materials, corn, grains,
beans and peanuts. All of the Company's raw materials are widely available from
numerous suppliers, other than white albacore tuna and salmon processed by the
seafood business, for which there is limited worldwide supply and a limited
number of suppliers.
TRADEMARKS
The Company owns a number of registered trademarks, including Chef Boyardee,
Bumble Bee, Louis Kemp, PAM, Franklin Crunch 'n Munch, Spreadables, Gulden's,
Campfire, Ranch Style, Luck's, Dennison's, Ro*Tel, Jiffy pop, Puritan, Fraser
Farms, Grist Mill, Orleans, Clover Leaf, Paramount, Seafest, Captain Jac,
Pacific Mate, Harris, Broadcast, Wheatena, Maypo, Maltex and G. Washington's.
Libby's canned meats are registered trademarks licensed to the Company for 15
years commencing at the acquisition date. Management is not aware of any fact
that would have a materially adverse impact on the continuing use of these
trademarks.
COMPETITION
The food products business is highly competitive. Numerous brands and
products compete for shelf space and sales, with competition based primarily on
brand recognition and loyalty, price, quality and convenience. The Company
competes with a significant number of companies of varying sizes, including
divisions or subsidiaries of larger companies. A number of these competitors
have broader product lines as well as substantially greater financial and other
resources available to them.
12
<PAGE> 15
EMPLOYEES
As of December 31, 1999, the Company employed approximately 7,246 people.
Approximately 32% of the Company's employees are unionized. Approximately 68% of
the unionized employees are represented by the United Food & Commercial Workers
International Union, which is part of the AFL-CIO, and have collective
bargaining agreements which extend into the year 2003. Approximately 21% of the
unionized employees are represented by the Bakery, Confectionery and Tobacco
Workers and Grain Millers whose contract expires in February 2002. Approximately
11% of the unionized employees are represented by the National Syndication of
Workers from the Refrigeration Industry and Packers of Food Products whose
contract expires in December 2000.
While labor relations at each location have generally been satisfactory,
unionized employees at the Company's Trenton, Missouri plant initiated a five
day work stoppage that ended in May 1999 under a new contract that expires in
February 2002. There was no impact on sales attributed to the work stoppage.
CERTAIN LEGAL AND REGULATORY MATTERS
Food Safety and Labeling. The Company is subject to the Food, Drug and
Cosmetic Act and regulations promulgated thereunder by the FDA. This
comprehensive regulatory program governs, among other things, the manufacturing,
composition and ingredients, labeling, packaging and safety of food. In
addition, the Nutrition Labeling and Education Act of 1990 prescribes the format
and content of certain information required to appear on the labels of food
products. The Company is subject to regulation by certain other governmental
agencies, including the U.S. Department of Agriculture. Although the Company has
voluntarily recalled products from time to time in the past, no recall has had a
material effect on the Company's results of operations.
A private interest group in California has sent notice to the Company
maintaining that Bumble Bee Seafoods, and others, are not in compliance with
certain warnings requirements of Proposition 65. Proposition 65 requires that
products sold in California which contain certain chemicals listed by the State
as being carcinogens above certain safety levels, must be labeled with a
warning.
Specifically, the notice alleges that the Company and others have exposed
members of the public to mercury, methyl mercury and/or other mercury compounds,
without first giving warning to such persons in accordance with California
Health and Safety Code Section 25249.6. The Company is presently evaluating the
merits of the claims underlying the notice. Should the Company be required to
comply with the labeling requirements of Proposition 65, sales of tuna products
only in California may be adversely affected.
The operations and products of the Company are also subject to state and
local regulation through such measures as licensing of plants, enforcement by
state health agencies of various state standards and inspection of facilities.
Enforcement actions for violations of federal, state and local regulations may
include seizure and condemnation of products, cease and desist orders,
injunctions or monetary penalties. Management believes that the Company's
facilities and practices are sufficient to maintain compliance with applicable
government regulations, although there can be no assurances in this regard.
Federal Trade Commission. The Company is subject to certain regulations by
the FTC. Advertising of the Company's products is subject to regulation by the
FTC pursuant to the Federal Trade Commission Act and the regulations promulgated
thereunder.
13
<PAGE> 16
CERTAIN LEGAL AND REGULATORY MATTERS, (Continued)
Employee Safety Regulations. The Company is subject to certain health and
safety regulations, including regulations issued pursuant to the Occupational
Safety and Health Act. These regulations require the Company to comply with
certain manufacturing, health and safety standards to protect the Company's
employees from accidents.
Environmental. The Company's operations and properties are subject to a wide
variety of increasingly complex and stringent federal, state and local laws and
regulations governing the use, storage, handling, generation, treatment,
emission, release, discharge and disposal of certain materials, substances and
wastes, the remediation of contaminated soil and groundwater, and the health and
safety of employees. As such, the nature of the Company's operations exposes the
Company to the risk of claims with respect to environmental matters.
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. Based upon the Company's experience to date, the Company
believes that the future cost of compliance with existing environmental laws,
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.
Insurance. The Company maintains general liability, product liability,
property, workers' compensation and other insurance in amounts and on terms that
it believes are customary for companies similarly situated.
Litigation. The Company, in the ordinary course of business, is involved in
various legal proceedings. The Company does not believe the outcome of these
proceedings will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
RISK ASSOCIATED WITH BUSINESS ACTIVITIES
THE COMPANY'S DEBT LEVELS MAY LIMIT ITS FUTURE FLEXIBILITY IN OBTAINING
ADDITIONAL FINANCING AND IN PURSUING BUSINESS OPPORTUNITIES.
As of December 31, 1999, the Company had outstanding indebtedness of
$1,176.0 million, including $776.0 million under its Senior Bank Facilities and
$400.0 million of 10 3/8% Senior Subordinated Notes due 2006.
The Company's high degree of leverage could have important consequences to
the holders of its common stock, including but not limited to the following:
o the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired in the future;
o certain of the Company's borrowings are at variable rates of interest,
including borrowings under the Senior Bank Facilities, which expose the
Company to the risk of increased interest rates; and
o the Company's substantial degree of leverage may limit its flexibility
to implement its business strategy and adjust to changing market
conditions, reduce its ability to withstand competitive pressures and
make the Company more vulnerable to a downturn in general economic
conditions.
14
<PAGE> 17
RISK ASSOCIATED WITH BUSINESS ACTIVITIES, (Continued)
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which in turn will be subject to prevailing economic
conditions and to certain financial, business and other factors beyond the
Company's control. If the Company's cash flow and capital resources are
insufficient to fund its debt service obligations, the Company may be forced to
reduce or delay planned expansion and capital expenditures, sell assets, obtain
additional equity capital or restructure its debt. There can be no assurance
that the Company's operating results, cash flow and capital resources will be
sufficient for payment of its indebtedness in the future. In addition, the
realization of future income tax benefits is dependent upon sufficient future
taxable income. In the absence of these operating results and resources, the
Company could face substantial liquidity problems and might be required to
dispose of material assets or operations to meet its debt service and other
obligations, and the Company cannot assure you as to the timing of these sales
or the proceeds that it could realize therefrom.
THE COMPANY'S DEBT FACILITIES CONTAIN RESTRICTIVE COVENANTS, WHICH MAY LIMIT ITS
ABILITY TO ENGAGE IN VARIOUS CORPORATE ACTIVITIES.
The Company's Senior Bank Facilities and the indenture related to its Senior
Subordinated Notes contain a number of significant covenants that, among other
things, restrict its ability and that of the Company's subsidiaries to dispose
of assets, incur additional indebtedness and pay dividends. In addition, the
Company is required to comply with specified financial ratios and satisfy
certain financial condition tests. The Company's ability to comply with these
agreements may be affected by events beyond its control, including prevailing
economic, financial and industry conditions. The breach of any of these
covenants or restrictions could result in a default under the Senior Bank
Facilities or the indenture, which would permit the senior lenders or the
holders of the Senior Subordinated Notes, as the case may be, to declare all
amounts borrowed thereunder to be due and payable, together with accrued and
unpaid interest. If the Company is unable to repay its indebtedness to its
senior lenders, the Company's lenders could proceed against the collateral
securing this indebtedness. If the indebtedness under the Company's Senior Bank
Facilities or its Senior Subordinated Notes were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay in full
this indebtedness and the Company's other indebtedness.
IMPLEMENTING THE COMPANY'S BUSINESS STRATEGY AND PURSUING STRATEGIC ACQUISITIONS
WILL INVOLVE MANAGEMENT TIME AND EXPENSE AND COULD ADVERSELY AFFECT ITS
OPERATIONS.
The Company intends to pursue a business strategy of increasing sales and
profits in its core business through growing sales of existing brands and
achieving cost savings. No assurance can be given that the Company will be
successful in implementing this strategy.
The Company also intends to continue a business strategy of growth through
strategic acquisitions. The Company cannot predict whether it will be successful
in pursuing any acquisition opportunities or what the consequences of any
acquisitions would be. The Company cannot be assured that any strategic
acquisition will be consummated or that, if consummated, it will be successful.
The Company's acquisition strategy involves numerous risks, including
difficulties in the integration of the operations, systems and management of
acquired businesses and the diversion of management's attention from other
business concerns. Under the terms of its Senior Bank Facilities, the Company
may be required to obtain the consent of the lenders in order to consummate
acquisitions in certain circumstances. There can be no assurance as to whether,
or the terms on which, the lenders would grant any consent. Moreover, depending
on the nature, size and timing of future acquisitions, the Company may be
15
<PAGE> 18
RISK ASSOCIATED WITH BUSINESS ACTIVITIES, (Continued)
required to raise additional financing. There can be no assurance that the
Senior Bank Facilities, the indenture or any other loan agreement to which it
may become a party will permit such additional financing, and there can be no
assurance that any additional financing will be available on terms acceptable to
it, or at all.
THE FOOD PRODUCTS BUSINESS IS HIGHLY COMPETITIVE AND INVOLVES VARIOUS RISKS.
Numerous brands and products compete for shelf space and sales, with
competition based primarily on brand recognition and loyalty, price, quality and
convenience. The Company competes with a significant number of companies of
varying sizes, including divisions or subsidiaries of larger companies. A number
of these competitors have broader product lines as well as substantially greater
financial and other resources available to them and lower fixed costs, and there
can be no assurance that the Company can compete successfully with these other
companies. In addition, many of the Company's competitors may be substantially
less leveraged. Competitive pressures or other factors could cause the Company's
products to lose market share or result in significant price erosion, which
could have a material adverse effect on its operations.
In addition, the industry has the following inherent risks:
o changes in general economic conditions, evolving consumer preferences
and nutritional and health-related concerns, and the effects of retail
consolidation; and
o consumer product liability claims and the risk of product tampering.
THE COMPANY DEPENDS ON RAW MATERIALS IN ITS OPERATIONS.
The primary raw materials used in the Company's operations include metal
food and aerosol cans, flour, meat, tuna, pollock, salmon, tomatoes, tomato
paste, oils and shortenings, sweeteners, corrugated materials, corn, grains,
beans and peanuts. All of the Company's raw materials are generally available
from numerous suppliers, other than tuna and salmon processed by the seafood
business, for which there is limited worldwide supply and a limited number of
suppliers. The prices of many of these raw materials are affected by, among
other things, agricultural policies of the U.S. government and weather
conditions. Movement in the price level of these raw materials can have a
corresponding impact on finished product costs, and hence, gross margins. The
ability to pass through increases in costs of raw materials to the Company's
customers is dependent upon competitive conditions and pricing methodologies
employed in the various markets in which it operates.
THE CONTROLLING STOCKHOLDER POSITION OF HICKS MUSE AND THE RELATIONSHIP OF HICKS
MUSE WITH THE COMPANY'S MANAGEMENT MAY RESULT IN A CONFLICT OF INTEREST.
Hicks Muse beneficially owns approximately 43% of the Company's common stock
and, accordingly, will be able to significantly influence:
o election of the members of the board of directors and therefore
influence the Company's management and policies; and
o the outcome of any corporate or other matter submitted to the Company's
stockholders.
The interests of Hicks Muse may conflict with those of other stockholders.
16
<PAGE> 19
RISK ASSOCIATED WITH BUSINESS ACTIVITIES, (Continued)
In addition, some of the Company's officers and directors, including Mr.
Metropoulos, also serve as officers or directors of other portfolio companies of
Hicks Muse. Under the terms of his employment contract, Mr. Metropoulos is
required to devote sufficient time to the Company's business and affairs
necessary to discharge his responsibilities as Chief Executive Officer. In May
1999, an affiliate of Hicks Muse acquired a leading British producer of food
products and upholstered furniture. Mr. Metropoulos serves as Executive Chairman
of that company and will devote a portion of his business time to that company.
Service as a director or officer of both International Home Foods and another
company, other than one of the Company's subsidiaries, could create or appear to
create potential conflicts of interest when the director or officer is faced
with decisions that could have different implications for the Company and the
other company. A conflict of interest could also exist with respect to
allocation of the time and attention of persons who are officers of both
International Home Foods and one or more other companies. In addition, there is
no agreement with Hicks Muse or Mr. Metropoulos requiring that any acquisition
opportunities in the food business be pursued through International Home Foods.
As a result, conflicts may exist between the Company on the one hand and Hicks
Muse and Mr. Metropoulos on the other hand with respect to the allocation of
corporate opportunities, including acquisition opportunities. No assurance can
be given that any conflicts will be resolved in favor of International Home
Foods.
THE FOOD INDUSTRY IS REGULATED EXTENSIVELY BY VARIOUS GOVERNMENTAL AUTHORITIES.
The United States Food and Drug Administration, the United States Department
of Agriculture and other state and local authorities regulate the Company's
operations extensively regarding the processing, packaging, storage,
distribution, advertising and labeling of its products and environmental
compliance. Federal, state and local authorities inspect the Company's
manufacturing facilities and products periodically. The Federal Trade
Commission, regulates the Company's advertising pursuant to the Federal Trade
Commission Act. In addition, the Company must comply with similar laws in
foreign jurisdictions in which it conducts operations.
The Company believes that it is currently in substantial compliance with all
material governmental laws and regulations and maintains all material permits
and licenses relating to its operations. Nevertheless, there can be no assurance
that the Company is in compliance with all of these laws and regulations or that
it will be able to comply with future laws and regulations. Failure to comply
with applicable laws and regulations could subject the Company to civil
remedies, including fines, injunctions, recalls or seizures, as well as
potential criminal sanctions, which could have a material adverse effect on its
operations.
THE FOOD INDUSTRY IS SUBJECT TO EXTENSIVE AND CHANGING ENVIRONMENTAL REGULATION.
The Company's past and present business operations and its past and present
ownership and operation of real property are subject to extensive and changing
federal, state, local and foreign environmental laws and regulations relating to
the discharge of materials into the environment and the handling and disposition
of wastes, including solid and hazardous wastes, or otherwise relating to
protection of the environment. Compliance with these laws and regulations is not
expected to have a material impact on the Company's capital expenditures,
earnings or competitive position.
17
<PAGE> 20
RISK ASSOCIATED WITH BUSINESS ACTIVITIES, (Continued)
THE COMPANY DEPENDS ON TRADEMARKS THAT MAY BE THREATENED THROUGH IMITATION OR
ASSERTION OF OWNERSHIP RIGHTS BY OTHERS.
The Company believes that its trademarks and other proprietary rights are
important to its success and competitive position. Accordingly, the Company
devotes substantial resources to the establishment and protection of its
trademarks on a worldwide basis. The Company cannot assure you that the actions
taken to establish and protect its trademarks and other proprietary rights will
be adequate to prevent imitation of its products by others or to prevent others
from seeking to block sales of its products as violative of the trademarks and
proprietary rights of others. Moreover, there can be no assurance that others
will not assert rights in, or ownership of, trademarks and other proprietary
rights or that the Company will be able to successfully resolve such conflicts.
In addition, the laws of foreign countries may not protect proprietary rights to
the same extent as do the laws of the United States.
THE COMPANY MAY INCUR SIGNIFICANT LIABILITY AS A RESULT OF A PRODUCT LIABILITY
CLAIM OR IN THE EVENT THE COMPANY IS REQUIRED TO RECALL ANY OF ITS PRODUCTS.
The Company may incur significant liability if the consumption of any of its
products causes injury, illness or death and may be required to recall certain
of its products in the event of contamination or damage to the products. There
can be no assurance that product liability claims will not be asserted against
the Company or that it will not be obligated to recall its products. The Company
has not historically incurred material expenditures in respect of product
liability claims and the Company maintains insurance for both product recall and
product liability.
18
<PAGE> 21
ITEM 2. PROPERTIES
The Company leases office space in Parsippany, New Jersey, San Diego,
California and Greenwich, Connecticut under operating leases expiring in
November 2006, April 2002 and October 2004, respectively.
The Company operates the manufacturing plants described in the following
table. The Company owns all of these plants, except for the facilities noted,
which the Company leases under an operating lease. In addition, the Company owns
a 30% interest in a water treatment plant adjacent to its Puerto Rico processing
plant. The Company believes that its manufacturing plants have sufficient
capacity to accommodate the Company's planned growth over the next few years.
<TABLE>
<CAPTION>
SEGMENT LOCATION SQUARE FEET PRODUCTS MANUFACTURED
------- -------- ----------- ---------------------
<S> <C> <C> <C>
Branded Products, Milton, Pennsylvania 895,400 Canned pasta, microwave products, mustard,
Private Label and glazed popcorn and sauces
Foodservice: (1) Trenton, Missouri 335,200 Vienna sausages, chili, hash, potted meat,
sandwich spreads, and sausage and gravy
(1) Fort Worth, Texas 204,800 Beans and chili
(1) Seagrove, North Carolina 198,000 Beans, vegetables, fruit and popcorn
Highspire, Pennsylvania 29,000 Cereals
Seafood: (1) Mayaguez, Puerto Rico 222,000 Canned tuna
(1) Santa Fe Springs, California 122,000 Canned tuna
(1) Motley, Minnesota 108,900 Surimi seafood products
(1) Duluth, Minnesota 60,000 Surimi seafood products
Manta, Ecuador 66,000 Canned tuna and tuna loins for processing in
the Company's Santa Fe Springs facility
Manta, Ecuador 55,300(2) Canned tuna
(1) Violet, Louisiana 41,000 Canned shrimp
(1) Toronto, Canada 15,940(2) Surimi seafood products
Private Label: (1) Lakeville, Minnesota 244,000 Breakfast cereals, granola/cereal bars,
marshmallows, marshmallow crisp rice bars
and ready-to-eat pie crusts
(1) Rossville, Illinois 193,000 Cooking spray
Danville, Illinois 120,000 Fruit Snacks
(1) Potomac, Illinois 29,000 Health and beauty aids
Other: (1) Irapuato, Mexico 212,000 Catsup, canned vegetables and bottled salsa
Niagara Falls, Canada 165,500 Canned pasta, pizza kits, dinner kits, sauces,
glazed popcorn, stews and meatballs
The Company also owns and operates a full service distribution center:
Milton, Pennsylvania 750,000
(1) Also used as a distribution point.
(2) Leased Facility.
</TABLE>
- ---------------------
The Company has also entered into co-packing (third party manufacturing)
agreements with several manufacturers for Bumble Bee canned salmon, Orleans
crab, mackerel, sardines, kippers, oysters and clams, PAM cooking spray, Ro*Tel
diced tomatoes, Chef Boyardee dinners and pizza kits and G. Washington's dry
seasonings and broths.
The Company distributes its products in the United States through 24
distribution points, 12 of which are owned by the Company, and 11 of which are
third party warehouses and one of which is leased. The Company's distribution
system uses a combination of common carrier trucking, company trucks and
inter-modal rail transport. In Canada, the Company operates from eight
distribution points, seven of which are third party warehouses and one of which
is leased. In Mexico, Productos Del Monte operates from 11 distribution points,
one of which is Company-owned. Management believes that the Company's sales and
distribution network has the capacity to support substantial increases in
volume.
19
<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is involved in various legal
proceedings. The Company does not believe the outcome of these proceedings will
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
A private interest group in California has sent notice to the Company
maintaining that Bumble Bee Seafood, and others, are not in compliance with
certain warning requirements of Proposition 65. Proposition 65 requires that
products sold in California which contain certain chemicals listed by the State
as being carcinogens above certain safety levels, must be labeled with a
warning. Specifically, the notice alleges that the Company and others have
exposed members of the public to mercury, methyl mercury and/or other mercury
compounds, without first giving warning to such persons in accordance with
California Health and Safety Code Section 25249.6. The Company is presently
evaluating the merits of the claims underlying the notice. Should the Company be
required to comply with the labeling requirements of Proposition 65, sales of
tuna products only in California may be adversely affected.
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. Based upon its experience to date, the Company believes that
the future cost of compliance with existing environmental laws, 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. These contracts do not include any
minimum quantity requirements.
The Company is involved in various pending or threatened litigation and claims.
Although the outcome of any legal proceedings cannot be predicted with
certainty, management believes through its discussions with counsel that its
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
20
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding the Company's common stock and market price for the period
from January 1, 1998 through December 31, 1999 is set forth on page 51 and on
the inside back cover of the 1999 Annual Report and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1999 is set forth
on page 52 of the 1999 Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations of the Company for the three years ended December 31, 1999 is set
forth on pages 23 through 29 of the 1999 Annual Report and is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding financial instruments and risk management strategies is
set forth on page 29 of the 1999 Annual Report and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements comprising the consolidated balance sheets at December
31, 1999 and 1998, and the consolidated statements of income, stockholders'
equity, and cash flows, and notes to financial statements for each of the years
in the three-year period ended December 31, 1999 are set forth on pages 31
through 52 of the 1999 Annual Report and is incorporated herein by reference.
Selected unaudited quarterly financial data for the years ended December 31,
1999 and 1998 is set forth on page 51 of the 1999 Annual Report and is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
21
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors and executive officers is set
forth on pages 3 through 5 of the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is set forth on pages 6 and 7 of
the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders, and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth on pages 13 and 14 of the Company's Proxy Statement for
the 2000 Annual Meeting of Stockholders, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth on pages 14 and 15 of the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders, and is incorporated herein by reference.
22
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
Report of Independent Accountants for years ended December 31, 1999
and 1998.
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statement of Stockholders' (Deficit) Equity for the years
ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
The foregoing Financial Statements are included in Part II, Item 8 of
this Report and are set forth on pages 31 through 52 of the 1999
Annual Report and are incorporated herein by reference.
2. Financial Statement Schedules are omitted, as they are not required or
are not applicable, or the required information is shown in the
financial statements or notes thereto.
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1*** - - Amended and Restated Certificate of Incorporation
3.2*** - - Bylaws of International Home Foods, 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* - - Financial Advisory Agreement dated as of November 1,
1996 by and between International Home Foods, Inc. and
Hicks, Muse & Company Partners, L.P. ("HMCo")
10.2*** - - International Home Foods, Inc. 1997 Stock Option Plan
10.3* - - Nonqualified Stock Option Agreement dated November 1,
1996 by and between International Home Foods, Inc. and
C. Dean Metropoulos
10.4* - - Nonqualified Stock Option Agreement dated November 12,
1996 by and between International Home Foods, Inc. and
M. L. Lowenkron
10.5* - - Nonqualified Stock Agreement dated November 12, 1996 by
and between International Home Foods, Inc. and Roger T.
Staubach
23
<PAGE> 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
EXHIBIT
NUMBER DESCRIPTION
10.6* - - 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
10.7* - - Monitoring and Oversight Agreement dated as of November
1, 1996 by and between International Home Foods, Inc.
and Hicks, Muse & Company Partners, L.P.
10.8**** - - Credit Agreement, dated November 1, 1996, amended and
restated September 16, 1998, by and among the Company
and the banks' signatory thereto.
10.9***** - - Employment Agreement, dated February 22, 1999 by and
between the Company and C. D. Metropoulos
10.10***** - - Nonqualified Stock Option Agreement, dated December 2,
1998 between the Company and C. D. Metropoulos
10.11***** - - Employment Agreement, dated October 23, 1998 by and
between the Company and N. Michael Dion
10.12** - - Employment Agreement, dated January 3, 2000, by and
between the Company and Lawrence K. Hathaway
12.1** - - Computation of Consolidated Ratio of Earnings to Fixed
Charges
13.1** - - Annual Report
21.1** - - Subsidiaries of the Company
23.1** - - Consent of PricewaterhouseCoopers LLP, Independent
Accountants
27.1** - - Financial Data Schedule
* Incorporated by reference from the Company's Registration Statement on
Form S-4, dated February 19, 1997, File No. 333-18859
** Filed herewith
*** Incorporated by reference from the Company's Registration Statement on
Form S-1, dated September 24, 1997, File No. 333-36249
**** Incorporated by reference from the Company's Schedule 14D-1 and 13D dated
March 17, 1996
***** Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed by the Company
during the last quarter of the period covered by this report.
24
<PAGE> 27
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 Greenwich,
State of Connecticut.
INTERNATIONAL HOME FOODS, INC.
March 29, 2000 By: /s/ C. Dean Metropoulos
-------------- ---------------------------------
Date 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> 0<C>
/s/ C. Dean Metropoulos Chairman of the Board and Chief Executive March 29, 2000
- ---------------------------------- Officer (Principal Executive Officer)
C. Dean Metropoulos
/s/ Lawrence K. Hathaway President and Chief Operating Officer March 29, 2000
- ----------------------------------
Lawrence K. Hathaway
/s/ Craig D. Steeneck Chief Financial Officer March 29, 2000
- ---------------------------------- (Principal Financial and Accounting Officer)
Craig D. Steeneck
/s/ Thomas O. Hicks Director March 29, 2000
- ----------------------------------
Thomas O. Hicks
/s/ Michael J. Cramer Director March 29, 2000
- ----------------------------------
Michael J. Cramer
/s/ Michael J. Levitt Director March 29, 2000
- ----------------------------------
Michael J. Levitt
/s/ M. L. Lowenkron Director March 29, 2000
- ----------------------------------
M. L. Lowenkron
/s/ Andrew S. Rosen Director March 29, 2000
- ----------------------------------
Andrew S. Rosen
</TABLE>
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1*** - - Amended and Restated Certificate of Incorporation
3.2*** - - Bylaws of International Home Foods, 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* - - Financial Advisory Agreement dated as of November 1,
1996 by and between International Home Foods, Inc. and
Hicks, Muse & Company Partners, L.P. ("HMCo")
10.2*** - - International Home Foods, Inc. 1997 Stock Option Plan
10.3* - - Nonqualified Stock Option Agreement dated November 1,
1996 by and between International Home Foods, Inc. and
C. Dean Metropoulos
10.4* - - Nonqualified Stock Option Agreement dated November 12,
1996 by and between International Home Foods, Inc. and
M. L. Lowenkron
10.5* - - Nonqualified Stock Agreement dated November 12, 1996 by
and between International Home Foods, Inc. and Roger T.
Staubach
10.6* - - 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
10.7* - - Monitoring and Oversight Agreement dated as of November
1, 1996 by and between International Home Foods, Inc.
and Hicks, Muse & Company Partners, L.P.
10.8**** - - Credit Agreement, dated November 1, 1996, amended and
restated September 16, 1998, by and among the Company
and the banks' signatory thereto
10.9***** - - Employment Agreement, dated February 22, 1999 by and
between the Company and C. D. Metropoulos
10.10***** - - Nonqualified Stock Option Agreement, dated December 2,
1998 between the Company and C. D. Metropoulos
10.11***** - - Employment Agreement, dated October 23, 1998 by and
between the Company and N. Michael Dion
10.12** - - Employment Agreement, dated January 3, 2000, by and
between the Company and Lawrence K. Hathaway
12.1** - - Computation of Consolidated Ratio of Earnings to Fixed
Charges
13.1** - - Annual Report
21.1** - - Subsidiaries of the Company
23.1** - - Consent of PricewaterhouseCoopers LLP, Independent
Accountants
27.1** - - Financial Data Schedule
</TABLE>
* Incorporated by reference to the Company's Registration Statement on Form
S-4, dated February 19, 1997, File No. 333-18859
** Filed herewith
*** Incorporated by reference to the Company's Registration Statement on Form
S-1, dated September 24, 1997, File No. 333-36249
**** Incorporated by reference to the Company's Schedule 14D-1 and 13D dated
March 17, 1996
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
BY AND BETWEEN
INTERNATIONAL HOME FOODS, INC.
AND
LAWRENCE HATHAWAY
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into effective
as of the 3rd day of January, 2000 (the "Effective Date") by and between
INTERNATIONAL HOME FOODS, INC., a Delaware corporation (the "Company"), and
Lawrence K. Hathaway (the "Executive").
RECITALS
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interest of the Company and its stockholders
to assure that the Company will have the continued dedication of Executive; and
WHEREAS, the Company and Executive desire to enter into a compensation
arrangement to assure retention of Executive in the future.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, including the
mutual covenants herein, the parties hereto agree as follows:
1. Employment Period. Subject to Section 3, the Company hereby agrees
to continue Executive in its employ, and Executive hereby agrees to remain in
the employ of the Company, in accordance with the terms and provisions of this
Agreement, during the period commencing on the date of this Agreement (the
"Effective Date") and ending on the third anniversary of the Effective Date (the
"Employment Period").
2. Terms of Employment.
(a) Positions and Duties. During the term of Executive's
employment with the Company, Executive shall serve as President and Chief
Operating Officer and a member of the Board (or such other position or positions
as Executive and the Board shall mutually agree) and, in so doing, shall report
to the Company's Chief Executive Officer. Executive shall have supervision and
control over, and responsibility for, the day to day management and operational
functions of the Company. During the term of Executive's employment with the
Company (excluding any periods of vacation and sick leave), Executive shall
devote his best efforts and full business time to the business and affairs of
the Company in order to discharge the responsibilities assigned to Executive
hereunder in a manner consistent with past practice.
<PAGE> 2
(b) Compensation, Benefits and Expenses.
(i) Base Compensation. During the term of
Executive's employment with the Company, Executive shall receive an annual base
salary of not less than $500,000 ("Annual Base Salary"). In addition, Executive
shall be entitled to receive an annual bonus ("Annual Bonus") of up to 100% of
the Annual Base Salary upon the achievement of performance criteria as shall be
established by the Chief Executive Officer and the Board.
(ii) Investment Benefit Plans. During the term of
Executive's employment with the Company, Executive shall be entitled to
participate in all incentive, savings and retirement plans, practices, policies
and programs applicable generally to other executives of the Company
("Investment Plans").
(iii) Welfare Benefit Plans. During the term of
Executive's employment with the Company, Executive and his family shall be
eligible for participation in, and shall receive all benefits under, welfare
benefit plans, practices, policies and programs applicable generally to other
executives of the Company ("Welfare Plans").
(iv) Expenses. During the term of Executive's
employment with the Company, Executive shall be entitled to receive prompt
reimbursement for all reasonable employment related expenses incurred by
Executive.
3. Termination of Employment.
(a) Reasons for Termination. Executive's employment with the
Company may be terminated during the Employment Period (i) by the Company with
or without Cause, (ii) by Executive with or without Good Reason, or (iii) by
either the Company or Executive upon Executive's Disability. Executive's
employment with the Company shall automatically terminate upon Executive's
death.
(b) Definitions. The following terms shall have the following
meanings for purposes of this Agreement.
(i) "Annual Base Compensation" shall mean, at
any given time, the aggregate amount of (i) the Annual Base Salary and (ii) the
then budgeted Annual Bonus for Executive; provided that in no event shall Annual
Base Compensation be less than $1,000,000. Calculations required herein based
upon Annual Base Compensation shall be determined as if the Annual Base
Compensation is earned evenly throughout the year based upon a 365-day year.
(ii) "Cause" shall mean (A) fraud on the part of
Executive that has caused demonstrable and serious injury to the Company or (B)
conviction of, or plea of nolo contendre to, a felony or (C) a material breach
by Executive of this Agreement.
2
<PAGE> 3
(iii) "Change in Control" shall mean (A) any
"person" (as such term is used in Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) other than Hicks, Muse, Tate & Furst
Incorporated and/or its affiliates ("Hicks Muse") becoming the direct or
indirect "beneficial owner" (as determined pursuant to Rule 13d-3 under the
Exchange Act) of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities, (B)
individuals who at the Effective Date constitute the members of the Board and
any new director, whose election to the Board or nomination for election to the
Board by the Company's stockholders was approved by a vote of at least a
majority of the directors then in office who either were directors at the
Effective Date or whose election or nomination for election was previously so
approved (each an "Incumbent Director"), ceasing for any reason to constitute a
majority of the Board, (C) the Company merging with or consolidating into any
other entity, or the stockholders of the Company and the holders of voting
securities of any other entity participating in a securities exchange (other
than a merger, consolidation or exchange which would result in the holders
(and/or their affiliates) of the voting securities of the Company outstanding
immediately prior thereto holding immediately thereafter securities representing
more than 50% of the combined voting power of the voting securities of the
surviving entity outstanding immediately after such merger, consolidation or
exchange), or (D) the stockholders of the Company approving a plan of complete
liquidation of the Company or an agreement or agreements for the sale or
disposition by the Company (in one or a series of related transactions) of all
or substantially all of the Company's assets, or such a plan commencing other
than in connection with a merger, consolidation or exchange which does not
constitute a Change in Control under the preceding clause (C).
(iv) "Disability" means (A) Executive's
incapacity due to a permanent mental or physical illness that prevents Executive
from performing his duties or (B) a physical condition that renders the
performance by Executive of his duties hereunder a serious threat to the health
and well being of Executive. Disability shall be determined by a physician
acceptable to Executive (or his legal representative).
(v) "Good Reason" means (A) the assignment to
Executive of any duties inconsistent with Executive's position as President and
Chief Operating Officer and a member of the Board of the Company (including
status and reporting requirements), or his authority, duties or responsibilities
or any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof, (B) a
material breach by the Company of this Agreement, (C) the occurrence of a Change
in Control, (D) any demotion of Executive resulting in Executive no longer
holding the offices of President and Chief Operating Officer of the Company (E)
any change requiring Executive to report to any person other than an Incumbent
Director, or (F) any change in workplace location without the consent of
Executive requiring Executive to daily commute a distance greater than 55 miles
from his present home in Riverside, Connecticut.
3
<PAGE> 4
(c) Obligations of the Company upon Termination.
(i) With Cause; Without Good Reason; Death or
Disability. If, during the Employment Period, the Company shall terminate
Executive's employment with the Company for Cause, Executive shall terminate his
employment with the Company without Good Reason, or Executive's employment with
the Company shall terminate due to Executive's death or Disability, then:
(A) the Company shall pay to Executive
in cash within 10 days after the date of such termination the sum of (x) any
Annual Base Salary earned through the date of termination to the extent not
theretofore paid by the Company, (y) any compensation previously deferred by
Executive and (z) any vacation pay earned through the date of termination not
theretofore paid by the Company (in the aggregate, the "Accrued Obligation");
and
(B) the Company shall pay to Executive
any amounts arising from Executive's participation in, or benefits under, any
Investment Plans (the "Accrued Investments"), which amounts shall be payable in
accordance with the terms and conditions of the Investment Plans.
(ii) Without Cause; With Good Reason. If, during
the Employment Period, the Company shall terminate Executive's employment with
the Company without Cause, or Executive shall terminate his employment with the
Company with Good Reason, then:
(A) the Company shall pay to Executive
in cash within 10 days after the date of such termination the amount of the
Accrued Obligation;
(B) the Company shall pay to Executive
the Accrued Investments in accordance with the terms and conditions of the
Investment Plans;
(C) the Company shall pay to Executive
in cash within 10 days after the date of such termination an amount (the
"Severance Amount") that is equal to one and one half (1 1/2) times the
aggregate amount of Annual Base Compensation at the time of termination;
(D) for a period of one year following
such termination (or such longer period as the Welfare Plans may provide), the
Company shall continue benefits provided under the Welfare Plans to Executive
and his family at least equal to those that would have been provided had
Executive's employment with the Company not been terminated (the "Welfare
Benefit Continuation"); provided, however, that if Executive becomes employed
with another employer and is eligible to receive similar benefits under that
employer's plans, the benefits described in this paragraph (D) shall be
secondary to and not duplicative of those similar benefits.
(d) Effect on Benefit Plans. The foregoing payments and
benefits shall be in addition to and not in lieu of any payments or benefits to
which Executive and his dependents
4
<PAGE> 5
may otherwise be entitled to under the Company's compensation and employee
benefit plans, programs, policies or practices. Nothing herein shall restrict
the Company's right to amend any plan, practice, policy or program in a manner
generally applicable to similarly situated active executives, in which event
Executive shall be entitled to participate on the same basis (including payment
of applicable contributions) as similarly situated active executives of the
Company.
(e) No Mitigation. Executive shall not be obligated to seek
new employment or take any other action to mitigate the benefits to which
Executive is entitled hereunder. Except as contemplated by Section 3(c)(ii)(D)
with respect to the Welfare Benefit Continuation, such benefits shall not be
reduced whether or not Executive obtains new employment.
(f) Stock Options. In the event of a Change in Control all
options to purchase shares of the Company's common stock, par value $.0l per
share, granted by the Company to the Executive (including options granted under
the Company's 1997 Stock Option Plan) shall automatically become fully vested
and immediately exercisable in full at the at the time of the Change in Control.
4. Mutual Release. Payment of the Severance Amount shall be conditioned
upon the execution by Executive and the Company of a valid mutual release, to be
prepared by the Company, in which Executive and the Company mutually release the
other, to the maximum extent permitted by law, from any and all claims either
may have against the other that relate to or arise out of Executive's employment
or termination of employment, except such claims arising under this Agreement,
any employee benefit plan or any other written plan or agreement.
5. Excise Taxes.
(a) Determination and Payment. If it is determined that any
payment, distribution or other benefit to Executive, whether pursuant to this
Agreement or otherwise (a "Payment"), would be subject to any tax (e.g. excise
tax under Section 4999 of the Internal Revenue Code of 1986) other than income
tax (such tax, together with any interest and penalties related thereto are
hereinafter collectively referred to as an "Excise Tax"), then the Company shall
promptly pay to Executive an additional payment ("Gross-Up Payment") in an
amount such that Executive retains, after payment of all taxes, and all interest
and penalties with respect thereto (including, without limitation, income tax
and Excise Tax imposed upon the Gross-Up Payment), an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment. The determination of
the amount of any Gross-Up Payment shall be made by a certified public
accounting firm selected jointly by the Company and Executive (the "Accounting
Firm"), the fees and expenses of which shall be paid by the Company.
(b) Contesting. Executive shall promptly notify the Company of
any claim that, if successful, would require the payment of the Gross-Up
Payment. Without the consent of the Company, Executive shall not pay such claim
prior to the date that the payment of taxes with respect to such claim is due.
If the Company notifies Executive in writing prior to such due date that it
desires to contest the claim, Executive shall take all actions in connection
with contesting
5
<PAGE> 6
the claim reasonably requested by the Company (including accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company); provided, however, that the Company shall pay all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, from any tax (including interest and penalties with respect
thereto) imposed as a result thereof.
6. Claims.
(a) Arbitration of Claims. Executive shall settle by
arbitration any dispute or controversy arising in connection with this
Agreement, whether or not such dispute involves a plan subject to the Employee
Retirement Income Security of 1974, as amended. Such arbitration shall be
conducted in accordance with the rules of the American Arbitration Association
before a panel of three arbitrators sitting in Parsippany, New Jersey. The award
of the arbitrators shall be final and nonappealable, and judgment may be entered
on the award of the arbitrators in any court having proper jurisdiction. All
expenses of such arbitration shall be borne by the Company.
(b) Payment of Legal Fees and Costs. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which Executive may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company, Executive or others of any action taken
pursuant to the terms of this Agreement, or of the validity or enforceability
of, or liability under, any provision of this Agreement, or any guarantee of
performance thereof (including as a result of any contest by Executive about the
amount of payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the rate of 8% per annum.
(c) Agent for Service of Legal Process. Service of legal
process upon the Company with respect to a claim under this Agreement shall be
made upon the General Counsel of the Company.
7. Tax Withholding. All payments to the Executive under this Agreement
will be subject to the withholding of all applicable employment and income
taxes.
8. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
9. Successors. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
if no succession had taken place.
6
<PAGE> 7
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. This
Agreement may not be modified in any manner except by a written instrument
signed by both the Company and Executive.
11. Notices. Any notice required under this Agreement shall be in
writing and shall be delivered by certified mail return receipt requested to
each of the parties as follows:
To Executive:
------------------------------
------------------------------
------------------------------
To the Company:
INTERNATIONAL HOME FOODS, INC.
1633 Littleton Road
Parsippany, NJ 07054
Attention: General Counsel
12. Validity. If any provision of this Agreement is held to be illegal,
invalid or unenforceable, such provision shall be fully severable, this
Agreement shall be construed and enforced as if the illegal, invalid or
unenforceable provision had never comprised a portion of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect.
Furthermore, in lieu of such illegal, invalid or unenforceable provision there
shall be added automatically as part of this Agreement a provision as similar in
terms as may be possible and be legal, valid and enforceable.
13. Non-Competition. In the event that Executive's employment with the
Company is terminated (other than a termination in connection with the
occurrence of a Change-in-Control) and Executive receives payment of the
Severance Amount, for the remainder of the Employment Period or for one and one
half (1 1/2) years, whichever is longer, Executive shall not engage in or
promote any business within the United States that is principally engaged in the
business of manufacturing and marketing canned name brand food products in the
same categories as the core products of the Company at the time of termination;
provided that the foregoing shall not prohibit Executive from owning less than
10% of the voting securities of any publicly traded company so long as Executive
does not otherwise engage in or promote the activities of that company.
14. Governing Law. The provisions of this Agreement shall be construed
in accordance of the laws of the state of New Jersey, without giving effect to
that states choice of law provisions.
7
<PAGE> 8
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the date and year first above written.
INTERNATIONAL HOME FOODS, INC.
------------------------------
C. Dean Metropoulos
Chief Executive Officer
EXECUTIVE
------------------------------
Lawrence K. Hathaway
8
<PAGE> 1
EXHIBIT 12.1 - COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(000's) (000's) (000's) (000's) (000's)
<S> <C> <C> <C> <C> <C>
Income before provision for income taxes $203,013 $ 32,322 $ 39,763 $136,280 $ 68,607
Add:
Interest on term loans and notes, net of
interest capitalized 96,676 92,920 100,192 16,411 --
Amortization of debt costs 4,259 3,067 4,741 661 --
Portion of rents representative of interest 1,903 2,629 1,394 628 1,988
-------- -------- -------- -------- --------
Income as adjusted $305,851 $130,938 $146,090 $153,980 $ 70,595
Fixed Charges:
Interest on term loans and notes $ 96,676 $ 93,639 $100,192 $ 16,411 $ --
Amortization of debt costs 4,259 3,067 4,741 661 --
Portion of rents representative of interest 1,903 2,629 1,394 628 1,988
-------- -------- -------- -------- --------
Total fixed charges $102,838 $ 99,335 $106,327 $ 17,700 $ 1,988
Ratio of Consolidated Earnings to Fixed Charges 2.97 1.32 1.37 8.70 35.5
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 13.1 ANNUAL REPORT 1999
<PAGE> 2
EXHIBIT 13.1
[IHF LOGO]
INTERNATIONAL HOME FOODS, INC.
ANNUAL REPORT 1999
[PICTURE]
<PAGE> 3
CONTENTS
2 To Our Shareholders
4 Chef Boyardee
6 Seafood
8 Specialty & Snacks
10 Canned Meat
12 Southwest
14 Store Brands, International & Foodservice
16 Brands in Detail
23 Financial Information
[PICTURE]
<PAGE> 4
[IHF LOGO]
International Home Foods was formed in 1996 to be an entirely different kind of
food company, one that would stand out in its crowded and competitive field. To
do that we dedicated ourselves to a focused growth strategy that would set us
apart from our competitors, deliver superior results and build shareholder
value. Our adherence to that strategy has been validated by the creation of a
solid platform for continued growth, and, in 1999, our best results to date.
Here's a brief summary of that strategy, as well as the results we have achieved
so far.
o Strategy: Generate substantial growth in sales, earnings and earnings
per share.
Result: Net sales in 1999 were $2.14 billion, representing an increase
of 127% from 1996. Our operating profit was $288 million in 1999, up
83% since 1996, excluding 1996 restructuring charges. And in 1999
earnings per share were $1.50, excluding non-recurring charges,
representing an increase of 178% from $0.54 in 1996, on a pro forma
basis.
o Strategy: Leverage the success of our core brand names.
Result: Over the last three years, we've improved our products,
upgraded our packaging, introduced more than 30 new products and line
extensions and entered new markets and segments.
<PAGE> 5
o Strategy: Focus on the higher growth opportunities of Store Brands,
International and Foodservice markets.
Result: Combined sales in these three businesses have increased 278%
since 1996.
o Strategy: Complete a series of strategic and accretive acquisitions.
Result: We have now completed and successfully integrated nine
acquisitions.
o Strategy: Achieve significant productivity improvements in every area
of the company.
Result: We have achieved annual cost savings of at least $20 million
each year.
o Strategy: Create a new company culture dedicated to an entrepreneurial
business approach.
Result: We have outperformed the competition because of our faster
decision making, greater flexibility, innovative thinking and superior
execution.
<PAGE> 6
FINANCIAL HIGHLIGHTS
127% growth
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C>
$943 $1,222 $1,700 $2,144
</TABLE>
NET SALES
(in millions)
CAGR(4) 32%
83% growth
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C>
$157(1) $190 $248 $288
</TABLE>
OPERATING PROFIT(2)
(in millions)
CAGR(4) 22%
178% growth
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C>
$0.54(1) $0.79 $1.15 $1.50
</TABLE>
EPS(3)
($ per share)
CAGR(4) 41%
<TABLE>
<CAPTION>
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------- ------------ ------------ ------------
(In millions, except ratios and per share amounts)
<S> <C> <C> <C>
Net sales $ 2,144.4 $ 1,699.6 $ 1,222.4
Operating profit(2) 287.6 248.1 190.0
Net income(3) 114.4 91.8 52.1
Diluted earnings per share(3) 1.50 1.15 0.79
Depreciation and amortization 42.7 40.0 30.1
Capital expenditures 44.7 31.0 13.6
Cash flow from operations 152.2 163.3 71.9
EBITDA(5) 325.6 282.5 214.6
Total debt 1,176.0 1,217.1 1,010.0
Debt/EBITDA 3.6x 4.3x 4.7x
EBITDA/Net interest expense(6) 3.4x 3.1x 2.2x
</TABLE>
(1) Pro forma to reflect a full year of interest expense and excludes a
restructuring charge of $4.3 ($2.6, net of tax).
(2) Excludes a restructuring charge of $118.1 ( $75.3, net of tax ) in 1998 and
a non-cash stock option compensation charge of $46.4 ( $28.1, net of tax )
in 1997.
(3) Excludes a non-cash deferred tax restructuring charge of $20.6 and a gain
on sale of Polaner of $15.8 ( $9.6, net of tax ) in 1999, a restructuring
charge of $118.1 ( $75.3, net of tax ) in 1998, a non-cash stock option
compensation charge of $46.4 ( $28.1, net of tax ) and an extraordinary
loss of $4.3, net of tax in 1997.
(4) Compounded Annual Growth Rate.
(5) EBITDA ( earnings before interest, taxes, depreciation and amortization )
excludes a $15.8 gain on the sale of Polaner in 1999, $118.1 for
restructuring charges in 1998, a $46.4 non-cash stock option compensation
expense and an extraordinary loss of $4.3, net of tax in 1997.
(6) Excludes amortization of the deferred financing portion of interest
expense.
Chef Boyardee(R), Bumble Bee(R), Louis Kemp(R), PAM(R), Franklin Crunch `n
Munch(R), Spreadables(R), Gulden's(R), Campfire(R), Ranch Style(R), Luck's(R),
Dennison's(R), Ro*Tel(R), Jiffy pop(R), Puritan(R), Fraser Farms(R), Grist
Mill(R), Orleans(R), Clover Leaf(R), Paramount(R), Seafest(R), Captain Jac(R),
Pacific Mate(R), Harris(R), Broadcast(R), Wheatena(R), Maypo(R), Maltex(R) and
G. Washington's(R) are our registered trademarks. Libby's(R) is a registered
trademark licensed to the Company through 2013.
1
<PAGE> 7
TO OUR SHAREHOLDERS AND EMPLOYEES:
We are pleased to report that 1999 was an excellent year for
International Home Foods, Inc., representing our best performance yet.
The Company's sales, net income and earnings per share increased
significantly from the previous year. Driven by impactful marketing
spending, the sales of each of our major brands and every one of our
business segments were up year-to-year as we passed the $2 billion
sales mark, and virtually all of our major brands gained market share
in their respective categories.
We also made two important acquisitions that broadened our Seafood
portfolio into new segments, new distribution systems and new
countries. And we significantly reduced the cost of our operations,
improving the gross margins on our base business for the third
consecutive year. Above all, the past year's performance clearly
validated our pursuit of the focused strategy that we adopted when we
formed this Company at the end of 1996, and it underscored our
potential for sustained growth.
FINANCIAL PERFORMANCE
Sales for 1999 were $2.14 billion, up 26% from 1998. Importantly,
organic sales, excluding the sales of the Company's 1998 and 1999
acquisitions and divestitures, increased by $119.2 million or 8%. This
very high level of internal growth, confirms the vitality of our base
business and represents a performance level that places us in the top
tier of the North American food industry.
Excluding the 1998 and 1999 non-recurring items, net income for 1999
was $114.4 million, an increase of 25% over the prior year.
Diluted earnings per share were $1.50, excluding the impact of a
non-cash tax restructuring charge of $20.6 ~million recorded in the
third quarter and a $9.6 million gain from the company's sale of
Polaner fruit spreads and spices in the first quarter. That represents
a significant 30% increase over the 1998 earnings per share of $1.15,
which excludes the third quarter 1998 restructuring charge.
POISED FOR GROWTH
In last year's annual report, we enumerated the reasons why we believed
our Company was well-poised for growth. In the three short years since
our inception, we assembled a roster of top brands that had unrealized
potential. We upgraded many of our products, contemporized our
packaging and developed numerous new products. We consistently
demonstrated a willingness to acquire other companies or leading brands
that represented a good strategic fit. Through hard-won experience, we
came to understand how to best spend our advertising and promotional
dollars within a cohesive marketing plan. We realized the value of
focusing our sales and service teams around key customers. We made a
commitment to improving margins by streamlining our manufacturing,
distribution and general and administrative expenses. And we put in
place an aggressive management team that was experienced,
results-oriented, innovative and dedicated to a more entrepreneurial
culture. When we considered those assets in the context of our
strategic plan, detailed on the inside front cover of this report, we
were confident that our Company was ready for strong growth in 1999.
2
<PAGE> 8
[PICTURE OF C. DEAN METROPOULOS AND LAWRENCE K. HATHAWAY]
BRAND POWER
Across the board, our well-recognized brands asserted their leadership
and capitalized on all the new marketing initiatives introduced in 1998
and 1999. Chef Boyardee canned pasta sales rose 8%, while our market
share grew to 58%. And Chef Boyardee stimulated the canned pasta
category to its best performance in six years.
Total Seafood sales rose 53% due to organic growth of 12%, as well as
the acquisitions of the Clover Leaf, Paramount and Louis Kemp
businesses. We successfully repositioned the Company as a leading
provider of a complete line of seafood products for retail and
foodservice customers.
Other brands also excelled. Propelled by advertising, new products and
"pay for performance" promotions, the sales of PAM cooking spray were
up 19% and PAM's market share rose to 52%. Sales of Ro*Tel, which we
began to distribute nationwide at the end of the year, were up 30%.
And, on the strength of nine new products, Libby's canned meats entered
six new canned meat segments and gained momentum throughout 1999.
BEYOND BRANDS
There was also a lot of excitement in our non-branded businesses. Our
new Store Brands division, created by the consolidation of our existing
Private Label business with the Grist Mill and Creative Products
acquisitions, is a strong player in the growing store brands arena,
leveraging IHF's brand, marketing and logistical power for retailers
and consumers. The current trend toward more retail consolidation
should help accelerate the growth of private label products. Our
Foodservice division once again achieved solid double-digit growth, and
International sales were also up, led by strong performances in Mexico
and Canada.
LOOKING AHEAD
Our plant consolidation plan is on track to be completed in 2000 which
will continue to contribute to additional margin expansion. We will
also aggressively pursue marketing and sales initiatives to grow
internally, and we have ample financial flexibility to fund additional
strategic acquisitions.
For the future, we are confident that we are strategically,
operationally and financially well-positioned for ~continued growth.
Finally, we will continue to strive to differentiate ourselves from our
competitors by pursuing our focused ~growth strategy.
<TABLE>
<S> <C>
/s/ C. DEAN METROPOULOS /s/ LAWRENCE K. HATHAWAY
C. Dean Metropoulos Lawrence K. Hathaway
Chairman of the Board, Chief Executive Officer President and Chief Operating Officer
</TABLE>
3
<PAGE> 9
CHEF BOYARDEE
REVITALIZING THE CATEGORY
We stimulated Chef Boyardee's growth through new product introductions, targeted
advertising and increased distribution. To broaden our consumer base, we
introduced innovative and distinctive new products. The two most recent
additions to the Chef Boyardee line, Homestyle and Overstuffed(TM), already
account for 8% of category dollar sales. That's a great sign for the future -
and for our leadership position - as we've established a platform for
sustainable growth.
Through our TV advertising, we changed the way we talk to ~our consumers,
particularly the moms who drive our sales, with our "Say Yes to Chef" campaign.
We also targeted teens with our sponsorship of the World Wrestling Federation
(WWF). In addition, our sales organization significantly increased our
distribution base by using our leverage at the retail level to improve Chef
Boyardee's position on supermarket shelves.
As a result of all of these efforts, the canned pasta category, which already
accounted for more than a half billion dollars in sales, experienced its largest
growth in six years. Overall, our canned pasta sales increased by 8% and we grew
our market share to 58% from 55% in 1998.
#1
CHEF BOYARDEE IMPROVED~ITS MARKET SHARE LEADERSHIP POSITION BY THREE POINTS TO
58%.
[PICTURE]
IN 1999, WE REORIENTED OUR TELEVISION ADVERTISING toward our key target
audiences, moms and teens, with our "Say Yes to Chef" ad campaign and our tie-in
to one of TV's hottest properties, the World Wrestling Federation.
[PICTURE]
OUR SALES WERE SPURRED by the success of new products like Overstuffed Ravioli,
stuffed with nearly twice as much filling as our regular raviolis and made from
top-quality ingredients including special herbs and spices. New for 2000:
Spaghetti and Jumbo Meatballs and Overstuffed ~Sausage Ravioli.
[PICTURE]
4
<PAGE> 10
[PICTURE]
CONSUMERS ARE ALWAYS TRYING TO FIND FOOD that's wholesome, nutritious and
convenient. Chef Boyardee canned pastas, meals in themselves, have proved to be
just what they're looking for.
[PICTURE]
+8%
CANNED PASTA SALES ROSE 8% IN 1999.
LET'S FACE IT, KIDS' TASTES CHANGE as they get older. So we've developed new
varieties to keep up with them by introducing our Homestyle line. New for 2000:
Chicken Parmesan and Chicken Alfredo.
[PICTURE]
5
<PAGE> 11
#1
OUR SEAFOOD BRANDS ARE NOW #1 IN SEVEN SEGMENTS - ALBACORE TUNA, SALMON, SHRIMP,
CRAB, ANCHOVIES, BRISLING SARDINES AND SURIMI.
[PICTURE]
AS MORE AND MORE AMERICANS LOOK TO SEAFOOD as a healthy alternative to meat and
chicken, Bumble Bee is ideally positioned as the nation's leading, full-line
provider of nutritious and convenient seafood products.
[PICTURE]
6
<PAGE> 12
SEAFOOD
EXPANDING OUR PORTFOLIO
In July 1997 we acquired Bumble Bee Seafoods, which at that time was a $400
million domestic tuna business, and began to execute a strategy to build a
substantially larger seafood company with a much broader branded portfolio. To
achieve that objective, we are aggressively pursuing the following four-point
strategy:
1. Strengthen our base tuna and salmon businesses
2. Expand internationally
3. Expand into specialty seafood
4. Grow beyond the can
In 1999, we made major progress in executing this strategy. We strengthened our
position internationally with the acquisition of Clover Leaf and Paramount, the
number one tuna and salmon brands in Canada. We also assumed control of, and
dramatically revived, the Libby's salmon business. With the acquisition of Louis
Kemp, the nation's leading brand of surimi (imitation crabmeat), we moved into
the refrigerated and frozen categories for the first time. And Louis Kemp's
variety of packaging formats offers a new avenue for growth and a wider range of
product opportunities.
[PICTURE]
WITH OUR ACQUISITION OF LOUIS KEMP SEAFOODS, we added to our portfolio the
nation's leading brand of surimi and continued to grow "beyond the can" by
moving into the frozen foods and refrigerated aisles.
+53%
DRIVEN BY INTERNAL GROWTH OF 12% AND THE ACQUISITIONS OF THE CLOVER LEAF,
PARAMOUNT AND LOUIS KEMP BUSINESSES, SEAFOOD SALES ROSE 53% IN 1999.
[PICTURE]
ESTABLISHING A POSITION in international markets is a key component of our
growth strategy and with the acquisition of the Clover Leaf and Paramount
businesses, we became the leader in canned tuna and salmon in Canada.
7
<PAGE> 13
[PICTURE]
THANKS TO OUR ON-GOING MARKETING EFFORTS, consumers are coming to think of PAM
as more than the nation's most popular, all-natural cooking spray; it's also an
ingredient that can be part of many healthy recipes.
#1
PAM'S MARKET SHARE LEADERSHIP ROSE FOUR POINTS TO 52% IN 1999.
[PICTURE]
+19%
DRIVEN BY NEW PRODUCTS AND INCREASED MARKETING AND PROMOTIONAL SUPPORT, PAM'S
SALES WERE UP A SUBSTANTIAL 19% IN 1999.
[PICTURE]
SPECIALTY & SNACKS
WIDENING OUR CATEGORY LEADERSHIP
PAM is by far the leading cooking spray in its category - our market share rose
to 52% from 48% in 1998. And as the leader, it's our responsibility to drive
category growth through innovative new products, product positioning and special
packaging. We're doing that in a lot of ways. We have, for instance, introduced
new PAM lemon and garlic flavors. Through in-store demonstrations and
advertising - "It's OK to Spray" - we have positioned PAM as a healthful,
convenient cooking aid. And we have successfully penetrated the non-grocery
channel with products like PAM for the Grill. Our leadership mindset is paying
off as PAM widened its share leadership despite a flurry of new competitive
entries.
8
<PAGE> 14
[PICTURE]
FOR MUSTARD, THERE'S NO BETTER PROMOTIONAL LINK than baseball and hot dogs, and,
starting in 2000, Gulden's will be capitalizing on that connection as the
official mustard of Major League Baseball.
[PICTURES]
IN 1999, CRUNCH `N MUNCH BEGAN TO TAKE ADVANTAGE of a new distribution tool -
direct store delivery or DSD - to make sure that the shelves in supermarkets and
convenience stores were fully stocked. In 2000, we will continue this effort and
expand it to include our latest introduction to the snacks category, Jiffy pop
popcorn in a bag.
9
<PAGE> 15
CANNED MEAT
BUILDING A NEW GROWTH PLATFORM
When we purchased the Libby's canned meat business in late 1998, we acquired a
line of leading canned meat products. We also obtained a valuable license which
will allow us to leverage the tremendous brand equity that the Libby's name has
in North America. People know and trust Libby's.
Since the acquisition, we have built on that brand equity by improving the
product quality, contemporizing packaging graphics and expanding distribution.
And at the end of 1999, we took the biggest step yet, expanding across the
entire canned meats category. Canned meats account for $1.2 billion in annual
sales, but Libby's had competed in less than 25% of the category. During the
fourth quarter, we introduced nine new products, three of which were
new formulations, that put us in virtually every canned meat segment, including
chili, stew, luncheon meats, sloppy joes and sandwich spreads. Supported with
aggressive promotional activity, these entries extend an already trusted name
into new segments that account for nearly $900 million in annual sales,
positioning Libby's for dynamic growth in 2000.
$100M
LIBBY'S GROCERY SALES CONTRIBUTED MORE THAN $100 MILLION IN 1999.
[PICTURE]
WE ARE THE #1 BRAND IN THE $44 MILLION CORNED BEEF SEGMENT and a strong #2 brand
in the $126 million Vienna sausage segment.
[PICTURE]
+9
WITH THE ADDITION OF NINE NEW ITEMS, LIBBY'S IS NOW REPRESENTED ACROSS THE
ENTIRE CANNED MEATS CATEGORY.
10
<PAGE> 16
[PICTURE]
DENNISON'S SALES INCREASED IN 1999 thanks to improved product quality and new,
more contemporary package graphics.
+12%
SALES OF DENNISON'S CHILI, ONE OF OUR STRONG REGIONAL BRANDS, ROSE 12% IN 1999.
TODAY, DENNISON'S OFFERS A WIDER VARIETY of products than ever before, including
chicken, turkey and 99% fat-free chilies.
[PICTURE]
11
<PAGE> 17
SOUTHWEST
GENERATING INTERNAL GROWTH
For Ro*Tel, 1999 was a year of significant internal growth as a result of
increased sales in our core southwestern markets and aggressive expansion into
new markets, coupled with the introduction of new products. We supported the
Ro*Tel diced tomatoes national rollout with a series of high-profile marketing
programs, including a print campaign, TV advertising and trial-generating
coupons. And we added to Ro*Tel's momentum by unveiling a new high potential
product in Texas, Ro*Tel Pico de Gallo Salsa. This product line gives us an
initial position in a $660 million category, and we have already risen to be the
#3 salsa in Texas, surpassing such longstanding brands as Old El Paso(R) and
Taco Bell(R).
RO*TEL HAD A GREAT YEAR IN 1999, and an important element of the success story
was our promotional positioning of flavored diced tomatoes as a cooking
ingredient.
[PICTURE]
+30%
SPURRED BY NEW PRODUCTS, CONSUMER PROMOTIONS, ADVERTISING AND A NATIONAL
ROLLOUT, TOTAL RO*TEL SALES ROSE 30% IN 1999.
[PICTURE]
ROLLED OUT IN TEXAS DURING 1999, Ro*Tel's Pico de Gallo Salsa is already #3 in
this attractive market. We will be introducing new additions to our salsa line
in 2000.
12
<PAGE> 18
RANCH STYLE IS THE ONLY BRAND IN THE SOUTHWEST to offer retailers the full line
of beans - pork and bean, baked, refried and ingredient.
[PICTURE]
+8%
LUCK'S BEANS WERE GIVEN A BOOST IN NON-SUPER-MARKET CHANNELS SUCH AS FOOD CLUBS
AND DOLLAR STORES, LEADING TO AN 8% INCREASE IN SALES IN 1999.
LUCK'S COUNTRY STYLE BEANS GIVE CONSUMERS that slow-cooked flavor that's unique
to the brand.
[PICTURE]
13
<PAGE> 19
STORE BRANDS
REDEFINING STORE BRANDS
Sales of store brands in supermarkets have increased steadily over the past few
years, a trend that is expected to accelerate with continued retail
consolidation. Store brands is a segment overdue for an entirely new way of
thinking and acting, and few companies are as well positioned as IHF to do
that. We've taken our existing private label products and created an identity
and image comparable to the branded competition. As a first step, we've combined
our existing IHF private label business with two of our acquisitions, Grist Mill
and Creative Products, to create a unified Store Brands division.
We bring to our store brands customers all of the power of IHF - our brand and
logistical strength, and our category management capability. We have products in
13 store brands categories so we can give our customers the cost benefits and
efficiency of one-stop shopping.
We are bringing to the retailer the experience and knowledge we've gained in the
branded product business to introduce innovative ideas, including higher-end
products like granola and fruit snacks, and licensing agreements that have put
Curious George(R) and NFL MVP Kurt Warner on our store brands packaging.
[PICTURE]
WE HAVE BROUGHT AN AGGRESSIVE, BRANDED APPROACH to the store brands segment,
breaking the mold by introducing higher-end products and by entering into
licensing agreements for popular characters and sports heros like Curious George
and NFL MVP Kurt Warner.
[PICTURE]
+27%
DRIVEN BY ACQUISITIONS, STORE BRANDS SALES ROSE 27% IN 1999.
14
<PAGE> 20
INTERNATIONAL
INCREASING OUR MARKET COVERAGE
[PICTURE]
LIBBY'S AND CHEF BOYARDEE are familiar names in many foreign countries, giving
us opportunities to introduce new products under these brand names.
[PICTURE]
#1
INTERNATIONALLY, WE HAVE THE LEADING BRANDS IN SEVERAL IMPORTANT CATEGORIES,
INCLUDING TUNA, CANNED PASTA, CANNED STEWS AND COOKING SPRAY IN CANADA, AND
CANNED CORN AND CATSUP IN MEXICO.
FOODSERVICE
CAPITALIZING ON A SIGNIFICANT GROWTH OPPORTUNITY
+19%
DRIVEN BY INTERNAL GROWTH AND ACQUISITIONS, FOODSERVICE SALES INCREASED 19% IN
1999.
[PICTURE]
THE ABILITY TO PROVIDE OUR CUSTOMERS with a wide variety of products has
contributed to the success of the Foodservice business.
[PICTURE]
15
<PAGE> 21
[CHEF BOYARDEE LOGO]
CHEF BOYARDEE
IT WAS THOUGHT THAT GROWTH IN THE CANNED PASTA CATEGORY HAD LEVELED OFF. WE
PROVED OTHERWISE IN 1999, REVITALIZING THE CATEGORY BY IMPLEMENTING AN
AGGRESSIVE AND INNOVATIVE APPROACH TO PRODUCTS AND PROMOTIONS. AS A RESULT, OUR
CANNED PASTA SALES WERE UP 8%, OUR MARKET SHARE ROSE TO 58% AND WE PROPELLED THE
CATEGORY AS A WHOLE TO ITS LARGEST GROWTH IN SIX YEARS. HERE'S HOW WE DID IT:
WHAT'S NEW AT CHEF BOYARDEE
To grow the category, we have to broaden our consumer base and, thanks to the
innovative products we've introduced over the last two years, we've succeeded on
three fronts: keeping current consumers longer, bringing back former Chef
Boyardee consumers and attracting new consumers to the category.
The two most prominent additions to the Chef Boyardee line have been Homestyle
and Overstuffed, which already account for 8% of the category. Homestyle, with
its top quality ingredients and healthful recipes, targets an older audience and
palate, while Overstuffed appeals to consumers with heartier appetites who are
looking for a nutritious, wholesome and convenient meal. Building on the success
of these lines, we'll be introducing two new recipes for both Homestyle and
Overstuffed in 2000.
ADVERTISING
How and where we spend our promotional dollars is pivotal to sales growth, and
in 1999 all of our products benefited from TV advertising that targeted two key
audiences, moms and teens.
Our ads extended the popular "Say Yes to Chef" campaign that reminds moms that
Chef Boyardee products are not only a hit with their kids but also nutritious.
And we reached teens with ads featuring stars from the World Wrestling
Federation (WWF). The spots were tremendously impactful and also a springboard
for some eye-catching in-store displays and promotions. In 2000, we'll add
another hot property by introducing ads that spotlight the Joe Gibbs' NASCAR
Racing team of Bobby LaBonte and Tony Stewart.
ON THE SHELF
Where the product sits on the shelf is an important part of our sales success,
and in 1999, in a store-by-store campaign, we used the leverage that comes with
being the category leader to improve our product location. All-family items are
now at eye level where moms will see them and kid-oriented products are on lower
shelves, giving consumers an entire section of Chef Boyardee products to choose
from.
16
<PAGE> 22
[LOGOS]
SEAFOOD
WHEN WE ACQUIRED BUMBLE BEE IN 1997, OUR MISSION WAS TO TRANSFORM THE COMPANY
FROM A LEADING BUT NARROWLY FOCUSED TUNA PRODUCER INTO A GLOBAL PROCESSOR AND
MARKETER OF A WIDE RANGE OF SEAFOOD PRODUCTS. THANKS TO THE STRICT ADHERENCE TO
OUR FOUR-POINT STRATEGIC PLAN (DETAILED ON PAGE 7), WE'RE WELL ON OUR WAY. IN
1999, TOTAL SALES REACHED A RECORD $679 MILLION, INCLUDING A DRAMATIC INCREASE
IN INTERNATIONAL SALES, AND OUR BRANDS ARE NOW THE LEADERS IN SEVEN SEAFOOD
SEGMENTS IN THE UNITED STATES, INCLUDING ALBACORE TUNA, SALMON, SHRIMP, CRAB,
SURIMI, ANCHOVIES AND BRISLING SARDINES.
GROWTH THROUGH ACQUISITION
One of the most effective ways in which we've broadened our range of products
and market reach has been through acquisitions. In 1997, we purchased Orleans,
adding canned shrimp, crab, clams and oysters to our portfolio. Through our
acquisition of Libby's canned meats in 1998, we took over - and dramatically
revived - Libby's canned salmon business. In 1999, we picked up speed on the
acquisition front by purchasing the Clover Leaf and Paramount businesses as well
as Louis Kemp Seafoods. In addition, we entered into an agreement with Norway
Foods to distribute King Oscar(R), the leading brand of brisling sardines and
anchovies in the United States.
CLOVER LEAF AND PARAMOUNT
The acquisition of the Clover Leaf and Paramount businesses in January 1999 gave
us an important foothold in markets outside of the United States. Clover Leaf is
the leading brand of canned seafood in Canada with a market share of 50% in the
salmon category and 39% in the tuna category. Paramount provides a secondary
brand in Canada and a strong presence in several seafood categories in
Australia.
LOUIS KEMP
In mid-1999, we acquired Louis Kemp Seafoods, the nation's leading brand of
surimi (imitation crabmeat). The acquisition not only added another top brand to
our roster, as Louis Kemp is the category leader with a 55% market share, but
also helped us in our continuing strategy of moving "beyond the can" by adding
refrigerated and frozen products as well as greater distribution capability to
our lineup.
17
<PAGE> 23
[LOGOS]
SPECIALTY & SNACKS
OUR SPECIALTY & SNACKS GROUP BOASTS A LIST OF GREAT BRANDS, INCLUDING PAM
COOKING SPRAY, GULDEN'S MUSTARD AND CRUNCH 'N MUNCH GLAZED POPCORN AND PRETZELS.
IN 1999, SALES FOR THE GROUP ROSE 6%, DRIVEN BY AN ESPECIALLY STRONG PERFORMANCE
BY PAM, WHICH RECORDED A 19% RISE IN SALES.
PAM
One of IHF's greatest strengths is its roster of leading brands, and one of our
greatest opportunities since we were formed has been to take advantage of what
had sometimes been unrealized potential. PAM, the long-time category leader that
had not grown its market share for a number of years, is a terrific example. In
1999, we put PAM's leadership status to work, taking charge of the category as a
whole by asserting ourselves as its trendsetter and innovator. We increased
advertising support and carried out price promotions at key times such as baking
season. To position PAM as an ingredient, we continued to promote our lemon and
garlic flavors. And PAM for the Grill made headway in non-grocery channels. It
all added up to a very impressive performance. At a time when there were a
number of new competitors to the category, our sales rose 19% and our market
share climbed to 52%.
GULDEN'S
For Gulden's, one of our key initiatives in 1999 was to extend the traditional
Memorial Day to Labor Day mustard season through recipe promotions in the first
and fourth quarters. In addition, our new Zesty Honey Mustard proved so
successful in test markets that distribution was expanded to 11 markets. As we
head into 2000, we will be strengthening our affiliation with baseball - we had
already been the official mustard of the New York Yankees - by becoming the
official mustard of Major League Baseball.
CRUNCH 'N MUNCH
In the snack world, the product has to be there when the consumer's urge
strikes, and we're addressing that "impulse buy" by offering new snack-pack
sizes that can be found in convenience stores, at the checkout line and on the
shelves of grocery stores. In 1999, we tested a new distribution tool, direct
store delivery or DSD, to keep the product in front of the consumers. Based on
the success of this test, we will take Crunch 'n Munch to the majority of the
United States in 2000. On the promotional front, Crunch 'n Munch, along with
Chef Boyardee, will get great visibility this year as one of the co-sponsors of
the highly successful Joe Gibbs' NASCAR racing team. Crunch 'n Munch is also
joining Chef Boyardee in its sponsorship of the World Wrestling Federation.
18
<PAGE> 24
[LOGOS]
CANNED MEAT
WHEN THE CHANCE TO ACQUIRE THE LIBBY'S CANNED MEATS LINE CAME UP IN 1998, WE
JUMPED AT THE OPPORTUNITY BECAUSE IT WAS A PERFECT FIT WITH OUR OTHER BRANDS -
AND OUR STRATEGIC WAY OF THINKING. LIBBY'S, LIKE OUR OTHER TOP BRANDS, HAD A
REPUTATION FOR QUALITY, A NAME THAT WAS WIDELY RECOGNIZED AND TRUSTED AND, ABOVE
ALL, UNTAPPED GROWTH POTENTIAL. SINCE THE ACQUISITION, WE HAVE STARTED TO
REALIZE THAT POTENTIAL IN A NUMBER OF WAYS AND ON A NUMBER OF FRONTS. WE HAVE
IMPROVED PRODUCT FORMULATIONS. WE HAVE UNVEILED BRIGHTER, MORE VIBRANT
PACKAGING. WE HAVE INCREASED OUR PRESENCE IN NON-SUPERMARKET CHANNELS. AND WE
HAVE INTRODUCED A POWERFUL LINEUP OF NEW PRODUCTS, NINE IN ALL, THAT
DRAMATICALLY EXTENDS OUR POSITION IN THE CANNED MEATS CATEGORY. AS A RESULT OF
OUR EFFORTS, SALES FOR LIBBY'S CANNED MEATS ROSE 13% IN 1999 ON A PRO FORMA
BASIS, AND TOTAL SALES SURPASSED THE $100 MILLION MARK.
A BILLION DOLLAR CATEGORY
The canned meat category accounts for $1.2 billion in sales annually but, at the
outset of 1999, Libby's competed in less than 25% of the category. While Libby's
was the brand leader in the $44 million corned beef segment and a strong number
two in the $126 million Vienna sausage segment, it had no product presence in
such segments as chili ($300 million), chunk meat ($200 million) and stews ($135
million). With such a powerful brand name in our arsenal, there was clearly an
opportunity to expand our presence. So in October 1999 we simultaneously rolled
out nine new Libby's products that gave us a foothold in those segments and
others, as well as a great platform for growth in 2000. Introduced with
aggressive price promotions, the new products are chili with and without beans;
ham, turkey and chicken chunk meat; ham spread; beef stew; luncheon meat; and
sloppy joe sauce.
SPECIAL MARKETS
The Libby's line has also given our Special Markets group, which places IHF
products in non-supermarket channels such as food clubs, convenience, drug and
dollar stores, a tremendous boost in both sales and brand clout. That
performance should continue to improve as our nine new products gain momentum
in 2000.
Dennison's registered a 12% sales gain in 1999 by sharpening its focus in the
brand's core markets on the West Coast and expanding distribution in the special
markets channels. We repeated the successful Stand-Up Comedy promotion which
featured local comedians in stores, telling jokes and handing out coupons. In
concert with the in-store promotion, we sponsored "Dennison's Comedy Nights" at
local comedy clubs where consumers got in free with a can of Dennison's that was
then donated to food banks. During this promotional period, Dennison's enjoyed
double-digit sales growth.
19
<PAGE> 25
[LOGOS]
SOUTHWEST
OUR SOUTHWEST GROUP OFFERS A RANGE OF HIGH QUALITY PRODUCTS, INCLUDING DICED
TOMATOES AND SALSAS FROM RO*TEL AND BEANS UNDER THE LUCK'S AND RANCH STYLE
LABELS. IN 1999, SALES FOR THE GROUP - AND ALL THREE BRANDS - WERE UP
DRAMATICALLY. RO*TEL LED THE WAY WITH A 30% INCREASE IN SALES AS WE
STRATEGICALLY TRANSFORMED IT FROM A SUCCESSFUL REGIONAL PRODUCT TO A POWERFUL
BRAND NAME WITH NATIONAL PRESENCE AND STRENGTH.
RO*TEL
Tomatoes represent the largest canned vegetable segment, and in 1999, we
improved our competitive standing by taking Ro*Tel, one of our strongest
regional brands, onto the national stage. In addition to its regional strength,
Ro*Tel had a lot going for it. As with many of our other brands, we have
extended Ro*Tel's reach by promoting it as an ingredient. Backed by extensive
media and consumer promotions and a recipe-based print campaign, Ro*Tel's canned
tomato sales rose 23% and it is now available in over 80% of the United States.
In 2000, we will build on the momentum we established in 1999 by distributing
over 100 million coupons, 12 million recipe books and increasing our advertising
support throughout the country.
PICO DE GALLO
At the same time that Ro*Tel was breaking out of its heartland, we were
capitalizing on the brand's regional strength to introduce a new line of
salsas, Ro*Tel's Pico de Gallo. This gives us a foothold in a $660 million
category that's larger than catsup. We launched four flavors in Houston, Texas,
supporting them with radio advertising, billboards and coupons. We subsequently
moved into the rest of Texas and New Mexico where Ro*Tel is well known. In our
first year in the category, we have already risen to the #3 position, surpassing
such longstanding brands as Old El Paso and Taco Bell. In 2000, we will move
into other markets and add new flavors including picante, which accounts for
over 40% of the salsa category.
RANCH STYLE AND LUCK'S
Sales of both Ranch Style and Luck's beans were up for the year, boosted by our
success in non-supermarket channels such as food clubs and dollar stores. Both
brands also benefited from redirecting our sales force to focus on the key
markets and customers.
20
<PAGE> 26
[LOGOS]
STORE BRANDS, INTERNATIONAL & FOODSERVICE
IHF HAS BECOME INCREASINGLY VISIBLE IN STORE BRANDS, INTERNATIONAL AND
FOODSERVICE, THREE HIGHER GROWTH OPPORTUNITIES WHERE OUR PRODUCT BREADTH AND
BRANDED WAY OF THINKING GIVE US A DISTINCTIVE EDGE WITH BOTH CUSTOMERS AND
CONSUMERS.
STORE BRANDS
Early in 1999, we created our Store Brands division. The result was a much
larger and more visible company within the private label industry, a unified
sales force, a stronger marketing arm and more focused new product development.
The combined business has a lot to offer. On the retail side, customers get our
considerable brand strength, our category management capability and the cost and
efficiency benefits of one-stop shopping because we're a recognized leader in 13
categories. To the consumer, we bring a branded mindset, as evidenced by
high end products like granola and licensing agreements that are typical of the
segment. With continuing retail consolidation driving consistent growth, the
strength and vitality of our new Store Brands division puts us in a great
position to share in that growth.
INTERNATIONAL
On the strength of such powerful brand names as Chef Boyardee, Bumble Bee and
the most recent addition to our global lineup, Libby's, IHF is establishing a
powerful presence in North America. In Puerto Rico, where Chef Boyardee is the
leading brand, Libby's gives us a second trusted name under which to market
crossover products such as seafood. In Canada, we once again registered
double-digit sales growth as Chef Boyardee, PAM and Puritan canned stews - all
market leaders - achieved record sales and market share. The introduction of two
Chef Boyardee Special Recipes(R), Rotini Calabrese and Chicken Cacciatore, as
well as the rollout of Puritan Vienna Sausage and Libby's Corned Beef, were key
contributors in 1999. In addition, our acquisition of the Clover Leaf and
Paramount businesses gave us the number one position in the tuna and salmon
categories in Canada (See page 17). And our success continued in Mexico, where
our subsidiary, Productos del Monte, increased sales by 27%.
FOODSERVICE
The Foodservice division, which sells our products to schools, restaurants,
hospitals, hotels and airlines, had another terrific year, with sales up 19%. In
fact, aided by internal growth and acquisitions, we have now posted six
consecutive quarters of double-digit growth. As with Store Brands, our success
comes from being able to deliver a wide range of popular brands, with the
addition of Libby's strengthening an already robust roster.
21
<PAGE> 27
CONTENTS
FINANCIAL SECTION
23 Management's Discussion and Analysis
30 Report of Management and Independent Accountants
31 Consolidated Statements of Income
32 Consolidated Balance Sheets
33 Consolidated Statement of Stockholders' (Deficit) Equity
34 Consolidated Statements of Cash Flows
35 Notes to Consolidated Financial Statements
51 Quarterly Results of Operations
52 Selected Financial Data
53 Officers and Directors
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
International Home Foods, Inc. is a prominent North American manufacturer,
distributor and marketer of a diversified portfolio of shelf-stable food
products including entrees, side dishes, snacks, canned seafood, canned meats
and refrigerated surimi. The Company sells its products primarily in the United
States, Canada and Mexico, and is not dependent on any single or major group of
customers for its sales. The Company has three reportable business segments -
Branded Products, Seafood, and Private Label and Foodservice. Refer to footnote
9 for further details.
RESULTS BY SEGMENT
The following table sets forth certain segment information for the three year
period:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Segment net sales:
Branded Products $ 859,761 $ 732,003 $ 728,635
Seafood 678,989 443,229 193,291
Private Label and Foodservice 305,966 248,418 109,408
---------- ---------- ----------
Reportable segments 1,844,716 1,423,650 1,031,334
All Other 299,704 275,950 191,100
---------- ---------- ----------
Total $2,144,420 $1,699,600 $1,222,434
---------- ---------- ----------
Segment operating income:(1)
Branded Products $ 190,523 $ 157,092 $ 154,088
Seafood 43,662 30,677 9,524
Private Label and Foodservice 39,831 35,477 16,064
---------- ---------- ----------
Reportable segments 274,016 223,246 179,676
All Other 34,239 37,091 21,695
---------- ---------- ----------
Total $ 308,255 $ 260,337 $ 201,371
========== ========== ==========
</TABLE>
(1) Excludes restructuring charge of $118,087 in 1998, stock compensation
expense (income) of $264, ($594) and $46,366 in 1999, 1998 and 1997,
respectively, and unallocated corporate charges of $20,428, $12,797 and
$11,355 in 1999, 1998 and 1997, respectively.
The Company sells products in each of its segments primarily to grocery
wholesalers and distributors, grocery stores and supermarkets, convenience
stores, drug and mass merchants and warehouse clubs.
1999 HIGHLIGHTS
Net sales for 1999 were $2,144.4 million, an increase of $444.8 million, or
26.2%, over 1998. Net income of $103.4 million represents an increase of $87.0
million over 1998. The Company's 1999 results include:
o The acquisition of the Clover Leaf and Paramount canned seafood brands and
business of British Columbia Packers ("Clover Leaf/Paramount brands") and
the manufacturing, sales, distribution and marketing operations of Louis
Kemp ("Louis Kemp").
o The full year impact of the 1998 acquisitions of Puritan, Grist Mill Co.
and Trenton Home Foods ("Libby's").
o A non-cash deferred tax restructuring charge of $20.6 million ($0.27 per
diluted share).
o A $9.6 million gain (net of tax, or $0.13 per diluted share) related to the
sale of the Company's Polaner fruit spreads and spices business.
CONSOLIDATED STATEMENTS OF INCOME
The following table sets forth certain items in IHF's consolidated statements of
income as a percentage of net sales for each of 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
----- ----- -----
Cost of sales 53.2% 52.6% 50.0%
Marketing expenses 20.9% 19.7% 20.5%
Selling, general and administrative expenses 12.5% 13.1% 13.9%
Restructuring charge -- 6.9% --
Stock option compensation expense (income) -- -- 3.8%
----- ----- -----
Total operating expenses 86.6% 92.3% 88.2%
----- ----- -----
Income from operations 13.4% 7.7% 11.8%
Interest and other expense (income), net 4.6% 5.8% 8.5%
Gain on sale of business (0.7%) -- --
----- ----- -----
Income before provision for income taxes 9.5% 1.9% 3.3%
Provision for income taxes 4.7% 0.9% 1.3%
----- ----- -----
Income before extraordinary item 4.8% 1.0% 2.0%
Extraordinary loss -- -- 0.4%
----- ----- -----
Net income 4.8% 1.0% 1.6%
===== ===== =====
</TABLE>
Sales are reported net of discounts and returns. In general, raw material
costs constitute a majority of cost of goods sold for each of the Company's
products. The other components of cost of goods sold are labor and overhead
costs. As is customary in the industry, the Company incurs substantial marketing
expenses. Marketing expenses primarily include (i) trade promotions, which are
directed at obtaining retail display support, achieving key price points and
securing retail shelf space, (ii) advertising, which is primarily comprised of
television, radio, newspaper and magazine advertising and (iii) consumer
promotions, which include targeted coupons and on-package offers.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET SALES - The Company's net sales were $2,144.4 million in 1999 as compared to
$1,699.6 million in 1998, an increase of $444.8 million, or 26.2%. Approximately
$370.8 million of the increase was related to sales of businesses acquired
during 1999 and 1998, which were not fully reflected in the 1998 amounts.
23
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
This was offset by $45.2 million of lower sales due to the sale of Polaner in
February 1999. The remaining $119.2 million primarily reflects increased sales
of Branded Products ($53.8 million), Seafood ($49.3 million) and Private Label
and Foodservice ($5.4 million). (See Results by Segment).
COST OF GOODS SOLD - Cost of goods sold was $1,139.7 million in 1999 compared to
$893.4 million in 1998. Expressed as a percentage of net sales, cost of goods
sold increased to 53.2% from 52.6% in 1998. This was primarily attributable to
the inclusion of the results of the business acquired during 1999 and 1998,
which have products with lower average gross margins than the Company's existing
products. Excluding results of the 1999 acquisitions and divestiture and the
1998 acquisitions, cost of goods sold declined to 48.5% of net sales from 50.8%
in 1998. This improvement in cost of goods sold primarily reflects the effect of
decreases in some of the Company's commodity prices (particularly seafood),
changes in product mix and management's continuing cost reduction initiatives.
MARKETING EXPENSES - Marketing expenses increased to $448.8 million in 1999
compared to $335.1 million in 1998. Expressed as a percentage of net sales,
marketing expenses increased to 20.9% in 1999 from 19.7% in 1998. The increase
of $113.7 million was primarily attributable to the 1999 and 1998 acquisitions
($47.9 million) and increased marketing expenses related to Bumble Bee ($42.8
million). During 1999, Bumble Bee benefited from lower commodity costs which
were passed through to retailers in the form of trade promotion activities. Also
contributing to the increase were higher marketing expenses for Ro*Tel ($7.3
million) due to new product introductions and geographical expansion, Productos
Del Monte ("PDM") ($7.1 million), in line with the increase in sales, increases
in Chef Boyardee ($5.3 million) primarily due to new product introductions in
1999 and PAM ($4.1 million) due to a full year impact of July 1998 new product
introductions. This was partially offset by a decrease in Polaner ($9.4 million)
due to the sale of that business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S, G & A") - S,G & A expenses
increased to $268.1 million in 1999 from $223.5 million in 1998, an increase of
$44.6 million. However, S,G & A expenses as a percentage of net sales declined
to 12.5% in 1999 versus 13.1% in 1998. The 1999 and 1998 acquisitions
contributed $35.9 million to the increase in S,G & A expenses, partially offset
by a $3.7 million decrease due to the sale of Polaner. The increase in the
existing business ($12.4 million) includes certain non-recurring items such as
moving and relocation costs related to the closure of two facilities (See
Restructuring Charge) of $2.7 million and $1.5 million of combined costs
associated with the Company's tax restructuring program (See Provision for
Income Taxes) and the sale of securities on behalf of the Company's largest
stockholder. The overall decrease as a percentage of net sales reflects the more
efficient utilization of the Company's administrative resources.
RESTRUCTURING CHARGE - In September 1998, the Company recorded a restructuring
charge of $118.1 million ($75.3 million after tax) in conjunction with
management's plan to reduce costs and improve operational efficiencies. In 1999,
the Company incurred $2.7 million of non-capitalizable expenses for the transfer
and installation of the relocated equipment from its Vacaville, California and
Clearfield, Utah facilities related to this restructuring. These expenses are
reflected in the Company's selling, general and administrative expenses. Since
the 1998 restructuring, the Company has incurred $3.3 million of such expenses.
The Company also adopted a tax restructuring program in 1999 which is discussed
in Provision for Income Taxes.
STOCK OPTION COMPENSATION EXPENSE (INCOME) - In 1999, the Company recorded an
expense of $0.3 million for the amortization of the unearned stock compensation
charge. In 1998, the Company recorded a benefit of $0.6 million primarily for
lapsed stock options that were initially charged to compensation expense in
1997, offset by the amortization of the unearned stock compensation charge. The
charge has been fully amortized as of December 31, 1999.
INTEREST EXPENSE - Interest expense for 1999 increased to $100.9 million as
compared to $96.0 million in 1998, primarily due to higher interest rates,
offset slightly by a decrease in overall debt. This amount represents (i) $41.5
million of interest and commitment fees on the Company's $400.0 million of
Senior Subordinated Notes which have an annual interest rate of 10.375%, (ii)
interest and commitment fees of $49.5 million on term loans included in the
Company's Senior Bank Facilities, (iii) $4.9 million of interest expense on the
borrowings under the revolving credit facility included in the Company's Senior
Bank Facilities, (iv) $4.3 million of amortization of deferred financing costs,
(v) $0.3 million of interest on the Grist Mill term loan and (vi) $0.4 million
of other interest. The weighted average interest rate for the Senior Bank
Facilities in 1999 was 6.73%.
GAIN ON SALE OF BUSINESS - On February 5, 1999 the Company sold its Polaner
fruit spreads and spices business to B&G Foods, Inc. for $30.0 million in cash,
resulting in a gain of $15.8 million ($9.6 million, net of tax, or $0.13 per
diluted share).
PROVISION FOR INCOME TAXES - In 1999, the Company adopted a tax restructuring
program, which should reduce the Company's overall effective tax rate in future
years. As a result of this program, a one-time, non-cash tax charge of $20.6
million, or $0.27 per diluted share, was recorded in the third quarter ended
September 30, 1999 to reduce deferred tax assets that had been recorded in
prior years. This program was substantially
24
<PAGE> 30
implemented by December 31, 1999. Income taxes increased to $99.6 million in
1999 from $15.9 million in 1998, reflecting higher pre-tax income in 1999, the
write-off of certain deferred tax assets associated with the tax restructuring
and the absence of the tax benefit associated with the 1998 restructuring
charge. The effective tax rate was 49.1% in both 1999 and 1998 due to the tax
restructuring in 1999 and the write-off of non-deductible goodwill in 1998.
Excluding the tax restructuring noted above and the Company's 1998 restructuring
charge, the Company's adjusted effective tax rate was 38.9% for 1999 and 39.0%
for 1998. The Company anticipates sufficient future taxable income to realize
the deferred tax assets recorded at December 31, 1999. 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
charge in the period of such determination.
NET INCOME - For the year ended December 31, 1999, net income of $103.4 million
increased by $87.0 million compared to 1998, primarily reflecting the factors
discussed above. Excluding the tax restructuring charge and the gain on the sale
of Polaner in 1999, and the restructuring charge in 1998, net income increased
to $114.4 million from $91.8 million, or 24.6%.
Basic earnings per share were $1.41 and $0.22 for 1999 and 1998,
respectively, and diluted earnings per share were $1.36 and $0.21 for 1999 and
1998, respectively.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES - The Company's net sales were $1,699.6 million in 1998 as compared to
$1,222.4 million in 1997, an increase of $477.2 million or 39.0%. Approximately
$274.8 million of the increase related to sales of companies acquired subsequent
to September 30, 1997 (Productos Del Monte, Creative Products, Orleans Seafood,
Puritan, Grist Mill and Libby's) and therefore a full year's results were not
reflected in the 1997 amounts. Bumble Bee Seafoods' 1998 sales increased $223.8
million over 1997 and reflects sales for the full year 1998 as compared to sales
for the six months ended December 31, 1997 (Bumble Bee Seafoods was acquired on
July 1, 1997). Sales of the Company's other brands decreased $21.4 million,
primarily as a result of lower volume in the Company's snack food category due
to (i) competitive pressures in the crisp rice snack bars category, (ii) a
reduction in sales of Crunch 'n Munch products to certain mass merchandisers
due to reduced promotional activity, and (iii) continuing lower sales in Polaner
All-Fruit. (See Results by Segment).
COST OF GOODS SOLD - Cost of goods sold was $893.4 million in 1998 as compared
to $611.2 million in 1997. Expressed as a percentage of net sales, cost of goods
sold increased to 52.6% from 50.0% in 1997. This was primarily attributable to
the inclusion of the operations of businesses that were acquired during 1998 and
1997, which have lower gross margins than the Company's existing products.
Excluding results of these acquired businesses, cost of goods sold expressed as
a percentage of net sales for the Company's existing business decreased to 42.8%
in 1998 from 45.6% in 1997. This improvement primarily reflects management's
continuing cost reduction initiatives. Since the Company's recapitalization in
November 1996, a number of programs have been implemented that have improved
efficiency in the Company's manufacturing processes and its purchasing
activities. The improved gross margin of the Company's existing business in 1998
also reflects the effect of decreases in some of the Company's commodity prices
and price increases in Chef Boyardee canned pasta implemented in July 1997.
MARKETING EXPENSES - Marketing expenses increased to $335.1 million in 1998 as
compared to $250.7 million in 1997. The increase of $84.4 million was
attributable to the inclusion of the marketing activities of the businesses
acquired in 1998 and 1997, which aggregated $86.5 million, offset by $2.1
million of lower expenditures on existing brands, primarily resulting from a
reduction in coupon promotions and improved management of trade promotion
spending, offset by increased media spending. In late 1998, the Company shifted
the focus of its trade marketing dollars toward trade promotion funds which more
closely tie in product performance support at the store level versus automatic
"off-invoice" programs, whereby our products are discounted at the retailer
level without any specific performance requirements. The Company also began
focusing on consumer marketing and new product development. Expressed as a
percentage of net sales, total marketing expenses decreased to 19.7% in 1998
from 20.5% in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - S, G & A expenses increased to
$223.5 million in 1998 as compared to $170.6 million in 1997. Approximately
$47.5 million of the $52.9 million increase was attributable to the businesses
acquired in 1998 and 1997. The balance of the increase, or $5.4 million, was
attributable to existing businesses. Total S, G & A expenses as a percentage of
net sales declined to 13.1% for 1998 as compared to 13.9% for 1997. This
decrease reflects the more efficient utilization of the Company's administrative
resources as the Company's sales have grown.
RESTRUCTURING CHARGE - In September 1998, the Company recorded a pre-tax
restructuring charge of $118.1 million relating to the closure of the Vacaville,
California and Clearfield, Utah production facilities and the related impact of
the transfer of production to other facilities, mainly Milton, Pennsylvania, and
the write-down of goodwill associated with the Campfire crisp rice snack bar
brand and the Polaner fruit spreads brand. These charges impact the Company's
Branded Products segment.
The Vacaville, California production facility was closed in December 1998,
while the adjacent distribution center and the Clearfield, Utah facility which
closed in the second quarter of 1999. The total closure costs of approximately
$40.6 million represent $29.5 million of non-cash charges, primarily for the
write-down of property, plant and equipment to net realizable value, cash
charges of $9.0 million for severance and related benefit costs for affected
employees, and $2.1 million in facility closure costs. The severance and related
costs relate to the termination of approximately 600 employees, which includes
seasonal employees not eligible for severance, of which 553 had been terminated
as of December 31, 1998.
25
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
With the exception of outsourced products, the Company has moved all of the
products that were manufactured at the Vacaville facility to other facilities,
mainly Milton, Pennsylvania. Production of tomato paste used in Chef Boyardee
canned pasta products and of Ro*Tel diced tomatoes, both of which were
manufactured at the Vacaville facility prior to its closure, have been
outsourced. The manufacturing of the Campfire products was transferred from
Clearfield, Utah to the Company's Lakeville, Minnesota facility. The Company
anticipates that approximately $2.4 million of additional non-capitalizable
expenses will be incurred as the transfer and installation of the relocated
equipment from these facilities occurs. The Company incurred approximately $0.6
million of such costs in 1998.
The write-down of goodwill associated with the Campfire and Polaner brands
was $47.7 million and $29.7 million, respectively. These brands have been
impacted by their significant respective retail category sales declines, which
have continued to deteriorate in recent months. The current and projected sales
trends and its resulting impact on these brands' profitability have impaired
their valuation. Goodwill was written down to reflect each brand's fair value.
The Polaner business was subsequently sold in February 1999.
STOCK OPTION COMPENSATION (INCOME) EXPENSE - In 1998, the Company recorded a
benefit of $0.6 million primarily for lapsed stock options that were initially
charged to compensation expense in 1997, offset by the amortization of the
unearned stock compensation charge. In 1997, the Company recorded a $46.4
million non-cash stock option compensation charge relating to the indexed stock
options granted to senior management and other employees, and stock options
granted having exercise prices below the estimated fair market value of the
common stock.
INTEREST EXPENSE - Interest expense for 1998 decreased to $96.0 million as
compared to $104.9 million in 1997, primarily due to lower interest rates,
offset slightly by an increase in overall debt. This amount represents (i) $41.5
million of interest and commitment fees on the Company's $400.0 million of
Senior Subordinated Notes which have an annual interest rate of 10.375%, (ii)
interest and commitment fees of $46.2 million on term loans included in the
Company's Senior Bank Facilities, (iii) $4.9 million of interest expense on the
borrowings under the revolving credit facility included in the Company's Senior
Bank Facilities, (iv) $3.1 million of amortization of deferred financing costs
and (v) $0.3 million of interest on the Grist Mill term loan. The Company
amended its Senior Bank Facilities as of September 16, 1998. The weighted
average interest rate for the Senior Bank Facilities for 1998 was 7.18%.
PROVISION FOR INCOME TAXES - Income taxes increased to $15.9 million in 1998
from $15.8 million in 1997. The effective tax rate increased to 49.1% in 1998
from 39.7% in 1997 due to the 1998 write-off of non-deductible goodwill, for
which tax benefits were not available. Excluding the restructuring charge, the
effective tax rate was 39.0%.
NET INCOME - For the year ended December 31, 1998, net income of $16.5 million
decreased by $3.2 million versus 1997, primarily reflecting the factors
discussed above. Excluding the restructuring charge in 1998 and the non-cash
stock option compensation charge and extraordinary charge in 1997, net income
increased to $91.8 million from $52.1 million, or 76.2%.
Basic earnings per share were $0.22 and $0.31 for 1998 and 1997, respectively,
and diluted earnings per share were $0.21 and $0.30 for 1998 and 1997,
respectively.
RESULTS BY SEGMENT
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
BRANDED PRODUCTS - The Branded Products segment net sales increased $127.8
million, in 1999 or 17.5%, compared to 1998. This increase is primarily due to
the impact of a full twelve months of sales of Trenton Home Foods' Libby's
grocery sales ($74.0 million), with the remaining $53.8 million primarily
related to increased sales of Chef Boyardee ($27.4 million), PAM ($16.3
million), and Ro*Tel ($9.0 million, primarily due to geographical expansion).
These increases were partially offset by a continuing decline in our Campfire
crisp rice bar business ($5.4 million). The Company stopped producing crisp rice
bars as of December 31, 1999.
Sales of the Chef Boyardee brand increased approximately 6.7% in 1999
compared to 1998. Chef Boyardee canned pasta sales increased 8.5%, primarily due
to new product introductions, while microwave sales increased 7.0%, partially
offset by declines in Pizza Kits and Dinners.
PAM sales increased 18.8% and were primarily driven by high levels of
advertising support, continued consumer promotion support to improve the brand's
price/value relationship versus competitive brands, the July 1998 launch of two
new flavors (lemon and garlic) and increased sales to club stores and mass
merchandisers.
Segment operating income for Branded Products increased $33.4 million,
largely reflecting the factors discussed above. As a percentage of Branded
Products net sales, segment operating income increased from 21.5% in 1998 to
22.2% in 1999. This increase reflects stronger sales of higher margin canned
pasta and cooking spray brands.
SEAFOOD - The Seafood segment net sales increased $235.8 million in 1999, or
53.2%, over 1998, due to the 1999 acquisitions of the Clover Leaf/Paramount
brands ($131.6 million) and Louis Kemp ($48.8 million) and a full twelve months
impact of the September 1998 acquisition of Trenton Home Foods and the increase
in its related Libby's salmon sales ($6.1 million). The remaining
26
<PAGE> 32
$49.3 million represents increased sales of Bumble Bee product primarily due to
incremental distribution in mass merchandisers and club stores, increased sales
in Puerto Rico and increased sales in specialty seafood products. Segment
operating income increased $13.0 million in 1999, or 42.3%, primarily due to the
acquisitions. As a percentage of Seafood net sales, segment operating income
decreased slightly from 6.9% in 1998 to 6.4% in 1999.
PRIVATE LABEL AND FOODSERVICE - Net sales of the Private Label and Foodservice
segment, increased $57.5 million in 1999, or 23.2%, over 1998 primarily due to a
full twelve months of sales related to the April 1998 acquisition of Grist Mill
($39.4 million) and the September 1998 acquisition of Trenton Home Foods and its
related private label and foodservice sales ($12.7 million). The remaining $5.4
million increase is related to an increase in sales of other private label items
($3.8 million), primarily canned pasta, and an increase in existing foodservice
sales ($3.1 million), offset by a decrease in sales of the Company's private
label non-food products ($1.5 million). Segment operating income increased $4.4
million in 1999, or 12.3%, primarily due to the aforementioned acquisitions. As
a percentage of Private Label and Foodservice net sales, segment operating
income declined from 14.3% in 1998 to 13.0% in 1999.
ALL OTHER - The All Other net sales for 1999 increased $23.8 million, or 8.6%,
over 1998 primarily due to contract manufacturing sales to Nestle ($35.3
million) at prices which do not significantly exceed the Company's cost of
production, a full twelve months impact of the acquisition of Trenton Home Foods
and its related military and export sales ($14.4 million), a full twelve month's
impact of the acquisition of Puritan in March 1998 ($8.4 million), and an
increase in PDM sales ($17.7 million). These increases were offset by decreased
sales for Polaner which was sold in February 1999 ($45.2 million). In addition,
the Company's existing export business decreased approximately $8.1 million
primarily due to economic and weather-related factors. All Other operating
income decreased $2.9 million, or 7.7%, primarily due to the sale of Polaner.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
BRANDED PRODUCTS - The Branded Products segment net sales increased $3.4 million
in 1998 compared to 1997. This increase is primarily the net result of the
Trenton Home Foods acquisition and its Libby's grocery sales, which added $28.9
million in 1998 sales, and increased sales of Chef Boyardee ($1.6 million) and
PAM ($4.5 million) products. This was offset by lower sales of Campfire ($16.1
million), Crunch 'n Munch ($9.1 million), Ranch Style ($4.0 million) and
Dennison's ($3.0 million) products.
Sales of the Company's Chef Boyardee brand were relatively flat in 1998
versus 1997 levels. In terms of the brand's various product lines, canned pasta
sales increased 1% and Microwave sales were up 3%, partially offset by declines
in Pizza Kits and Dinners.
PAM sales increased due to higher category consumption and the introduction
of two new items, PAM Lemon Flavor Seasoning Spray and PAM Garlic Flavor
Seasoning Spray.
The decline in total Campfire sales ($16.1 million) is related to the
decline in crisp rice bar sales ($17.6 million). This decline was partially
offset by stronger sales of Campfire marshmallows during 1998 ($1.5 million).
The decline in Crunch 'n Munch sales ($9.1 million) is attributable to the loss
of sales to certain mass merchandisers that followed a reduction of promotional
activity ($10.2 million), partially offset by an increase in Crunch 'n Munch
glazed pretzels ($1.1 million). The declines in sales of both Ranch Style and
Dennison's reflects the change in the Company's trade promotion activity to
reduce the practice of off-invoicing.
Segment operating income of the Branded Products segment increased $3.0
million largely reflecting the factors discussed above. As a percentage of
Branded Products net sales, segment operating income increased from 21.1% in
1997 to 21.5% in 1998. This increase reflects efficiencies realized in the
Company's manufacturing activities.
SEAFOOD - The Seafood segment net sales and segment operating income reflect a
full year of both Bumble Bee Seafoods and Orleans Seafood as well as
approximately four months of Trenton Home Foods Libby's salmon operations in
1998, as compared to only six months of Bumble Bee Seafoods and approximately
one month of Orleans Seafood in 1997.
PRIVATE LABEL AND FOODSERVICE - Sales of the Private Label and Foodservice
segment increased $139.0 million due to the acquisition of Grist Mill ($80.1
million), a full year's results of Creative Products cooking sprays and personal
care products acquired October 1, 1997 ($40.8 million), the September 1998
acquisition of Trenton Home Foods and its related private label and foodservice
sales ($3.5 million), an increase in sales of other private label items ($9.1
million), primarily private label canned pasta, and an increase in foodservice
sales ($5.5 million). Segment operating income increased $19.4 million largely
reflecting the factors discussed above.
ALL OTHER - The All Other net sales increased $84.9 million primarily due to the
1998 acquisition of Puritan ($28.1 million), a full year's results of PDM, which
was acquired October 1, 1997 ($46.5 million), increases in Puerto Rico sales
($7.4 million), the acquisition of Trenton Home Foods and its related contract
manufacturing sales to Nestle and its military and export sales ($20.8 million)
and Canadian sales ($1.9 million), offset by a decrease in Polaner ($9.5
million) and export sales ($8.3 million). Segment operating income increased
$15.4 million largely reflecting the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - For the years ended December 31, 1999, 1998 and 1997, the Company
generated $152.2 million, $163.3 million and $71.9 million, respectively, of
cash flows from operating activities. The decrease in cash flows from operating
activities in 1999 of $11.1 million primarily reflects higher working capital
requirements offset by higher net income. Net income decreased $3.2 million in
1998, however income from operations excluding the
27
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
restructuring charge in 1998 of $114.8 million contributed to the increased
operating cash flows as compared to 1997.
Cash used for investing activities in 1999 declined to $122.6 million from
$311.4 million in 1998, due to fewer acquisitions and the proceeds of $30.0
million from the sale of Polaner, partially offset by an increase in capital
expenditures from $31.0 million to $44.7 million. In 1999, the Company through
its subsidiary, Bumble Bee Seafoods, Inc., acquired the Clover Leaf/Paramount
brands for approximately $40.4 million, and the Louis Kemp business for $68.8
million, (less cash acquired of $1.3 million for the 1999 acquisitions). In
1998, cash used for investing activities increased to $311.4 million from $253.8
million in 1997 due to the Company's purchase of the Libby's brand of retail and
international canned meat products and its Trenton, Missouri manufacturing
facility for $129.0 million ("Trenton Home Foods"); Grist Mill for approximately
$112.8 million, and through its Canadian subsidiary, International Home Foods
(Canada), Inc., the Company 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 $41.0 million (less cash acquired of $6.1
million for the 1998 acquisitions). In 1997, the Company acquired substantially
all of the assets of Bumble Bee Seafoods, Creative Products, and Orleans Seafood
for approximately $163.1 million, $52.0 million and $26.9 million, respectively
(less cash acquired of $1.8 million), as well as invested $13.6 million in
capital expenditures.
Cash (used in) provided by financing activities for 1999, 1998 and 1997 was
($32.6 million), $151.9 million, and $149.4 million, respectively. In 1999, the
Company borrowed $200.1 million to fund working capital and the Louis Kemp and
Clover Leaf/Paramount acquisitions and repaid $186.1 million, $51.5 million and
$5.6 million under the terms of its revolving credit facility, its Senior Bank
Facilities and Grist Mill term loan, respectively. In 1998, the Company borrowed
$210.0 million ($650.0 million in 1997) and repaid $31.2 million ($750.0 million
in 1997) under the terms of its Senior Bank Facilities and borrowed $385.0
million ($141.0 million in 1997) and repaid $360.9 million ($101.0 million in
1997) under its revolving credit facility. In addition, in 1998 the Company used
$57.2 million to purchase 4.4 million shares of its common stock from a minority
stockholder which it presently holds in treasury. In 1997, the Company received
$224.9 million from its issuance of common stock, net of issuance costs.
The Company is highly leveraged with Senior Bank Facilities that comprise
(i) a $516.5 million Tranche A term loan facility, maturing in 2004, (ii) a
$149.8 million Tranche B term loan facility, maturing in 2005, (iii) a $100.0
million Tranche B-1 term loan facility, maturing in 2006, and (iv) a $230.0
million revolving credit facility, maturing in 2004. As of December 31, 1999,
the outstanding balance of the Senior Bank Facilities was $776.0 million. In
addition to scheduled periodic repayments aggregating $73.1 million in 2000, the
Company is also required to make mandatory repayments of the loans under the
Senior Bank Facilities with a portion of its excess cash flow.
The Company also has outstanding $400.0 million of 10.375% Senior
Subordinated Notes due 2006, without any scheduled repayments of principal prior
to maturity, requiring semi-annual interest payments.
The Company has utilized significant cash flows from operations and
financing activities for strategic acquisitions. The Company acquired Bumble Bee
Seafoods in July 1997, Creative Products in October 1997, Orleans Seafood in
November 1997, Puritan in March 1998, Grist Mill in April 1998, Trenton Home
Foods in September 1998, Clover Leaf/Paramount brands in January 1999 and Louis
Kemp in July 1999, requiring cash outlays of approximately $163.1 million, $52.0
million, $26.9 million, $41.0 million, $112.8 million, $129.0 million, $40.4
million and $68.8 million, respectively. The acquisitions of Bumble Bee,
Creative Products, Orleans Seafoods, Puritan, Grist Mill, Trenton Home Foods,
Clover Leaf/ Paramount and Louis Kemp were funded through borrowings under the
Senior Bank Facilities and cash on hand. The Company acquired PDM in October
1997 for 3,127,415 shares of Common Stock.
Both the Senior Bank Facilities and the Senior Subordinated Notes contain a
number of significant covenants that, among other things, restrict the ability
of the Company to dispose of assets, incur additional indebtedness, repay other
indebtedness or amend other debt instruments, pay dividends, create liens on
assets, enter into capital leases, make investments or acquisitions, engage in
merger or consolidations, make capital expenditures, engage in certain
transactions with affiliates and otherwise restrict corporate activities. In
addition, under the Senior Bank Facilities the Company is required to comply
with specified minimum interest coverage, maximum indebtedness to earnings
before interest, taxes, depreciation and amortization (EBITDA) and minimum fixed
charge coverage ratios.
Management believes that cash generated from operations and borrowings
under the Senior Bank Facilities will be sufficient to satisfy working capital
requirements and required capital expenditures. Further expansion of the
business through acquisitions may require the Company to incur additional
indebtedness or issue equity securities. There can be no assurance that
additional debt or equity will be available to the Company, or if available will
be on terms acceptable to the Company.
SEASONALITY AND QUARTERLY RESULTS - The Company's historical inventory levels
are moderately seasonal and affected by the growing season for commodity
products such as tomatoes, fruits, beans and peanuts. As these products are
harvested in August through October, inventory levels tend to grow during this
period. The impact of seasonal inventories in the future will be lessened due to
the outsourcing of tomato based products resulting from the closing of the
Vacaville facility (See Restructuring). The Company's inventory levels in its
seafood businesses are also affected by the seasonal fishing cycle causing
increased
28
<PAGE> 34
inventory levels in April through May and September through October. The
Company's net sales and results of operations are generally not seasonal.
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, excluding the revolving credit facility, is
subject to either fixed interest rates or interest rate protection. At December
31, 1999, more than 50% of the Company's aggregate indebtedness, excluding the
revolving credit facility, is subject to such protection.
Under these agreements the Company agrees to exchange, at specified
intervals, the difference between fixed and floating interest amounts based on
agreed upon notional principal amounts. The notional amounts of interest rate
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. In accordance with the interest
rate agreements, the measurement of 3 month London Interbank Offering Rate
("LIBOR") and 6 month LIBOR, respectively, occurs on the first day of each
calculation period. For interest rate instruments that effectively hedge
interest rate exposures, the net cash amounts paid or received on the agreements
are accrued as incurred and recognized as an adjustment to interest expense.
The Company is exposed to credit loss in the event of non-performance by
the other parties to the interest rate protection agreements. All counterparties
are at least A rated by Moody's and Standard & Poor's. Accordingly, the Company
does not anticipate non-performance by the counterparties.
As of December 31, 1999, the Company had the following interest rate
instruments in effect for which the fair value of these instruments is based on
the current settlement cost (dollar amounts are in millions):
<TABLE>
<CAPTION>
Notional amount Fair value Period 3 month LIBOR rate 6 month LIBOR rate Company pays Company receives
- --------------- ---------- --------- ------------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
$600 $ -- 5/99-5/04 4.45% or less N/A 5.55% 3 month LIBOR
>4.45% and <5.55% N/A 3 month LIBOR 3 month LIBOR
5.55% to <6.30% N/A 5.55% 3 month LIBOR
6.30% or greater N/A 3 month LIBOR 3 month LIBOR
$200 $ (1.5) 8/98-11/01 N/A 5.20% or less 10.23% 10.375%
N/A >5.20% to <6.23% 6 month LIBOR + 4% 10.375%
N/A 6.23% to <6.75% 10.23% 10.375%
N/A 6.75% or greater 6 month LIBOR + 4% 10.375%
$150 $ 0.5 10/98-10/01 <3.76% N/A 3.76% 3 month LIBOR
3.76% to 5.75% N/A 3 month LIBOR 3 month LIBOR
>5.75% N/A 5.75% 3 month LIBOR
$225 $ -- 10/99-10/00 N/A <5.30% 5.30% 6 month LIBOR
N/A 5.30% to 8.00% 6 month LIBOR 6 month LIBOR
N/A >8.00% 8.00% 6 month LIBOR
------
$ (1.0)
======
</TABLE>
IMPACT OF RECENT ACCOUNTING STANDARDS - In June 1998, Statement of Financial
Accounting Standards ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities," was issued to establish standards for accounting for
derivatives and hedging activities and supersedes and amends a number of
existing standards. This statement requires all derivatives to be recognized in
the statement of financial position as either assets or liabilities and measured
at fair value. In addition, all hedging relationships must be designated,
reassessed and documented pursuant to the provisions of SFAS 133. SFAS 133, as
amended by SFAS 137, "Deferral of the Effective Date of SFAS 133," is effective
for fiscal years beginning after June 15, 2000. The Company is currently
evaluating the effect this statement will have on its financial statements.
READINESS FOR YEAR 2000 - Many computer systems and other equipment with
embedded chips or processors use only two digits to represent the year, and as a
result may have been unable to accurately process certain data before, during or
after the Year 2000 ("Y2K"). As a result, entities were at risk for possible
miscalculations or systems failures causing disruption in business operations.
This Y2K issue can arise at any point in the Company's manufacturing,
processing, distribution and financial chains.
To date, the Company has not experienced any systems failures or business
interruptions as a result of the Y2K issue. The costs associated with Y2K
readiness were not material to the Company's financial statements and were
funded through operating cash flow. The Company has not identified any
continuing material Y2K compliance issues, including those related to third
parties.
INFORMATION ABOUT FORWARD LOOKING STATEMENTS - The Company may make statements
about trends, future plans and the Company's prospects. Actual results may
differ from those described in such forward looking statements based on the
risks and uncertainties facing the Company, including but not limited to changes
in the economic conditions and changes in the food products manufacturing
industry, possible acquisitions of assets or business and other factors.
29
<PAGE> 35
REPORT OF MANAGEMENT AND INDEPENDENT ACCOUNTANTS
REPORT OF MANAGEMENT
Management is responsible for the preparation of the Company's consolidated
financial statements and related information appearing in this Annual Report.
Management believes that the consolidated financial statements fairly reflect
the form and substance of transactions and that the financial statements
reasonably present the Company's financial position and results of operations in
conformity with generally accepted accounting principles. Management also has
included in the Company's financial statements amounts that are based on
estimates and judgments which it believes are reasonable under the
circumstances.
The independent accountants audit the Company's consolidated financial
statements in accordance with generally accepted auditing standards and provide
an objective, independent review of the fairness of reported operating results
and financial position.
The Board of Directors of the Company has an Audit Committee composed of
two non-management Directors. The Committee meets periodically with financial
management and the independent accountants to review accounting, control,
auditing and financial reporting matters.
/s/ C. DEAN METROPOULOS /s/ LAWRENCE K. HATHAWAY
C. Dean Metropoulos Lawrence K. Hathaway
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
/s/ CRAIG D. STEENECK
Craig D. Steeneck
Senior Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of International Home Foods, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of
International Home Foods, Inc. and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 11, 2000
30
<PAGE> 36
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share and Share Amounts) Years Ended December 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 2,144,420 $ 1,699,600 $ 1,222,434
Cost of sales 1,139,702 893,398 611,153
------------ ------------ ------------
Gross profit 1,004,718 806,202 611,281
Marketing expenses 448,788 335,118 250,683
Selling, general and administrative expenses 268,103 223,544 170,582
Restructuring charge - -- 118,087 --
Stock option compensation expense (income) 264 (594) 46,366
------------ ------------ ------------
Income from operations 287,563 130,047 143,650
Interest expense 100,935 95,987 104,933
Gain on sale of business (15,779) -- --
Other expense (income), net (606) 1,738 (1,046)
------------ ------------ ------------
Income before provision for income taxes 203,013 32,322 39,763
Provision for income taxes 99,583 15,859 15,795
------------ ------------ ------------
Income before extraordinary item 103,430 16,463 23,968
Extraordinary loss, net of tax benefit of $2,863 (Note 8) -- -- 4,336
------------ ------------ ------------
Net income $ 103,430 $ 16,463 $ 19,632
============ ============ ============
Basic earnings per share:(1)
Income before extraordinary item $ 1.41 $ 0.22 $ 0.38
Extraordinary item -- -- (0.07)
------------ ------------ ------------
Net income $ 1.41 $ 0.22 $ 0.31
============ ============ ============
Shares used in computing basic earnings per share 73,538,693 76,551,789 64,020,472
============ ============ ============
Diluted earnings per share:(1)
Income before extraordinary item $ 1.36 $ 0.21 $ 0.36
Extraordinary item -- -- (0.06)
------------ ------------ ------------
Net income $ 1.36 $ 0.21 $ 0.30
============ ============ ============
Shares used in computing diluted earnings per share 76,059,224 79,800,116 66,242,672
============ ============ ============
</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.
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE> 37
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share and Share Amounts) December 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,310 $ 17,201
Accounts receivable, net of allowances 180,671 141,422
Inventories 282,911 235,730
Prepaid expenses and other current assets 34,345 17,522
Deferred income taxes 16,113 19,616
----------- -----------
Total current assets 528,350 431,491
Property, plant and equipment, net 306,042 262,771
Intangible assets, net 432,732 396,617
Deferred income taxes 262,563 330,651
Other assets 19,686 24,667
----------- -----------
Total assets $ 1,549,373 $ 1,446,197
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Due to banks $ 22,457 $ 17,470
Current portion of long-term debt 73,084 51,694
Revolving credit facility 78,536 62,526
Accounts payable 69,669 44,854
Accrued salaries, wages and benefits 22,288 22,780
Accrued advertising and promotion 39,550 39,102
Accrued interest 10,278 16,311
Other accrued liabilities 38,967 33,378
----------- -----------
Total current liabilities 354,829 288,115
Long-term debt 1,024,378 1,102,830
Post-retirement benefits obligation 27,216 24,487
Other non-current liabilities 898 861
----------- -----------
Total liabilities 1,407,321 1,416,293
----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
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 78,218,034 and 77,584,348 shares 782 776
Additional paid-in capital 62,475 56,051
Treasury stock, at cost: 4,400,000 shares (57,200) (57,200)
Retained earnings 137,927 34,497
Accumulated other comprehensive loss (1,932) (4,220)
----------- -----------
Total stockholders' equity 142,052 29,904
----------- -----------
Total liabilities and stockholders' equity $ 1,549,373 $ 1,446,197
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 38
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
Treasury Stock Accumulated
Common Stock Additional ----------------- Retained Other
-------------- Paid-In Amount (Deficit) Comprehensive
(Amounts in Thousands) Shares Amount Capital Shares at Cost Earnings Loss Total
------ ------ ---------- ------ -------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 61,923 $619 $(261,318) -- $ -- $ (1,598) $(1,898) $(264,195)
Comprehensive Income:
Net income 19,632 19,632
Foreign currency translation (1,480) (1,480)
---------
Total comprehensive income 18,152
---------
Effect of merger transaction 2,220 2,220
Issuance of common stock(1) 15,233 153 224,965 225,118
Productos Del Monte (PDM) acquisition 39,969 39,969
Stock option compensation 46,366 46,366
------ ---- --------- ------ -------- -------- ------- ---------
Balance at December 31, 1997 77,156 $772 $ 52,202 -- $ -- $ 18,034 $(3,378) $ 67,630
Comprehensive Income:
Net income 16,463 16,463
Foreign currency translation, net of
tax expense of $204 (593) (593)
Minimum pension liability (249) (249)
---------
Total comprehensive income 15,621
---------
Sale of shares under benefit plans,
including tax benefits 429 4 4,443 4,447
Purchase of treasury stock (4,400) (57,200) (57,200)
Stock option compensation (594) (594)
------ ---- --------- ------ -------- -------- ------- ---------
Balance at December 31, 1998 77,585 $776 $ 56,051 (4,400) $(57,200) $ 34,497 $(4,220) $ 29,904
Comprehensive Income:
Net income 103,430 103,430
Foreign currency translation, net of tax
expense of $42 2,068 2,068
Minimum pension liability 220 220
---------
Total comprehensive income 105,718
---------
Sale of shares under benefit plans,
including tax benefits 633 6 5,460 5,466
Stock option compensation 264 264
Other 700 700
------ ---- --------- ------ -------- -------- ------- ---------
Balance at December 31, 1999 78,218 $782 $ 62,475 (4,400) $(57,200) $137,927 $(1,932) $ 142,052
====== ==== ========= ====== ======== ======== ======= =========
</TABLE>
(1) Share amounts are restated to give effect to the 5.3292 for one reverse
stock split on November 17, 1997.
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 39
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
(Dollars in Thousands) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 103,430 $ 16,463 $ 19,632
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 42,715 39,997 30,080
Deferred income taxes 71,591 4,365 2,584
Restructuring charge -- 114,773 --
Gain on sale of business (15,779) -- --
Stock option compensation expense (income) 264 (594) 46,366
Extraordinary item, net of tax -- -- 4,336
Changes in assets and liabilities (net of acquisitions
and divestiture)
Increase in accounts receivable (22,508) (23,012) (13,249)
(Increase) decrease in inventories (24,247) 19,092 1,046
(Increase) decrease in other current assets (16,633) 9,079 (3,526)
Increase in accounts payable 20,675 637 82
(Decrease) increase in accrued liabilities (7,543) (14,865) 3,247
Increase in non-current assets (3,129) (4,134) (8,175)
Increase (decrease) in non-current liabilities 3,370 1,521 (10,729)
Other -- -- 247
--------- --------- ---------
Net cash provided by operating activities 152,206 163,322 71,941
--------- --------- ---------
INVESTING ACTIVITIES
Purchases of plant and equipment, net (44,690) (30,968) (13,563)
Purchase of businesses, net of cash acquired (107,890) (280,443) (240,246)
Proceeds from sale of business 30,000 -- --
--------- --------- ---------
Net cash used in investing activities (122,580) (311,411) (253,809)
--------- --------- ---------
FINANCING ACTIVITIES
Increase in due to banks 4,987 5,184 2,157
Issuance of long-term bank debt -- 210,000 650,000
Repayment of long-term bank (57,062) (31,193) (750,000)
Payment of debt issuance costs -- (1,841) (1,188)
Borrowings from revolving credit facility 200,081 385,000 141,000
Repayment of borrowings from revolving credit facility (186,054) (360,911) (101,000)
Proceeds from exercise of stock options 5,466 2,843 --
Issuance of common stock, net of issuance costs -- -- 224,948
Purchase of treasury stock -- (57,200) --
Payment to American Home Products Corporation as
final purchase price adjustment -- -- (16,556)
--------- --------- ---------
Net cash (used in) provided by financing activities (32,582) 151,882 149,361
--------- --------- ---------
Effect of exchange rate changes on cash 65 1,536 (1,480)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (2,891) 5,329 (33,987)
Cash and cash equivalents at beginning of year 17,201 11,872 45,859
--------- --------- ---------
Cash and cash equivalents at end of year $ 14,310 $ 17,201 $ 11,872
========= ========= =========
Cash paid during the year for:
Interest, net of capitalized amounts $ 103,044 $ 83,619 $ 103,199
Income taxes $ 21,947 $ 11,530 $ 1,579
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts and where noted in Millions)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the operations of the subsidiaries
of International Home Foods, Inc., all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles and necessarily include amounts based
on judgments and estimates made by management. Actual results could differ from
these estimates. Estimates are used when accounting for potential bad debts,
inventory obsolescence and spoilage, trade and promotion allowances, coupon
redemptions, depreciation and amortization, stock option compensation, deferred
income taxes and tax valuation allowances, pension and post-retirement benefits,
restructuring charges and contingencies, among other items.
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, 1999 and 1998 consist of cash in banks and investments in money
market funds.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined on a
first-in, first-out basis. Raw fish inventories are stated at specifically
identified cost.
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
the efficiency of production or to 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 5-20 years for furniture and fixtures. Leasehold
improvements are amortized over the remaining lives of the respective leases.
INTANGIBLE AND OTHER ASSETS
As of December 31, 1999, the Company's intangible and other assets include
goodwill and trademarks for the acquisition of Heritage which are amortized over
20 years and have a net book value of $6.1 million, goodwill for the
acquisitions of Ranch Style, Ro*Tel, Bumble Bee Seafoods, Inc., Productos Del
Monte ("PDM"), Creative Products, Inc., Orleans Seafoods, Inc., Puritan, Grist
Mill Co., Libby's, Clover Leaf /Paramount and Louis Kemp, all of which are
amortized over 40 years with a net book value of $330.9 million, tradenames for
Bumble Bee, Libby's and Louis Kemp which are amortized over 40 years with a net
book value of $68.0 million, Libby's trademarks which are amortized over 15
years with a net book value of $22.8 million and other intangible assets with a
net book value of $1.4 million, which are amortized over ten years. Intangible
assets of $3.5 million acquired prior to 1971 are not amortized.
The Company continually reviews intangible assets to evaluate whether
changes have occurred that would suggest that they may be impaired based on the
estimated undiscounted cash flows and operating profit of the business acquired
over the remaining amortization period. If this review indicates that the
remaining estimated useful life of goodwill requires revision or that goodwill
is not recoverable, the carrying amount of the goodwill is reduced by the
estimated shortfall of cash flows on a discounted basis.
Other assets are primarily comprised of deferred financing costs incurred
in connection with the agreements for bank and other indebtedness, which are
being amortized over the terms of the financings using the interest method.
Amortization of deferred financing costs is included in interest expense.
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment to customers.
CONCENTRATION OF CREDIT RISK
The Company sells primarily to customers in the retail trade, grocery
wholesalers and distributors, grocery stores and supermarkets, mass
merchandisers, drug stores, foodservice distributors, convenience stores,
warehouse clubs and other channels of distribution. These customers are located
primarily in North America (United States, Canada and Mexico). The Company
conducts business based on periodic evaluations of its customers' financial
condition. While continuing consolidation and competitiveness in the retail
industry presents an inherent uncertainty, the Company does not believe a
significant risk of loss from a concentration of credit exists.
RESEARCH AND DEVELOPMENT
Research and Development costs are charged to expense as incurred and amounted
to $2,620, $2,796 and $1,913 for the years ended December 31, 1999, 1998 and
1997, respectively.
ADVERTISING
Advertising costs are charged to expense as incurred. Advertising costs amounted
to $53,399, $64,781 and $63,675 for the years ended December 31, 1999, 1998 and
1997, respectively.
35
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are translated
at year-end exchange rates. Translation gains and losses are not included in
determining net income, but are recorded in Accumulated Other Comprehensive
Income as a separate component of stockholders' equity. For the Company's
Mexican subsidiary, PDM, which operated in a highly inflationary economy in 1998
and the Company's Ecuadorian subsidiaries, which operated in a highly
inflationary economy in 1999 and 1998, the U.S. dollar is the functional
currency and translation gains and losses are included in determining net income
in those years. Foreign currency transaction gains and losses are included in
determining net income.
FINANCIAL INSTRUMENTS
The acquisition cost of interest rate instruments 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 the agreements.
INCOME TAXES
The Company's income tax provision has been prepared with deferred income taxes
provided for differences in the financial statement and tax bases of assets and
liabilities. The Company intends to permanently reinvest the undistributed
earnings of its Canadian operations; accordingly, deferred income taxes, which
would not be significant, have not been provided for the repatriation of such
undistributed earnings.
RECLASSIFICATIONS
Certain 1998 and 1997 amounts have been reclassified to conform with the 1999
presentation.
IMPACT OF RECENT ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards ("SFAS") 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued to
establish standards for accounting for derivatives and hedging activities and
supersedes and amends a number of existing standards. This statement requires
all derivatives to be recognized in the statement of financial position as
either assets or liabilities and measured at fair value. In addition, all
hedging relationships must be designated, reassessed and documented pursuant to
the provisions of SFAS 133. SFAS 133, as amended by SFAS 137, "Deferral of the
Effective Date of SFAS 133," is effective for fiscal years beginning after June
15, 2000. The Company is currently evaluating the effect this statement will
have on its financial statements.
2 INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials $ 65,483 $ 47,468
Work in progress 8,841 18,101
Finished goods 208,587 170,161
-------- --------
Total $282,911 $235,730
======== ========
</TABLE>
3 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Land $ 22,188 $ 21,468
Buildings and leasehold improvements 126,113 124,602
Machinery and equipment 307,608 253,591
Furniture and fixtures 31,393 28,404
-------- --------
487,302 428,065
Less: accumulated depreciation 181,260 165,294
-------- --------
Total $306,042 $262,771
======== ========
</TABLE>
Depreciation expense totaled $25,989, $25,350 and $18,333 for the years ended
December 31, 1999, 1998 and 1997, respectively.
4 INTANGIBLE AND OTHER ASSETS
Intangible assets are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill, tradenames and trademarks $474,638 $426,056
Less: accumulated amortization 41,906 29,439
-------- --------
Intangible assets, net $432,732 $396,617
======== ========
</TABLE>
Amortization of intangibles totaled $12,467, $11,580 and $7,006 for the
years ended December 31, 1999, 1998 and 1997, respectively. All fully amortized
intangibles have been retired.
Other assets include deferred financing costs, net of amortization, in
connection with the Company's issuance of long-term debt. At December 31, 1999
and 1998, net deferred financing costs, were $18,300 and $22,475, respectively.
Amortization expense for the years ended December 31, 1999, 1998, and 1997
excluding the write-off due to debt refinancing in 1997 (Note 8), amounted to
$4,259, $3,067 and $4,741, respectively.
36
<PAGE> 42
5 ACQUISITIONS
On July 19, 1999, the Company, through its subsidiary Bumble Bee Seafoods,
Inc., acquired the manufacturing, sales distribution and marketing operations of
Louis Kemp from Tyson Foods, Inc. for $68,784, including transaction fees. The
Company financed this acquisition with borrowings under its Senior Bank
Facilities (See Note 12). Louis Kemp manufactures and sells refrigerated and
frozen surimi products. Surimi-based products are made from North Pacific ocean
pollack and whiting fish meats. These products are primarily sold under the
tradename Louis Kemp and other tradenames such as Captain Jac, SeaFest and
Pacific Mate.
On January 19, 1999, the Company, through its subsidiary Bumble Bee
Seafoods, Inc., acquired the Clover Leaf and Paramount canned seafood brands and
business of British Columbia Packers ("Clover Leaf/Paramount brands") from
George Weston Ltd. of Canada for a total purchase price of $40,394, including
transaction fees. The acquisition was funded with borrowings under the Company's
Senior Bank Facilities and cash on hand.
On September 8, 1998 the Company, through its subsidiary Trenton Home
Foods, Inc., acquired the Libby's brand of retail and international canned meat
products, and the Trenton, Missouri manufacturing facility from Nestle USA, Inc.
for $129,032, including transaction fees. The Company, through a fifteen year
license agreement with Nestle, will continue to use the Libby's trademark. In
addition, the Company and Nestle have entered into a long-term supply agreement
through December 31, 2002 with three additional one-year terms, at the option of
Nestle, under which the Company will continue to manufacture Nestle foodservice
products at the facility in Trenton, Missouri. This supply agreement provides
that the Company is reimbursed for the variable cost per case, as defined, for
all product which has been produced and packaged by the Company and shipped on
behalf of Nestle, plus an amount paid quarterly which approximates the Company's
fixed costs. The Company financed the acquisition of the Libby's canned meat
business with borrowings under its Senior Bank Facilities. Libby's is a leading
domestic manufacturer, importer and global marketer of canned meat products,
including Vienna sausages, corned beef, salmon, hash and chili, and the
Spreadables and Broadcast brands.
On April 14, 1998, the Company acquired all of the stock of Grist Mill Co.
("Grist Mill") for $112,825, including transaction fees. The Company financed
the acquisition with borrowings under its Senior Bank Facilities. Grist Mill is
a manufacturer and distributor of private label 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.
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 $41,009, including transaction fees. The
acquisition was funded with borrowings under the Company's Senior Bank
Facilities. 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.
On November 21, 1997 the Company acquired substantially all of the assets
of Orleans Seafood, Inc. ("Orleans") for $26,900, including transaction fees.
The acquisition was funded through borrowings under the Company's Senior Bank
Facilities. Orleans is a specialty canned seafood manufacturer and marketer.
On October 1, 1997, the Company acquired all of the stock of Creative
Products, Inc. of Rossville ("Creative Products") for $52,000 in cash. The
acquisition was funded through borrowings under the Company's Senior Bank
Facilities. Creative Products is the leading manufacturer of cooking spray sold
to private label customers and foodservice 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 October 1, 1997, the Company acquired PDM from an affiliate of Hicks
Muse Tate & Furst, Incorporated, ("Hicks Muse"), the Company's largest
stockholder 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 entities under common control. Accordingly, the historical
accounting values of PDM were carried over for financial accounting purposes. In
February 1998, the Company settled a dispute between the Hicks Muse affiliate
and PDM's former owners. The settlement was received by the Company and resulted
in a reduction of goodwill recorded by the Company.
Effective July 1, 1997, the Company consummated the acquisition of
substantially all of the assets (the "Assets") of Bumble Bee Seafoods, Inc. and
its wholly-owned subsidiaries, Bumble Bee International, Inc., Santa Fe Springs
Holding Company and Commerce Distributing Company ("CDC") (collectively, the
"Sellers"), pursuant to the terms of an Asset Purchase and Sale Agreement dated
as of May 1, 1997 (the "Agreement") by and among the Sellers, the Company and
its wholly-owned subsidiary, Bumble Bee Acquisition Corporation. The aggregate
consideration paid for the Assets was $163,100, including transaction fees. The
Assets consisted 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
37
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
approximately $110,000 of 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.
The excess of cost over fair value of net assets acquired for the above
acquisitions will be amortized over 15 to 40 years (Note 1). These acquisitions
have been accounted for using the purchase method of accounting, with the
exception of PDM, and the operating results of the acquired companies have been
included in the consolidated financial statements from the dates of acquisition.
The information below includes non-cash investing and financing activities
supplemental to the consolidated statements of cash flows. A summary of the
excess of cost over fair value of net assets acquired resulting from purchase
price allocations for the 1999 and 1998 acquisitions is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- ----------------------------------
Clover Leaf/ Trenton
Louis Paramount Home
Kemp Brands Foods Grist Mill Puritan
-------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Cost of acquisition, including transaction fees $ 68,784 $ 40,394 $129,032 $112,825 $ 41,009
Less: acquired assets
Current assets 10,470 38,962 20,218 18,830 4,620
Property, plant and equipment 18,111 1,180 31,720 38,190 6,473
Other assets -- 287 --
Add: liabilities assumed 570 9,411 5,528 5,016 --
-------- -------- -------- -------- --------
Excess of cost over net assets acquired,
including identifiable intangibles $ 40,773 $ 9,663 $ 82,622 $ 60,534 $ 29,916
======== ======== ======== ======== ========
</TABLE>
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisitions and divestiture had occurred as of the
beginning of 1998, and reflect pro forma adjustments for goodwill, interest
expense and tax expense:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------- ----------------------------------------
IHF(1) Acquisitions(2) Total IHF(1) Acquisitions(3) Total
---------- --------------- ---------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,139,429 $ 67,499 $2,206,928 $1,649,440 $ 386,957 $2,036,397
Operating income $ 287,274 $ 508 $ 287,782 $ 125,789 $ 19,731 $ 145,520
Net income/(loss) $ 93,516 $ (1,316) $ 92,200 $ 13,864 $ 1,252 $ 15,116
Earnings per share:
Basic $ 1.27 $ (0.02) $ 1.25 $ 0.18 $ 0.02 $ 0.20
Diluted $ 1.23 $ (0.02) $ 1.21 $ 0.17 $ 0.02 $ 0.19
</TABLE>
(1) Excludes operations and gain on sale of Polaner (See Note 6).
(2) Amounts include Louis Kemp and Clover Leaf/Paramount brands.
(3) Amounts include Louis Kemp, Clover Leaf/Paramount brands, Puritan, Grist
Mill and Trenton Home Foods.
The unaudited pro forma consolidated results do not purport to be
indicative of results that would have occurred had the acquisitions been in
effect for the period presented, nor do they purport to be indicative of the
results that will be obtained in the future.
38
<PAGE> 44
6 SALE OF BUSINESS
On February 5, 1999 the Company sold its Polaner fruit spreads and spices
business to B&G Foods, Inc. for approximately $30.0 million in cash resulting in
a gain of $15.8 million ($9.6 million, net of tax, or $0.13 per diluted share).
7 RESTRUCTURING
In September 1998, in conjunction with management's plan to reduce costs and
improve operational efficiencies, the Company recorded a restructuring charge of
$118.1 million ($75.3 million after tax, or $0.94 per diluted share). The
principal actions in the restructuring plan involved the closure of the
Vacaville, California and Clearfield, Utah production facilities and the related
impact of the transfer of production to other facilities, mainly Milton,
Pennsylvania, and the write-down of goodwill associated with the Campfire crisp
rice snack bar brand ($47.7 million) and the Polaner fruit spreads brand ($29.7
million).
The Vacaville, California production facility ceased operations in December
1998, while the adjacent distribution center and the Clearfield, Utah facility
closed in the second quarter of 1999. The total closure costs of approximately
$40.6 million represent $29.5 million of non-cash charges, primarily for the
write-down of property, plant and equipment to net realizable value, cash
charges of $9.0 million for severance and related benefit costs for affected
employees, and $2.1 million in facility closure costs. The severance and related
costs relate to the termination of approximately 600 employees, which includes
seasonal employees not eligible for severance, of which 572 had been terminated
as of December 31, 1999.
With the exception of outsourced products, the Company has moved all of the
products that were manufactured at the Vacaville facility to other facilities,
mainly Milton, Pennsylvania. Production of tomato paste used in Chef Boyardee
canned pasta products and of Ro*Tel diced tomatoes, both of which were
manufactured at the Vacaville facility prior to its closure, have been
outsourced. The manufacturing of the Campfire products has been transferred from
Clearfield, Utah to the Company's Lakeville, Minnesota facility. The Company
incurs non-capitalizable expenses as the transfer and installation of the
relocated equipment from these facilities occurs. The Company incurred
approximately $2.7 million and $0.6 million of such non-capitalizable costs in
1999 and 1998, respectively which are reflected in the Company's selling,
general and administrative expenses.
At December 31, 1999, $3.2 million of restructuring charges remained in
other accrued liabilities. This amount is primarily comprised of multi-employer
pension plan settlements and certain other employee benefit related costs.
Payments totaling $7.9 million have been made to date, primarily for severance,
related benefit costs and facility closure costs, including $4.6 million in
1999.
8 EXTRAORDINARY ITEM
In 1997, the Company recorded an extraordinary after-tax charge of $4.3 million
(net of $2.9 million of related tax benefit), or $0.06 per share on a diluted
basis associated with the write-off of unamortized deferred financing costs
included in other assets in connection with the Senior Bank Facilities amendment
in November 1997.
9 BUSINESS SEGMENT INFORMATION
The Company manufactures and markets a diversified portfolio of shelf-stable
food products including entrees, side dishes, snacks, canned fish, canned meats
and refrigerated surimi. The Company sells its products primarily in the United
States, Canada and Mexico, and is not dependent on any single or major group of
customers for its sales.
The Company has three reportable business segments - Branded Products,
Seafood, and Private Label and Foodservice. Branded Products is defined as U.S.
grocery sales for the following brands: Chef Boyardee, Libby's canned meats,
Southwest brands (Luck's, Ro*Tel, Dennison's and Ranch Style), Specialty brands
(PAM, Gulden's, Maypo, Wheatena, Maltex and G. Washington's) and Snack brands
(Crunch 'n Munch, Jiffy pop and Campfire). Seafood includes all sales for the
Bumble Bee, Orleans, Libby's, Clover Leaf, Paramount and Louis Kemp brands of
seafood products as well as private label and foodservice seafood sales. Private
Label and Foodservice includes all private label canned pasta, cooking spray,
fruit snacks, ready-to-eat cereals, wholesome snack bars, pie crust and personal
care products and the sales to foodservice distributors. The All Other category
is comprised of sales of Polaner products, sales to the military, contract sales
to Nestle and international sales, which includes branded, private label and
foodservice sales in Canada, Mexico, Puerto Rico and other export sales.
The Company sold its Polaner fruit spreads and spices business on February
5, 1999 (Note 6). For comparative purposes, the Company has reclassified the
Polaner sales, operating income and depreciation and amortization from the
Branded Products and Private Label and Foodservice segments, where it was
reported in the Company's 1998 Annual Report, to the All Other category for
1999, 1998 and 1997. The Company has also reclassified certain Libby's sales,
operating income and depreciation and amortization from the Branded Products
segment, where it was reported in the 1998 Annual Report, to Private Label and
Foodservice and All Other to better reflect management's monitoring of the
business.
39
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company sells its products in each of its segments primarily to grocery
wholesalers and distributors, grocery stores and supermarkets, convenience
stores, drug and mass merchants and warehouse clubs.
The Company evaluates segment performance based upon segment operating
income (earnings before interest expense, net other [income] expense, and income
taxes excluding unusual or infrequently occurring items, restructuring charges
and stock compensation expense [income]). Certain centrally incurred costs
(Corporate), are not allocated to the operating segments. Asset and long-lived
expenditure information is not available at the segment level, is not reviewed
by the chief operating decision maker, and is therefore not disclosed.
The Company allocates certain charges, including depreciation,
amortization, agent and broker commissions, storage, packing and shipping
charges, and administrative costs for salaries, insurance and employee benefits,
to its Branded Products segment, and to its Private Label and Foodservice
segment based on a percentage of net sales.
<TABLE>
<CAPTION>
Private Total
Branded Label and Reportable All
Products Seafood Foodservice Segments Other Total
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999
Net sales $ 859,761 $ 678,989 $ 305,966 $1,844,716 $ 299,704 $2,144,420
Segment operating income 190,523 43,662 39,831 274,016 34,239 308,255
Depreciation and amortization 16,611 7,503 8,269 32,383 6,073 38,456(1)
1998
Net sales 732,003 443,229 248,418 1,423,650 275,950 1,699,600
Segment operating income 157,092 30,677 35,477 223,246 37,091 260,337
Depreciation and amortization 17,904 5,817 7,285 31,006 5,924 36,930(1)
1997
Net sales 728,635 193,291 109,408 1,031,334 191,100 1,222,434
Segment operating income 154,088 9,524 16,064 179,676 21,695 201,371
Depreciation and amortization 18,062 2,355 1,444 21,861 3,478 25,339(1)
</TABLE>
<TABLE>
<CAPTION>
Reconciliation to Consolidated Results: 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Segment operating income $ 308,255 $ 260,337 $ 201,371
Less:
Restructuring charge -- 118,0872 --
Stock compensation expense (income) 264 (594) 46,366
Corporate 20,428 12,797(2) 11,355
---------- ---------- ----------
Total consolidated income from operations $ 287,563 $ 130,047 $ 143,650
========== ========== ==========
</TABLE>
(1) Excludes amortization of deferred financing costs of $4,259, $3,067 and
$4,741 in 1999, 1998 and 1997, respectively.
(2) Restated to include certain allocations previously made to Polaner.
OTHER INFORMATION
<TABLE>
<CAPTION>
Geographic Information: 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
United States $1,792,662 $1,512,698 $1,113,352
Foreign 351,758 186,902 109,082
---------- ---------- ----------
Consolidated $2,144,420 $1,699,600 $1,222,434
========== ========== ==========
Long-lived assets:
United States $ 269,516 $ 232,210 $ 191,856
Foreign 36,526 30,561 18,339
---------- ---------- ----------
Consolidated $ 306,042 $ 262,771 $ 210,195
========== ========== ==========
</TABLE>
Foreign revenues represent sales by the Company's foreign subsidiaries and
export sales from the United States.
40
<PAGE> 46
10 INCOME TAXES
Income before provision for income taxes is as follows:
<TABLE>
<CAPTION>
For Years Ended December 31,
----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic $173,416 $ 12,661 $ 29,006
Foreign 29,597 19,661 10,757
-------- -------- --------
Total $203,013 $ 32,322 $ 39,763
======== ======== ========
</TABLE>
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
For Years Ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Federal $49,781 $ 7,963 $11,066
Foreign 10,469 5,751 2,809
State 39,333 2,145 1,920
------- ------- -------
Total $99,583 $15,859 $15,795
======= ======= =======
</TABLE>
A reconciliation between the Company's effective tax rate and U.S. statutory
rate is as follows:
<TABLE>
<CAPTION>
For Years Ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
State tax, net of federal benefit 2.8 4.3 3.5
Non-deductible goodwill 0.4 12.1 0.4
Foreign income taxes (benefit) 0.4 (3.5) 0.2
Tax restructuring 10.1 -- --
Other 0.4 1.2 0.6
---- ---- ----
Effective tax rate 49.1% 49.1% 39.7%
==== ==== ====
</TABLE>
The current and deferred provision for income taxes is as follows:
<TABLE>
<CAPTION>
For Years Ended December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 23,702 $ 6,539 $ 2,239
Foreign 4,536 4,350 2,809
State 3,981 3,247 772
-------- -------- --------
32,219 14,136 5,820
Deferred:
Federal 26,079 1,424 8,827
Foreign 5,933 1,401 --
State 35,352 (1,102) 1,148
-------- -------- --------
67,364 1,723 9,975
-------- -------- --------
Total $ 99,583 $ 15,859 $ 15,795
======== ======== ========
</TABLE>
The Company adopted a tax restructuring program, which resulted in a
one-time, non-cash tax charge of $20.6 million, or $0.27 per diluted share, in
the third quarter ended September 30, 1999 to reduce deferred tax assets that
had been recorded in prior years. This program was substantially implemented by
December 31, 1999.
Effective on November 1, 1996, an affiliate of Hicks Muse acquired 80% of
the outstanding capital stock of the Company in a transaction treated as a
recapitalization for financial accounting purposes ("IHF Acquisition"). For
federal and state income tax purposes, the IHF Acquisition was a taxable
business combination and was 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. An 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. The assets and liabilities remained at
their historical bases for financial reporting purposes.
In connection with the IHF Acquisition, the Company recorded a deferred tax
asset of approximately $368,000 at November 1, 1996 related to future tax
deductions for the net excess of the tax bases of the assets and liabilities
over the financial statement carrying amounts with a corresponding credit to
additional paid-in capital.
Historically, the Company has generated operating income and realization of
the deferred tax assets is dependent upon the Company's ability to generate
sufficient future taxable income which management believes is more likely than
not. The Company anticipates future taxable income 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 components of deferred tax assets at December 31, 1999 and December 31,
1998 are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts $ 1,030 $ 899
Inventory reserves 2,602 3,252
Trade accruals 4,633 3,892
Restructuring 4,380 3,658
Alternative minimum tax -- 3,107
Accrued expenses 3,468 4,808
--------- ---------
Current deferred tax assets 16,113 19,616
Non-current deferred tax assets:
Tradenames 144,634 162,597
Goodwill and intangible assets 108,366 147,271
Stock options 16,074 17,579
Post-retirement benefits 10,126 8,365
Restructuring -- 978
Net operating loss carryforwards 4,752 2,017
Valuation allowance (3,050) (3,107)
--------- ---------
Non-current deferred tax assets 280,902 335,700
--------- ---------
Non-current deferred tax liabilities:
Property, plant and equipment (9,384) (4,709)
Unremitted foreign earnings (2,993) --
Foreign inventory (5,962) --
Other -- (340)
--------- ---------
Non-current deferred tax liabilities (18,339) (5,049)
--------- ---------
Net non-current deferred tax assets 262,563 330,651
--------- ---------
Net deferred tax assets $ 278,676 $ 350,267
========= =========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
subject to the utilization restrictions for federal income tax purposes of
approximately $2,880, which expire in years ending through 2010. The Company had
state income tax and foreign tax loss carryforwards of approximately $24,000
41
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and $7,000, respectively, at December 31, 1999, which expire in years ending
through 2013 and 2010, respectively. The Company has established a valuation
allowance at December 31, 1999 of $3,050 related to foreign and state net
operating loss carryforwards and the realization of certain deferred tax assets.
11 LEASES
The Company leases certain facilities and equipment under operating leases.
Rental expenses totaled $5,709, $7,886 and $4,181 for the years ended December
31, 1999, 1998, and 1997, respectively. Future minimum lease payments under
non-cancellable operating leases at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 4,761
2001 3,538
2002 2,921
2003 2,316
2004 and later years 3,998
-------
$17,534
=======
</TABLE>
12 LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Senior Bank Facilities:
Tranche A $ 448,522 $ 499,347
Tranche B 149,200 149,600
Tranche B-1 99,740 100,000
Revolving credit facility 78,536 62,526
---------- ----------
775,998 811,473
Senior Subordinated Notes 400,000 400,000
Grist Mill term loan -- 5,577
---------- ----------
Total debt 1,175,998 1,217,050
Less: Current portion 73,084 51,694
Revolving credit facility 78,536 62,526
---------- ----------
Long-term debt $1,024,378 $1,102,830
========== ==========
</TABLE>
The aggregate maturities of all long-term debt during each of the next five
years are $73,084, $93,414, $104,849, $116,285 and $83,990 for 2000, 2001, 2002,
2003, 2004, respectively, and $625,840 thereafter.
In connection with the IHF Acquisition, the Company entered into a $770,000
Credit Agreement ("Senior Bank Facilities") with Chase Manhattan Bank, Bankers
Trust Company and Morgan Stanley Senior Funding, Inc. and issued $400,000 of
10.375% Senior Subordinated Notes ("Notes"). The Senior Bank Facilities provided
for term loans in three tranches aggregating $670,000 and a revolving credit
loan facility of $100,000.
The Company amended its Senior Bank Facilities as of September 16, 1998.
The Senior Bank Facilities are comprised of:
(i) a $516,500 Tranche A term loan facility of which $448,522 is
outstanding at December 31, 1999. This tranche matures in 2004 with mandatory
semiannual repayments aggregating $72,424, $92,754, $104,189 and $115,625 in the
years 2000 through 2003, respectively, and the remaining $63,530 on May 31,
2004;
(ii) a $149,800 Tranche B term loan facility of which $149,200 is
outstanding at December 31, 1999. This tranche matures in 2005 with mandatory
semiannual repayments aggregating $400 in each of the years 2000 through 2003,
$20,200 in 2004, and the remaining $127,400 in 2005;
(iii) a $100,000 Tranche B-1 term loan facility of which $99,740 is
outstanding at December 31, 1999. This tranche matures in 2006 with mandatory
semiannual repayments aggregating $260 in each of the years 2000 through 2005,
and the remaining $98,180 in 2006;
(iv) a $230,000 revolving credit facility (the revolving credit facility),
which includes a Canadian facility of $50,000, maturing in 2004, or earlier upon
repayment of the Tranche A term loans. At December 31, 1999, $78,536 is
outstanding under this facility and is separately disclosed on the balance
sheet.
In addition to scheduled periodic repayments, the Company is also required
to make mandatory repayments of the loans under the Senior Bank Facilities with
a portion of its excess cash flow, as defined.
Borrowings under the amended Senior Bank Facilities bear interest based on
the Eurodollar Rate or an Alternate Base Rate, as defined, plus applicable
margins. The Canadian portion of the revolving credit facility bears interest at
the Canadian Prime Rate, or the Canadian Bankers' Acceptance Rate, as defined,
plus applicable margins. As of December 31, 1999 margins ranged from 0.25% to
1.75%. The weighted average interest rate for 1999, including the Notes, was
8.46%. At December 31, 1999, interest rates in effect for Tranches A, B, B-1 and
the revolving credit facility were 7.38%, 7.63%, 7.95% and 7.12%, respectively.
The obligations of the Company under the Senior Bank Facilities are
unconditionally and irrevocably guaranteed by each of the Company's direct or
indirect domestic subsidiaries (collectively, the "Guarantors"). In addition,
the Senior Bank Facilities are secured by first priority or equivalent security
interests in (i) all the capital stock of, or other equity interests in, each
direct or indirect domestic subsidiary of the Company and 65% of the capital
stock of, or other equity interests in, each direct foreign subsidiary of the
Company, or any of its domestic subsidiaries and (ii) all tangible and
intangible assets (including, without limitation, intellectual property and
owned real property) of the Company and the Guarantors (subject to certain
exceptions and qualifications).
The Senior Bank Facilities also contain a number of significant covenants
that, among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, repay other indebtedness or amend other
debt instruments, pay dividends, create liens on assets, make investments or
acquisitions, engage in mergers or consolidations, make capital expenditures,
engage in certain transactions with affiliates, amend the Notes and otherwise
restrict corporate activities. In
42
<PAGE> 48
addition, under the Senior Bank Facilities the Company is required to comply
with specified minimum interest coverage, maximum leverage and minimum fixed
charge coverage ratios.
The Company pays a commission on the face amount of all outstanding letters
of credit drawn under the Senior Bank Facilities at a per annum rate equal to
the Applicable Margin then in effect with respect to Eurodollar loans under the
Revolving Credit Facility minus the Fronting Fee (as defined). A fronting fee
equal to 1/4% per annum on the face amount of each Letter of Credit is payable
quarterly in arrears to the issuing lender for its own account. At December 31,
1999 the Company has entered into agreements for letters of credit amounting to
$10,500, of which $5,050 relates to the Senior Bank Facilities. The Company also
pays a per annum fee equal to 0.375% on the undrawn portion of the commitments
in respect of the revolving credit facility. As of December 31, 1999 and 1998,
the Company had unused revolving credit facility balances of $151,464 and
$167,474, respectively.
The Notes are due November 1, 2006, and bear interest at a rate of 10.375%,
which is payable semiannually on May 1 and November 1 of each year. 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%. The
Notes may also be redeemed prior to November 1, 2001 at a redemption price of
100% upon the occurrence of a change of control, as defined. The Notes will be
redeemable, in whole or in part, at the Company's option at redemption prices
decreasing from 105.188% at November 1, 2001 to 100% on November 1, 2004 and
thereafter.
Each Subsidiary Guarantor unconditionally guarantees, jointly and
severally, on a senior subordinated basis, the full and prompt payment of
principal and interest on the Notes.
The Notes contain certain restrictive covenants limiting, among other
things (i) the incurrence of additional indebtedness; (ii) the declaration or
payment of dividends or other capital stock distributions or redemptions; (iii)
the redemption of certain subordinated obligations; (iv) investments; (v) sale
of assets; and (vi) consolidations, mergers and transfers of all or
substantially all of the Company's assets.
In connection with the acquisition of Grist Mill, the Company assumed a
$5,700 term loan on its facility which was to mature on June 1, 2000, with a
balloon payment of $5,200. However, the loan was paid in full during 1999.
13 FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include cash
and cash equivalents, accounts receivable, accounts payable and debt. Because of
their short maturities, the carrying amount of these items, excluding debt,
approximate fair value.
The Company's $400 million Notes at December 31, 1999 and 1998 had an
estimated fair value of approximately $414 million and $433 million,
respectively, based on their publicly quoted rates. The fair value of the Senior
Bank Facilities at December 31, 1999 and 1998 approximated its carrying value
because the interest rates change with market interest rates.
The Company currently does not use derivative financial instruments for
trading or speculative purposes, nor is the Company a party to leveraged
derivatives. In accordance with the Senior Bank Facilities, the Company is
required to enter into interest rate protection agreements to the extent
necessary to provide that, when combined with the Company's Senior Subordinated
Notes, at least 50% of the Company's aggregate indebtedness, excluding the
revolving credit facility, is subject to either fixed interest rates or interest
rate protection. At December 31, 1999, more than 50% of the Company's aggregate
indebtedness, excluding the revolving credit facility, is subject to such
protection.
Under these agreements the Company agrees to exchange, at specified
intervals, the difference between fixed and floating interest amounts based on
agreed upon notional principal amounts. The notional amounts of interest rate
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. In accordance with the interest
rate agreements, the measurement of 3 month LIBOR and 6 month LIBOR,
respectively, occurs on the first day of each calculation period. For interest
rate instruments that effectively hedge interest rate exposures, the net cash
amounts paid or received on the agreements are accrued as incurred and
recognized as an adjustment to interest expense.
The Company is exposed to credit loss in the event of non-performance by
the other parties to the interest rate protection agreements. All counterparties
are at least A rated by Moody's and Standard & Poor's. Accordingly, the Company
does not anticipate non-performance by the counterparties.
As of December 31, 1999, the Company had the following interest rate
instruments in effect for which the fair value of these instruments is based on
the current settlement cost (dollar amounts are in millions):
<TABLE>
<CAPTION>
Notional amount Fair value Period 3 month LIBOR rate 6 month LIBOR rate Company pays Company receives
--------------- ---------- ------ ------------------ ------------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 600 $ -- 5/99-5/04 4.45% or less N/A 5.55% 3 month LIBOR
>4.45% and <5.55% N/A 3 month LIBOR 3 month LIBOR
5.55% to <6.30% N/A 5.55% 3 month LIBOR
6.30% or greater N/A 3 month LIBOR 3 month LIBOR
$ 200 $ (1.5) 8/98-11/01 N/A 5.20% or less 10.23% 10.375%
N/A >5.20% to <6.23% 6 month LIBOR + 4% 10.375%
N/A 6.23% to <6.75% 10.23% 10.375%
N/A 6.75% or greater 6 month LIBOR + 4% 10.375%
$ 150 $ 0.5 10/98-10/01 <3.76% N/A 3.76% 3 month LIBOR
3.76% to 5.75% N/A 3 month LIBOR 3 month LIBOR
>5.75% N/A 5.75% 3 month LIBOR
$ 225 $ -- 10/99-10/00 N/A <5.30% 5.30% 6 month LIBOR
N/A 5.30% to 8.00% 6 month LIBOR 6 month LIBOR
N/A >8.00% 8.00% 6 month LIBOR
------
$ (1.0)
======
</TABLE>
43
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14 GUARANTOR FINANCIAL DATA
The Company's Senior Subordinated Notes are fully and unconditionally guaranteed
by each of the Company's subsidiary guarantors on a joint and several basis. The
Company has not presented separate financial statements and other disclosures
concerning each of the subsidiary guarantors because management has determined
that such information is not material to the holders of the Senior Subordinated
Notes. Presented below is consolidating financial information including
summarized combined financial information of the subsidiary guarantors:
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
Net sales $ 907,854 $ 1,015,149 $ 221,417 $ 2,144,420
Gross profit 537,221 389,471 78,026 1,004,718
Net income 11,805 90,385(1) 1,240 103,430(1)
Net cash provided by (used in) operating activities 126,512 42,210 (16,516) 152,206
Net cash used in investing activities (3,525) (85,143) (33,912) (122,580)
Net cash (used in) provided by financing activities (41,659) (6,097) 15,174 (32,582)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
Net sales $ 855,922 $ 777,268 $ 66,410 $ 1,699,600
Gross profit 499,842 273,976 32,384 806,202
Net income 4,012(2) 11,278(2) 1,173 16,463(2)
Net cash provided by operating activities 20,375 139,882 3,065 163,322
Net cash used in investing activities (110,804) (195,364) (5,243) (311,411)
Net cash provided by financing activities 95,531 55,593 758 151,882
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
Net sales $ 865,513 $ 337,656 $ 19,265 $ 1,222,434
Gross profit 482,574 121,783 6,924 611,281
Net (loss) income (13,351)(3) 32,018 965 19,632(3)
Net cash provided by (used in) operating activities 38,870 33,320 (249) 71,941
Net cash used in investing activities (247,933) (5,359) (517) (253,809)
Net cash provided by (used in) financing activities 171,303 (21,942) -- 149,361
</TABLE>
(1) Includes an after-tax gain of $9.6 million ($15.8 million pre-tax) from
sale of the Polaner fruit spread and spice business.
(2) Includes restructuring charge of $75.3 million (net of $42.8 million tax
benefit): Guarantor Subsidiaries $61.3 million (net of $33.8 million tax
benefit) and $14.0 million (net of $9.0 million tax benefit) for the
Parent.
(3) Includes $28.1 million stock compensation charge, net of tax and a $4.3
million extraordinary loss, net of tax.
Amounts are not intended to report results as if the subsidiaries were separate
stand-alone entities.
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Current assets $ 132,979 $ 304,110 $ 91,261 $ -- $ 528,350
Non-current assets 1,091,493 670,803 808 (742,081) 1,021,023
Current liabilities 200,671 132,201 21,957 -- 354,829
Non-current liabilities 1,041,449 5,195 33,109 (27,261) 1,052,492
DECEMBER 31, 1998
Current assets $ 148,896 $ 252,193 $ 30,494 $ (92) $ 431,491
Non-current assets 1,099,156 576,778 6,370 (667,598) 1,014,706
Current liabilities 171,511 108,161 8,535 (92) 288,115
Non-current liabilities 1,112,317 30,817 3,906 (18,862) 1,128,178
</TABLE>
44
<PAGE> 50
15 CAPITAL STOCK
In November 1997, the Company completed the issuance of 12.1 million common
shares through an initial public offering, resulting in net proceeds (after
deducting issuance costs) of $224.9 million. The proceeds of the offering were
used to repay indebtedness under the Senior Bank Facilities.
On October 23, 1998, the Company purchased 4.4 million shares of its
common stock, par value $.01 per share, from AHP Subsidiary Holding Corporation,
a subsidiary of American Home Products Corporation for approximately $57,200
($13.00 per share) which it presently holds in treasury. The purchase of the
common stock was financed by the Company with borrowings under its Senior Bank
Facilities.
16 EMPLOYEE BENEFIT PLANS
The Company maintains non-contributory defined benefit pension plans covering
the majority of its employees and retirees, and post-retirement benefit plans
for the majority of its employees and retirees that include health care benefits
and life insurance coverage.
Pension-related benefits are based primarily on compensation levels and
years of service. It is the Company's policy to contribute the amounts necessary
to meet the minimum funding requirements of defined benefit plans under
applicable laws. Plan assets include principally cash equivalents and debt and
equity securities.
The following table summarizes the balance sheet impact, as well as the
benefit obligations, assets, funded status and rate assumptions associated with
the pension and post-retirement benefit plans:
<TABLE>
<CAPTION>
Pension Benefits Post-retirement Benefits
December 31, December 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Change in benefit obligations
Beginning of year obligations $ 12,341 $ 8,865 $ 26,228 $ 21,798
Service cost 3,861 3,630 1,373 1,233
Interest cost 844 713 1,672 1,492
Plan amendments -- -- 3,069 (3,069)
Actuarial (gains) losses (1,498) 690 (7,162) 4,855
Acquisitions 111 -- -- --
Benefits paid (1,197) (1,544) (320) (81)
Other 24 (13) (77) --
End of year benefit obligations 14,486 12,341 24,783 26,228
Change in plans' assets
Beginning of year fair value of plans' assets 10,671 4,416 -- --
Actual return on plans' assets 1,122 628 -- --
Acquisitions 161 -- -- --
Employer contributions 4,132 7,184 320 81
Benefits paid (1,197) (1,544) (320) (81)
Other 19 (13) -- --
----------- ----------- ----------- -----------
End of year fair value of plans' assets 14,908 10,671 -- --
----------- ----------- ----------- -----------
Funded status of the plans Benefit obligation (14,486) (12,341) (24,783) (26,228)
Fair value of plan assets 14,908 10,671 -- --
Unrecognized transition (benefit) obligation (34) 18 458 (2,576)
Unamortized prior service cost 330 378 -- --
Unrecognized net actuarial (gain) loss (767) 983 (2,891) 4,317
----------- ----------- ----------- -----------
Net amount recognized (49) (291) (27,216) (24,487)
Amounts recognized in the consolidated balance sheets
Prepaid benefit cost 1,082 504 -- --
Accrued benefit liability (1,176) (1,283) (27,216) (24,487)
Intangible asset 16 239 -- --
Accumulated other comprehensive income 29 249 -- --
----------- ----------- ----------- -----------
Net amount recognized $ (49) $ (291) $ (27,216) $ (24,487)
=========== =========== =========== ===========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans were $14,486, $12,373 and $14,908,
respectively, as of December 31, 1999 and $12,341, $10,825 and $10,671,
respectively, as of December 31, 1998.
45
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table shows the components of pension and post-retirement benefit
costs for the periods indicated:
<TABLE>
<CAPTION>
For Years Ended December 31,
----------------------------------------------
1999 1998 1997
-------------- ------------- ----------
<S> <C> <C> <C>
Pension Cost
Service cost $ 3,861 $ 3,630 $ 3,176
Interest cost 844 713 234
Expected return on plans' assets (902) (578) (394)
Recognized net actuarial loss/(gain) 34 36 (2)
Amortization of transition obligation 2 2 2
Amortization of prior service cost 48 48 50
-------------- ------------- ----------
Net pension cost $ 3,887 $ 3,851 $ 3,066
============== ============= ==========
Rate assumptions:
Discount rate 7.5-7.75% 7.0% 7.25%
Rate of return on plans' assets 8.0% 8.0% 7.0-8.0%
Salary increases 3.5-5.0% 3.5-5.0% 3.5-5.0%
-------------- ------------- ----------
Post-retirement Benefit Cost:
Service cost-benefits earned attributable to service during the period $ 1,373 $ 1,233 $ 1,241
Interest cost on the accumulated post-retirement benefit obligation 1,672 1,492 1,202
Recognized net actuarial loss (gain) 37 (3) --
Amortization of transition obligation 34 20 --
-------------- ------------- ----------
Net post-retirement benefit cost $ 3,116 $ 2,742 $ 2,443
============== ============= ==========
Rate assumptions:
Discount rate 7.75% 7.0% 7.25%
Annual increase in cost of benefits 8.5-10.0% 8.5-10.0% 8.5-10.0%
to 6-6.5% over to 6-6.5% over to 6% over
3-10 years 4-11 years 12 years
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the post-retirement medical benefit plans. The effects of a one
percentage point change in the assumed health care cost trend rates would have
the following effects:
<TABLE>
<CAPTION>
1% Point 1% Point
Increase Decrease
------------- ----------
<S> <C> <C>
Effect on total of service and interest cost components $ 676 $ (599)
Effect on post-retirement benefit obligation $ 5,037 $ (4,662)
</TABLE>
SAVINGS PLANS
The Company sponsors a 401(k) defined contribution plan for employees. Employer
contributions for years ended December 31, 1999, 1998 and 1997 were $1,663,
$1,373 and $1,638, respectively.
MULTI-EMPLOYER PLANS
The Company also participates in union-sponsored multi-employer pension, life
insurance and health and welfare plans which provide benefits to union employees
located at the Company's facilities in Vacaville, CA and Danville, IL (added in
1998). The Company's contributions to these plans were $659, $3,002 and $2,778
for the years ended December 31, 1999, 1998 and 1997, respectively.
46
<PAGE> 52
17 STOCK COMPENSATION PLANS
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 were granted with an exercise price which increased by 8% per year until
the exercise date. These indexed options were modified during 1997 to reflect a
fixed exercise price. Shares and options have been adjusted for the 5.3292 for
one reverse stock split. The total number of shares of common stock authorized
for grant under the IHF Plan is 8,444,021.
Effective October 23, 1997, the Company amended and restated the IHF
Plan. The amended and restated plan is named the International Home Foods, Inc.
1997 Stock Option Plan (the "Plan"). The option term and vesting provisions, and
number of shares authorized, are consistent with the IHF Plan. Certain options
granted have accelerated vesting provisions based on targeted stock prices.
Effective June 12, 1998, the Company amended the Plan to increase the number of
shares of common stock authorized for grant to 13,444,021.
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 (APB No. 25) and related interpretations in accounting for
its plans. In 1997, in accordance with APB No. 25, the Company recorded a
non-cash stock option compensation charge of $46,366 including $44,673 for
indexed options granted to senior management and other employees. In the third
quarter of 1997, the variable exercise price of these options was fixed.
Unearned stock compensation of $474 was recorded as a reduction of
paid-in-capital. This amount will be amortized to compensation expense as the
related options vest. In 1999, $264 was recorded as compensation expense. In
1998, $594 was recorded as a compensation benefit due to options that lapsed and
were initially charged to expense. As of December 31, 1999, the full amount has
been amortized to compensation expense. 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, net income and per share
amounts would have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income:
As reported $ 103,430 $ 16,463 $ 19,632
Pro forma $ 97,783 $ 12,648 $ 43,632
Basic earnings per share:
As reported $ 1.41 $ 0.22 $ 0.31
Pro forma $ 1.33 $ 0.17 $ 0.68
Diluted earnings per share:
As reported $ 1.36 $ 0.21 $ 0.30
Pro forma $ 1.29 $ 0.16 $ 0.66
</TABLE>
Note: The pro forma disclosures shown above are not representative of the
effects on net income and per share amounts in future years.
For IHF options granted in 1999, 1998, and 1997 the following assumptions were
used:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Volatility 35% 45% 20%(1)
Dividend yield 0% 0% 0%
Expected option term 4 years 4 years 4 years
Weighted avg. risk -
free interest rate 5.76% 4.79% 6.10%
</TABLE>
(1) For the time period prior to the Company's initial filings for its public
offering in November 1997, a 0% volatility was assumed.
47
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented below is a summary of the status of the IHF stock options held by the
Company's employees for 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Options Average Exercise Options Average Exercise Options Average Exercise
(000's) Price Per Share (000's) (000's) (000's) Price Per Share
-------- ---------------- --------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
IHF non-indexed options:
Outstanding at beginning of year 8.634 $ 9.88 7,751 $ 7.74 38 $ 5.33
Granted 3,266 $ 16.19 2,427 $ 16.50 4,162 $ 8.75
Exercised (633) $ 6.99 (429) $ 6.63 -- --
Forfeited (705) $ 14.12 (1,115) $ 10.69 (624) $ 5.33
Other, transfer -- -- -- -- 4,175+ $ 6.40
Outstanding at end of year 10,562 $ 11.72 8,634 $ 9.88 7,751 $ 7.74
IHF options exercisable at end of year 5,331 $ 7.56 4,950 $ 7.02 4,387 $ 6.73
IHF indexed options:
Outstanding at beginning of year -- -- -- -- 4,175 $ 5.38
Granted -- -- -- -- 1,314 $ 5.33
Forfeited -- -- -- -- (1,314) $ 5.33
Other, transfer -- -- -- -- (4,175)+ $ 5.76
Outstanding at end of year -- -- -- -- -- --
IHF options exercisable at end of year -- -- -- -- -- --
====== ========== ====== ========== ====== ==========
</TABLE>
+ The indexed options originally issued with a grant price of $5.33 were fixed
at $6.40 during 1997 and are included as non-indexed options as of December
31, 1998 and 1997.
The weighted average fair value of IHF stock options granted during
1999, 1998 and 1997 were $5.85, $7.71 and $3.73 per option, respectively.
As of December 31, 1999, the 10,562,422 stock options outstanding under
the IHF plan have exercise prices ranging from $5.33 to $20.00 and a weighted
average exercise price of $11.72.
Such options have a remaining contractual life of approximately 8.0 years and
5,331,414 were exercisable at December 31, 1999. The following table summarizes
the status of stock options outstanding and exercisable as of December 31, 1999,
by range of exercise price:
<TABLE>
<CAPTION>
Range Options Weighted Average Weighted Options Weighted Average
of Exercise Outstanding Remaining Average Exercisable Exercise Price on
Price (000's) Contractual Life Exercise Price (000's) Exercisable Options
- ----------- ----------- ---------------- -------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$5.33-$9.06 4,961 6.9 years $ 6.33 4,530 $ 6.36
$10.66-$15.00 1,339 8.1 years $ 14.42 762 $ 14.07
$15.06-$20.00 4,262 9.4 years $ 17.16 39 $ 19.39
</TABLE>
Stock options outstanding at December 31, 1999 which were issued with
exercise prices equal to, less than and more than the market price of the stock
on the grant date are as follows:
<TABLE>
<CAPTION>
Number of Weighted Average Weighted Average
Grants Options Exercise Price Fair Value
- ------ --------- ---------------- ----------------
<S> <C> <C> <C>
Exercise price equals market price 4,329 $ 13.74 $ 4.69
Exercise price less than market price 4,210 $ 6.86 $ 11.44
Exercise price more than market price 2,023 $ 17.47 $ 5.95
</TABLE>
48
<PAGE> 54
18 EARNINGS PER SHARE
The table below summarizes the numerator and denominator for the basic and
diluted earnings per share calculations:
<TABLE>
<CAPTION>
For Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net income available
to common shares $ 103,430 $ 16,463 $ 19,632
Denominator:
Average number of shares
outstanding 73,539 76,552 64,020
Effect of dilutive stock options 2,520 3,248 2,223
---------- ---------- ----------
Total number of shares
outstanding 76,059 79,800 66,243
Basic earnings per share $ 1.41 $ 0.22 $ 0.31
Diluted earnings per share $ 1.36 $ 0.21 $ 0.30
</TABLE>
19 RELATED PARTY TRANSACTIONS
Effective November 1, 1996, the Company entered into a 10-year monitoring and
oversight agreement with an affiliate of its largest stockholder. The agreement
provides for an annual fee of the greater of $1,000 or 0.1% of the budgeted
consolidated net sales of the Company for the current year. In addition,
effective November 1, 1996, the Company entered into a financial advisory
agreement with the affiliate under which the affiliate will be entitled to a fee
of 1.5% of the transaction value, as defined, for each add-on transaction, as
defined. In 1999, 1998 and 1997, the Company incurred monitoring and oversight
fees of $1,993, $1,749 and $1,254, respectively, and financial advisory fees of
$1,554, $3,967 and $3,607, respectively.
20 COMMITMENTS AND CONTINGENCIES
The Company has ongoing royalty arrangements with several parties, primarily
representing licensing agreements for the use of characters in the Company's
canned pasta business. The accompanying consolidated statements of income
include royalty costs which amounted to $466, $539 and $1,907 for the years
ended December 31, 1999, 1998 and 1997, respectively.
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. Based upon its experience to date, the Company believes that
the future cost of compliance with existing environmental laws, regulations and
decrees and liability for known environmental claims, will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows. 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. These contracts do not include
any minimum quantity requirements.
The Company is involved in various pending or threatened litigation and
claims. Although the outcome of any legal proceeding cannot be predicted with
certainty, management believes through its discussions with counsel that its
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 operation or cash flows of the
Company.
49
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21 ALLOWANCE FOR DOUBTFUL ACCOUNTS AND CASH DISCOUNTS
The allowance for doubtful accounts and cash discounts and their related
activity are as follows:
<TABLE>
<CAPTION>
Write-Offs and
Beginning Charged Reductions, Net Ending
Balance Other* to Expense of Recoveries Balance
---------- ---------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 $ 7,343 $ 277 $ 594 $ 1,343 $ 6,871
Year ended December 31, 1998 6,184 177 935 (47) 7,343
Year ended December 31, 1997 4,331 1,490 1,357 994 6,184
</TABLE>
*Relates to balances assumed of companies acquired in 1999, 1998 and 1997.
22 ALLOWANCE FOR OBSOLETE INVENTORIES
The allowance for obsolete inventories and the related activity is as follows:
<TABLE>
<CAPTION>
Write-Offs and
Beginning Charged Reductions, Net Ending
Balance Other* to Expense of Recoveries Balance
---------- ---------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 $ 3,347 $ 33 $ 5,040 $ 3,478 $ 4,942
Year ended December 31, 1998 5,498 685 1,475 4,311 3,347
Year ended December 31, 1997 2,319 1,061 3,233 1,115 5,498
</TABLE>
* Relates to balances assumed of companies acquired in 1999, 1998 and 1997, 1998
and 1997 amounts are restated from amounts previously reported.
50
<PAGE> 56
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Share Amounts) (Unaudited) Three Months Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
1999
Net sales $ 514.2 $ 512.6 $ 548.9 $ 568.7
Gross profit 233.8 240.5 258.3 272.1
Operating income 63.1 67.0 79.0 78.5
Net income 32.5 26.1 12.3(3) 32.5
Earnings per share:
Basic $ 0.44(2) $ 0.36 $ 0.17(3) $ 0.44
Diluted $ 0.43(2) $ 0.34 $ 0.16(3) $ 0.43
Market price per share:
High $ 20.50 $ 18.44 $ 20.56 $ 20.00
Low $ 14.06 $ 13.81 $ 17.44 $ 15.00
1998
Net sales $ 388.5 $ 402.5 $ 439.7 $ 468.9
Gross profit 186.7 193.0 208.5 218.0
Operating income 54.2 58.9 (50.8)(1) 67.7
Net income (loss) 19.3 21.1 (49.0)(1) 25.1
Earnings (loss) per share:
Basic $ 0.25 $ 0.27 $ (0.63)(1) $ 0.34
Diluted $ 0.24 $ 0.26 $ (0.63)(1) $ 0.33
Market price per share:
High $ 34.50 $ 32.13 $ 25.63 $ 20.19
Low $ 25.25 $ 22.75 $ 12.88 $ 10.38
</TABLE>
(1) Includes restructuring charge of $118.1 million ($75.3 million, net of tax
or $0.98 per basic share and $0.94 per diluted share).
(2) Includes gain of $15.8 million ($9.6 million, net of tax or $0.13 per basic
and diluted share) from sale of Polaner.
(3) Includes a one-time, non-cash tax charge of $20.6 million, or $0.28 per
basic share and $0.27 per diluted share.
International Home Foods, Inc. common stock (symbol IHF) is traded on the New
York Stock Exchange.
51
<PAGE> 57
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Share Data) 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 2,144.4(7) $ 1,699.6(5) $ 1,222.4(3) $ 942.8 $ 818.9
Gross profit 1,004.7 806.2 611.3 497.9 420.7
Stock option compensation (income) expense 0.3 (0.6) 46.4 -- --
Restructuring and other charges -- 118.1 -- 4.3 --
Operating income 287.6 130.0 143.7 153.2 68.6
Interest expense 100.9 96.0 104.9 17.1(1) --
Gain on sale of business (15.8) -- -- -- --
Income before extraordinary item 103.4 16.5 23.9 83.0 39.2
Extraordinary loss, net of tax -- 4.3 -- --
Net income 103.4 16.5 19.6 83.0 39.2
Basic earnings per share $ 1.41 $ 0.22 $ 0.31 $ 1.34 --
Diluted earnings per share $ 1.36 $ 0.21 $ 0.30 $ 1.34 --
BALANCE SHEET DATA:
Inventories $ 282.9 $ 235.7 $ 220.6 $ 129.2 $ 139.9
Working capital
(excluding current portion of long-term debt) 246.6 195.1 175.5 107.6 120.6
Property, plant and equipment, net 306.0 262.8 210.2 186.0 176.8
Total assets 1,549.4 1,446.2 1,262.1 968.3 463.6
Long-term debt (including current portion) 1,097.5 1,154.5 970.0 1,070.0(1) --
Stockholders' equity (deficit) 142.1 29.9(6) 67.6(4) (264.2)(2) 385.0
OTHER FINANCIAL DATA:
Depreciation and amortization $ 42.7 $ 40.0 $ 30.1 $ 19.0 $ 30.2
Capital expenditures 44.7 31.0 13.6 11.9 24.2
</TABLE>
(1) Effective November 1, 1996, the Company entered into a $770.0 million
credit agreement and issued $400.0 million of 10.375% Senior Subordinated
Notes in connection with the acquisition. Prior to November 1, 1996, the
Company did not maintain a credit facility and accordingly, did not incur
any interest expense.
(2) For 1995 through October 31, 1996 the Selected Financial Data presented
included the operations of the following indirect wholly-owned subsidiaries
of American Home Products, Corporation (AHP): American Home Food Products,
Inc. (now the Company) and its subsidiary M. Polaner, Inc., American Home
Foods, Inc. (now I.H.F.P., Inc.), Luck's Incorporated, Canadian Home
Products Limited (now International Home Foods [Canada], Inc.), and certain
related assets owned by AHP (collectively, American Home Food Products) and
its subsidiaries. Effective November 1, 1996 these entities and businesses
constituted International Home Foods, Inc., which was acquired through a
leveraged recapitalization.
(3) In 1997, the Company acquired Bumble Bee Seafoods, Inc. and Subsidiaries
(effective July 1, 1997), Productos Del Monte (effective October 1, 1997),
Creative Products, Inc. (effective October 1, 1997), and Orleans Seafood,
Inc. (effective November 21, 1997). The 1997 combined net sales of these
acquired companies totaled $228.3 million from their respective dates of
acquisition.
(4) In November 1997, the Company completed the issuance of 12.1 million common
shares, through an initial public offering, resulting in net proceeds of
$224.9 million. (See Note 15).
(5) In 1998, the Company acquired Puritan (effective March 9, 1998), Grist Mill
Co. (effective April 14, 1998) and Libby's (effective September 8, 1998).
The 1998 combined net sales of these acquired companies totaled $161.4
million from their respective dates of acquisition. The Company also
benefited from a full year of net sales from the companies acquired in
1997.
(6) On October 23, 1998, the Company purchased 4.4 million shares of its common
stock from AHP Subsidiary Holding Corporation for approximately $57.2
million and presently holds the shares in treasury. (See Note 15).
(7) In 1999, the Company acquired Clover Leaf/Paramount brands (effective
January 19, 1999) and Louis Kemp (effective July 19, 1999). The 1999
combined net sales of these acquired companies totaled $180.4 million from
their respective dates of acquisition. The Company also benefited from a
full year of net sales from the companies acquired in 1998. Also, in
February 1999, the Company sold its Polaner business (See Note 6).
52
<PAGE> 58
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS
<S> <C> <C>
CORPORATE OFFICERS BOARD OF DIRECTORS TRANSFER AGENT
C. DEAN METROPOULOS C. DEAN METROPOULOS Bank of New York
Chairman of the Board of Directors Chairman of the Board of Directors 101 Barclay Street
and Chief Executive Officer and Chief Executive Officer, New York, New York 10007
Executive Committee
LAWRENCE K. HATHAWAY ANNUAL MEETING
President and Chief Operating Officer LAWRENCE K. HATHAWAY May 3, 2000
President and Chief Operating Officer Hilton Parsippany
CRAIG D. STEENECK 1 Hilton Court
Senior Vice President and THOMAS O. HICKS Parsippany, New Jersey 07054
Chief Financial Officer Chairman and Chief Executive Officer 973-285-3987
Hicks, Muse, Tate & Furst, Incorporated
M. KELLEY MAGGS CORPORATE HEADQUARTERS
Senior Vice President, Secretary MICHAEL J. LEVITT International Home Foods, Inc.
and General Counsel Partner Hicks, Muse, 1633 Littleton Road
Tate & Furst, Incorporated Parsippany, New Jersey 07054
ANDREW S. ROSEN Executive Committee 973-359-9920
Vice President and Compensation Committee
Assistant Secretary STOCK LISTING
M. L. LOWENKRON International Home Foods, Inc.
JAMES A. KRAUSE Audit Committee (ticker symbol IHF) is listed on
Vice President and Compensation Committee the New York Stock Exchange.
Assistant Secretary
MICHAEL J. CRAMER Common shares outstanding at
LYNNE M. MISERICORDIA Chief Operating Officer February 29, 2000: 73,959,286
Treasurer Southwest Sports Group, Inc.
Audit Committee Approximate number of
Stockholders: 7,500
ANDREW S. ROSEN
Principal Hicks, Muse, STOCK PRICE
Tate & Furst, Incorporated High: $20.56 August 30, 1999
Executive Committee Low: $13.81 April 12, 1999
The Company has not paid cash
dividends on the common stock,
has no present plans to do so and is
restricted by the Senior Bank Facilities
from paying dividends (Note 12).
OTHER REPORTS
Copies of the Annual Report on Form
10-K are available without charge.
Contacts:
Investor Relations
International Home Foods, Inc.
1633 Littleton Road
Parsippany, New Jersey 07054
800-639-9865
www.intlhomefoods.com
</TABLE>
53
<PAGE> 59
[IHF LOGO]
INTERNATIONAL HOME FOODS, INC.
1633 LITTLETON ROAD
PARSIPPANY, NEW JERSEY 07054
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Incorporation or Organization
- ---------- -----------------------------
<S> <C>
I.H.F.P., Inc. Delaware
International Home Foods Sales Corp. Delaware
Trenton Home Foods, Inc. Delaware
Luck's, Incorporated Delaware
MPOL Corporation Delaware
International Home Foods (Canada), Inc. Canada
3423425 Canada Ltd Canada
Bumble Bee Seafoods, Inc. Delaware
Sociedad Ecuatoriana de Alimentos
Frigorificos Manta C.A. Ecuador
CDC Acquisition Corporation Delaware
SFSHC Acquisition Corporation Delaware
BBII Acquisition Corporation Delaware
Mayaguez Water Treatment Co., Inc. Puerto Rico
DM US Holding Corp. Delaware
HMTF Mexico Holdings, S.A. de C.V. Mexico
Productos Del Monte, S.A. de C.V. Mexico
Frutas Y Verduras Selectas, S. de R.L. de C.V. Mexico
Del Norte Alimentos S.A. de C.V. Mexico
Creative Products, Inc. of Rossville Illinois
IHF/GM Holding Corp. Delaware
Canadian Seafoods Acquisition Corp. Delaware
Paramount Seafoods, PTY Limited Australia
Finsotec SA Ecuador
BCP Ecuador SA Ecuador
Clover Leaf Seafoods, Inc. Canada
JAC Creative Foods (Canada), Inc. Canada
VCSC Acquisition Corp. Delaware
Grist Mill Co. Delaware
Grist Mill Confection Illinois
IHF Foreign Sales Corp. Barbados
IHF G4 Corp. Delaware
International Home Foods, LLC Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (File Nos. 333-43297, 333-62097, 333-62099) of
International Home Foods, Inc. of our report dated February 11, 2000, relating
to the consolidated financial statements, which appears in the Annual Report to
Stockholders, which is incorporated in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 188
<ALLOWANCES> (7)
<INVENTORY> 283
<CURRENT-ASSETS> 528
<PP&E> 487
<DEPRECIATION> (181)
<TOTAL-ASSETS> 1,549
<CURRENT-LIABILITIES> 355
<BONDS> 1,024
0
0
<COMMON> 1
<OTHER-SE> 141
<TOTAL-LIABILITY-AND-EQUITY> 1,549
<SALES> 2,144
<TOTAL-REVENUES> 2,144
<CGS> 1,140
<TOTAL-COSTS> 1,140
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 203
<INCOME-TAX> 100
<INCOME-CONTINUING> 103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103
<EPS-BASIC> 1.41
<EPS-DILUTED> 1.36
</TABLE>
