<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------------------------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[VLASIC LOGO]
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
JANUARY 31, 1999 1-13933
NEW JERSEY 52-2067518
STATE OF INCORPORATION I.R.S. EMPLOYER IDENTIFICATION NO.
VLASIC PLAZA
SIX EXECUTIVE CAMPUS
CHERRY HILL, NEW JERSEY 08002-4112
PRINCIPAL EXECUTIVE OFFICES
TELEPHONE NUMBER: 609-969-7100
-------------------------------------------------
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
----- -----
THERE WERE 45,502,127 SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 1,
1999.
===============================================================================
<PAGE> 2
VLASIC FOODS INTERNATIONAL
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Earnings (unaudited) for the three and six
month periods ended January 31, 1999 and February 1, 1998 2
Consolidated Balance Sheets as of January 31, 1999 (unaudited) and
August 2, 1998 (audited) 3
Consolidated Statements of Cash Flows (unaudited) for the six month
periods ended January 31, 1999 and February 1, 1998 4
Consolidated Statements of Shareowners' Equity (unaudited) for the six
month periods ended January 31, 1999 and February 1, 1998 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Pro Forma Statements of Earnings (unaudited) 11
Management's Discussion and Analysis of Results of Operations and
Financial Condition 12
Item 3. Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE PAGE 23
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- --------------------------------
January 31, February 1, January 31, February 1,
1999 1998 1999 1998
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales (including $38,903 and $43,815 in the second
quarters, respectively, and $83,712 and $83,632 in the
six month periods, respectively, to related parties) $356,625 $375,317 $683,675 $723,169
-------- -------- -------- --------
Costs and expenses
Cost of products sold 249,209 267,884 485,748 519,224
Marketing and selling expenses 61,635 58,296 113,980 114,821
Administrative expenses 19,403 13,848 37,646 28,732
Research and development expenses 1,946 1,930 3,448 3,948
Other expenses (income) 32 1,352 574 (91)
Special credits (3,200) - (3,200) -
-------- -------- -------- --------
Total costs and expenses 329,025 343,310 638,196 666,634
-------- -------- -------- --------
Earnings before interest and taxes 27,600 32,007 45,479 56,535
Interest expense 10,980 286 21,740 911
Interest income 185 59 430 145
-------- -------- -------- --------
Earnings before taxes 16,805 31,780 24,169 55,769
Taxes on earnings 5,000 12,942 7,700 20,858
-------- -------- -------- --------
Earnings before cumulative effect of accounting change 11,805 18,838 16,469 34,911
Cumulative effect of accounting change - (600) - (600)
-------- -------- -------- --------
Net earnings $ 11,805 $ 18,238 $ 16,469 $ 34,311
======== ======== ======== ========
Earnings Per Share
Per share - basic $ 0.26 $ 0.36
Weighted average shares outstanding - basic 45,500 45,495
Per share - assuming dilution $ 0.26 $ 0.36
Weighted average shares outstanding - assuming dilution 45,945 45,831
Pro Forma Earnings Per Share:(1)
Per share - basic $ 0.26 $ 0.47
Per share - assuming dilution $ 0.26 $ 0.46
</TABLE>
(1) See PRO FORMA STATEMENTS OF EARNINGS included on page 11.
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 4
VLASIC FOODS INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
January 31, August 2,
1999 1998
---------------- ----------------
(unaudited) (audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 19,860 $ 16,333
Accounts receivable 140,178 127,644
Inventories 175,515 183,763
Other current assets 18,584 25,200
-------- --------
Total current assets 354,137 352,940
-------- --------
Plant assets, net 507,463 520,075
Other assets, principally intangible assets, net 86,705 86,258
-------- --------
Total assets $948,305 $959,273
======== ========
Current liabilities
Notes payable $ 9,854 $ 12,535
Payable to suppliers and others 117,332 121,210
Accrued liabilities 78,635 93,330
-------- --------
Total current liabilities 205,821 227,075
-------- --------
Long-term debt 549,080 558,873
Deferred income taxes 18,996 19,673
Other liabilities 48,910 47,048
-------- --------
Total liabilities 822,807 852,669
-------- --------
Shareowners' equity
Preferred stock, no par value; authorized 4,000 shares; - -
none issued
Common stock, no par value; authorized 56,000 shares; issued 45,502 shares and
45,488 shares at January 31, 1999 and August 2, 1998, respectively 137,758 137,473
Accumulated deficit (8,646) (25,115)
Accumulated other comprehensive income (3,614) (5,754)
-------- --------
Total shareowners' equity 125,498 106,604
-------- --------
Total liabilities and shareowners' equity $948,305 $959,273
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 5
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------
January 31, February 1,
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 16,469 $ 34,311
Non-cash charges to net earnings
Depreciation and amortization 23,512 23,059
Deferred income taxes 5,186 627
Gain on sale of business sold (3,200) -
Cumulative effect of accounting change - 600
Other, net 1,861 756
Changes in working capital
Accounts receivable (34,224) (50,159)
Inventories (2,678) 368
Other current assets and liabilities 3,806 (56,369)
--------- --------
Net cash provided by (used in) operating activities 10,732 (46,807)
--------- --------
Cash flows from investing activities:
Purchases of plant assets (22,943) (23,270)
Sales of plant assets 5,078 4,635
Proceeds from business sold 20,675 -
Business acquired - (6,350)
Other, net 289 146
--------- --------
Net cash provided by (used in) investing activities 3,099 (24,839)
--------- --------
Cash flows from financing activities:
Long-term borrowings 120,702 -
Repayment of long-term borrowings (129,000) (234)
Short-term borrowings, net (2,456) 11,753
Issuance of common stock 285 -
Net transactions with Campbell - 52,181
--------- --------
Net cash (used in) provided by financing activities (10,469) 63,700
--------- --------
Effect of exchange rate changes on cash 165 (7)
--------- --------
Net change in cash and cash equivalents 3,527 (7,953)
Cash and cash equivalents - beginning of period 16,333 9,409
--------- --------
Cash and cash equivalents - end of period $ 19,860 $ 1,456
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 6
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Issued Accumulated
Common Stock Campbell Other Total
----------------------- Accumulated Net Comprehensive Shareowners'
Shares Amount Deficit Investment Income(1) Equity
---------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 3, 1997 - $ - $ - $633,168 $ (870) $632,298
Net earnings - - - 34,311 - 34,311
Foreign currency translation adjustments - - - - 598 598
Net transactions with Campbell - - - 52,181 - 52,181
------- -------- -------- -------- ------- --------
Balance at February 1, 1998 - $ - $ - $719,660 $ (272) $719,388
Balance at August 2, 1998 45,488 $137,473 $(25,115) $(5,754) $106,604
Net earnings - - 16,469 - 16,469
Issuance of shares of common stock
as a result of exercised stock options 14 285 - - 285
Foreign currency translation adjustments - - - 2,140 2,140
------ -------- -------- ------- --------
Balance at January 31, 1999 45,502 $137,758 $ (8,646) $(3,614) $125,498
====== ======== ======== ======= ========
</TABLE>
(1) Accumulated other comprehensive income consists solely of foreign currency
translation adjustments.
See accompanying Notes to Condolidated Financial Statements.
5
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands)
1. VLASIC FOODS INTERNATIONAL SPIN-OFF FROM CAMPBELL SOUP COMPANY
On March 30, 1998, Campbell distributed one share of Vlasic common stock to
shareowners of Campbell for every ten shares of Campbell capital stock held at
the record date in a tax-free distribution (the "spin-off"). At the time of the
spin-off, we began operations as a separate independent publicly-owned company.
In connection with the spin-off, Campbell contributed the following businesses:
Swanson frozen foods in the U.S. and Canada, Vlasic pickles, Open Pit barbecue
sauce, Campbell mushrooms in the U.S., Freshbake and non-branded frozen foods
and SonA and Rowats pickles and beans in the U.K., Swift and non-branded
processed beef in Argentina and Kattus gourmet foods distribution (the "Kattus
business") in Germany. Our historical financial statements at dates and for
periods ended prior to the date of the spin-off present the combined historical
financial position, results of operations and cash flows of these businesses. We
sold the Kattus business in January 1999. Prior to the spin-off, the businesses
contributed by Campbell had been separately managed within multiple Campbell
business divisions.
In connection with the spin-off, we incurred incremental debt of
approximately $560 million under a five year $750 million unsecured revolving
credit facility, consisting of $500 million of indebtedness assumed from
Campbell and $60 million incurred to repay certain intercompany payables
representing advances from Campbell to subsidiaries of Vlasic. On a historical
basis, we were not allocated any amount of Campbell's debt and our historical
financial statements prior to the spin-off do not reflect the interest expense
associated with the debt incurred in connection with the spin-off. Therefore, we
believe that the pro forma statements of earnings appearing on page 11,
reflecting pro forma interest expense as if the spin-off had occurred at the
beginning of fiscal 1998, provide more meaningful comparisons than our
historical financial statements.
For periods prior to the spin-off, our historical financial statements
reflect expenses allocated by Campbell for selling, general and administrative
services (including finance, legal, information systems, research and
development, benefits, facilities and shared sales and distribution support).
Such expenses were allocated based on net sales, utilization or other methods.
The allocated expenses for these services are not necessarily indicative of the
expenses that we would have incurred had we been a separate, independent entity
that managed these functions.
2. INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements for the three
and six month periods ended January 31, 1999 and February 1, 1998 have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In our opinion, all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements have been included. The results of the interim
periods are not necessarily indicative of the results to be expected for the
full fiscal year. The consolidated financial statements and footnotes should be
read in conjunction with Management's Discussion and Analysis of Results of
Operations and Financial Condition contained herein and our Annual Report and
Form 10-K for the fiscal year ended August 2, 1998.
3. EARNINGS PER SHARE
Earnings per share have been calculated in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Historical
earnings per share for the three and six months ended February 1, 1998 are not
presented since our common stock was not part of the capital structure of
Campbell for these periods. Pro forma earnings per share assume common shares
outstanding as of the spin-off date were outstanding for all periods prior to
March 30, 1998.
6
<PAGE> 8
4. COMPREHENSIVE INCOME
During the first quarter of fiscal 1999, we adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS 130 established new standards for the
reporting and display of comprehensive income and its components; however, the
adoption of SFAS 130 had no impact on our net earnings or shareowners' equity.
Comprehensive income is defined as the change in shareowners' equity during a
period from transactions from non-shareowner sources. Our comprehensive income
consisted of net earnings and foreign currency translation adjustments. Prior
year financial statements have been reclassified to conform to the requirements
of SFAS 130.
Comprehensive income, net of related tax, for the three and six month
periods ended January 31, 1999 and February 1, 1998 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -------------------------------
January 31, February 1, January 31, February 1,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net earnings $11,805 $18,238 $16,469 $34,311
Other comprehensive income
Foreign currency translation adjustments (891) (3,015) 1,355 374
------- ------- ------- -------
Comprehensive income $10,914 $15,223 $17,824 $34,685
======= ======= ======= =======
</TABLE>
5. RESTRUCTURING CHARGES
<TABLE>
<CAPTION>
Loss on
Asset Severance
Disposition and Benefits Other Total
--------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at August 2, 1998 $ 14,679 $ 6,951 $ 3,104 $24,734
Fiscal 1999 activity to date (3,848) (2,692) (1,139) (7,679)
-------- -------- -------- -------
Balance at January 31, 1999 $ 10,831 $ 4,259 $ 1,965 $17,055
======== ======== ======== =======
</TABLE>
A special charge of $28,050 ($21,815 after tax) was recorded in the third
quarter of fiscal 1998 to cover the costs of a restructuring program. The
restructuring program was designed to improve operational efficiency by exiting
certain U.S. and European administrative offices and production facilities and
is expected to be completed during the third quarter of fiscal 1999. The
restructuring program provided for the reduction of our worldwide workforce by
approximately 425 full-time administrative and operational positions. In
September 1998 we sold our Peterlee frozen foods facility in the U.K.
Additionally, during November 1998, we commenced closing our seasonal pickle
plant in Bridgeport, Michigan. The plant employed approximately 25 full-time
workers and an additional 375 seasonal workers from May through September. The
restructuring charge included approximately $11,550 primarily related to
severance and employee benefit costs that will be paid in cash. The balance of
the restructuring charge, amounting to $16,500, related to non-cash charges for
losses on the disposition of plant assets.
The above restructuring accruals as of January 31, 1999 were included in Accrued
liabilities on the Consolidated Balance Sheet.
7
<PAGE> 9
6. DISPOSITION
During the fourth quarter of fiscal 1998, we designed and began to
implement a program to pursue asset reduction and cost improvement
opportunities. As part of that plan, we decided to sell the Kattus business in
Germany and began to actively seek buyers. Fourth quarter 1998 earnings included
a $14.4 million charge against Special charges (credits) on the Statement of
Earnings to reduce assets held for sale to fair value. In January 1999, we sold
the Kattus business for a gain on sale of $3.2 million that is recorded on the
Special credit line on the Statements of Earnings.
7. SEGMENT AND GEOGRAPHIC AREA INFORMATION
We group our businesses in three operating segments. The FROZEN FOODS
SEGMENT consists of Swanson frozen foods in the U.S. and Canada and Freshbake
frozen foods in the U.K. The GROCERY PRODUCTS SEGMENT includes Vlasic retail and
foodservice pickles and condiments in the U.S., Open Pit barbecue sauce in the
U.S., SonA and Rowats pickles, canned beans and vegetables in the U.K., Kattus
gourmet foods distribution in Germany (which was sold in January 1999) and Swift
canned meat pates and other grocery products in Argentina. The AGRICULTURAL
PRODUCTS SEGMENT includes the U.S. fresh mushroom business, chilled and frozen
beef, frozen cooked beef and canned corned beef exported from Argentina and
contract manufacturing of frozen foodservice product for Campbell's Foodservice
in the U.S. These operating segments are managed as strategic units due to their
distinct manufacturing processes, marketing strategies and distribution
channels. Corporate expenses and assets have been allocated to the segments.
Intersegment sales presented below as eliminations represent the sale of beef
between Agricultural Products and Frozen Foods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------------
January 31, February 1, January 31, February 1,
SEGMENT INFORMATION 1999 1998 1999 1998
----------------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Net Sales
Frozen Foods $143,229 $161,939 $284,544 $319,593
Grocery Products 126,822 122,088 223,786 224,283
Agricultural Products 87,510 93,811 179,152 185,480
Eliminations (936) (2,521) (3,807) (6,187)
-------- -------- -------- --------
Total $356,625 $375,317 $683,675 $723,169
======== ======== ======== ========
Earnings Before Interest and Taxes
Frozen Foods $ 12,106 $ 19,336 $ 25,588 $ 38,138
Grocery Products 15,355 14,101 23,432 19,087
Agricultural Products 139 (1,430) (3,541) (690)
-------- -------- -------- --------
Total $ 27,600 $ 32,007 $ 45,479 $ 56,535
======== ======== ======== ========
January 31, August 2,
1999 1998
----------- ----------
Total Assets
Frozen Foods $312,471 $286,197
Grocery Products 346,968 374,178
Agricultural Products 288,866 298,898
-------- --------
Total $948,305 $959,273
======== ========
</TABLE>
8
<PAGE> 10
7. SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
The following presents information about operations in different geographic
areas:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ------------------------------
January 31, February 1, January 31, February 1,
GEOGRAPHIC INFORMATION 1999 1998 (1) 1999 (1) 1998 (1)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales
United States $ 229,303 $ 243,648 $ 443,302 $ 472,099
Europe 77,980 81,017 143,242 148,278
South America 50,278 53,173 100,938 108,979
Eliminations (936) (2,521) (3,807) (6,187)
--------- --------- --------- ---------
Total $ 356,625 $ 375,317 $ 683,675 $ 723,169
========= ========= ========= =========
Earnings Before Interest and Taxes
United States $ 18,589 $ 28,695 $ 36,782 $ 50,518
Europe 5,607 3,908 8,090 4,908
South America 3,404 (596) 607 1,109
--------- --------- --------- ---------
Total $ 27,600 $ 32,007 $ 45,479 $ 56,535
========= ========= ========= =========
</TABLE>
(1) Prior quarters' amounts have been reclassified to conform with current year
presentation.
8. INVENTORIES
<TABLE>
<CAPTION>
January 31, August 2,
1999 1998
----------- ---------
<S> <C> <C>
Raw materials, containers and supplies $ 56,520 $ 52,074
Finished goods 133,116 144,044
--------- ---------
189,636 196,118
Less: Adjustment to LIFO basis (14,121) (12,355)
--------- ---------
Total $ 175,515 $ 183,763
========= =========
</TABLE>
Inventories determined by the LIFO method represented approximately 66% and 62%
of inventories at January 31, 1999 and August 2, 1998, respectively.
9
<PAGE> 11
9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
January 31, August 2,
1999 1998
-------------- --------------
<S> <C> <C>
Bank borrowings $548,900 $557,000
Capital lease obligations and other 180 1,873
-------- --------
Total $549,080 $558,873
======== ========
</TABLE>
In connection with the spin-off, we incurred incremental debt of approximately
$560 million under a five year $750 million unsecured revolving credit facility,
consisting of $500 million of indebtedness assumed from Campbell and $60 million
incurred to repay certain intercompany payables representing advances from
Campbell to subsidiaries of Vlasic. We amended the revolving credit facility on
September 30, 1998. As a result of this amendment, $100 million of indebtedness
outstanding under the revolving credit facility was converted to a term loan and
the commitment under the revolving credit facility was reduced to $550 million.
The term loan has the same terms and conditions as the amended revolving credit
facility. Borrowings under the amended revolving credit facility and the term
loan bear interest at rates, which at our option, vary with the prime rate, CD
rate, LIBOR or money market rates plus applicable credit margins. The average
interest rate at January 31, 1999 was 6.59%. In addition, we pay a facility fee
ranging from 0.25% to 0.50%. Both the applicable credit margins and the facility
fee are based on the timing of the issuance of longer term debt. The amended
agreement contains covenants, including, but not limited to: the mandatory
repayment of debt; the reduction of the commitment upon the sale of assets,
issuance of equity and the incurrence of additional debt; restrictions on the
issuance of new debt; limitations on capital spending; restrictions on dividend
payments; and certain other financial ratio covenants. At January 31, 1999,
$448.9 million was outstanding under the revolving credit facility and $100
million was outstanding under the term loan, with an additional $101.1 million
available to support our capital requirements including working capital needs
and capital expenditures.
10. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In the second quarter of fiscal 1998, we adopted the provisions of the
Emerging Issues Task Force (EITF) consensus resulting on Issue 97-13,
"Accounting for Costs Incurred in Connection with a Consulting Contract that
Combines Business Process Reengineering and Information Technology
Transformation." The EITF reached a consensus that costs of business process
reengineering activities that are part of a systems development project are to
be expensed as incurred. Furthermore, the consensus ruling stipulated that the
unamortized balance of such previously capitalized business process
reengineering costs are to be written off as a cumulative effect of accounting
change as of the beginning of the quarter which included November 20, 1997. We
previously capitalized certain consulting costs related to the purchase and
implementation of software for internal use. The cumulative effect of this
change in accounting principle was $600, net of an income tax benefit of
approximately $370.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED)
(in thousands except per share amounts)
We believe that the Pro Forma Statements of Earnings presented below
produce more meaningful comparisons as the three and six month periods ended
February 1, 1998 include interest expense on a pro forma basis. Our historical
Statements of Earnings for the three and six month periods ended January 31,
1999 include interest expense on the incremental debt incurred as of the
spin-off. The pro forma information assumes the spin-off occurred at the
beginning of fiscal 1998. However, the pro forma information is not necessarily
indicative of results that would have occurred if we had been independent since
the beginning of fiscal 1998 or of our future results. The Pro Forma Statements
of Earnings should be read in conjunction with our historical consolidated
financial statements and the related accompanying notes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- --------------------------------
January 31, February 1, January 31, February 1,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Actual Pro Forma (1) Actual Pro Forma (1)
<S> <C> <C> <C> <C>
Net sales $356,625 $375,317 $683,675 $723,169
-------- -------- -------- --------
Costs and expenses
Cost of products sold 249,209 267,884 485,748 519,224
Marketing and selling expenses 61,635 58,296 113,980 114,821
Administrative expenses 19,403 13,848 37,646 28,732
Research and development expenses 1,946 1,930 3,448 3,948
Other expenses (income) 32 1,352 574 (91)
Special credits (3,200) - (3,200) -
-------- -------- -------- --------
Total costs and expenses 329,025 343,310 638,196 666,634
-------- -------- -------- --------
Pro Forma Earnings:
Earnings before interest and taxes 27,600 32,007 45,479 56,535
Interest expense, net 10,795 10,004 21,310 20,320
-------- -------- -------- --------
Earnings before taxes 16,805 22,003 24,169 36,215
Taxes on earnings 5,000 10,038 7,700 15,051
-------- -------- -------- --------
Pro forma earnings $ 11,805 $ 11,965 $ 16,469 $ 21,164
======== ======== ======== ========
Pro Forma Earnings Per Share assuming dilution $ 0.26 $ 0.26 $ 0.36 $ 0.46
Weighted average shares outstanding assuming
dilution 45,945 45,941 45,831 45,941
</TABLE>
(1) Pro Forma Earnings for the three and six month periods ended February 1,
1998 gives effect for interest expense on incremental debt incurred as of the
spin-off as if it were outstanding for the entire period. The related tax impact
of the pro forma interest expense is included within taxes on earnings. Pro
Forma Earnings excludes the cumulative effect of accounting change of a $600
charge recorded during the three month period ended February 1, 1998. Pro Forma
Earnings Per Share for the three and six month periods ended February 1, 1998
assume common shares outstanding as of the spin-off date were outstanding for
all periods prior to March 30, 1998.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
On March 30, 1998, Campbell distributed one share of Vlasic common stock to
shareowners of Campbell for every ten shares of Campbell capital stock held at
the record date in a tax-free distribution (the "spin-off"). At the time of the
spin-off, we began operations as a separate independent publicly-owned company.
In connection with the spin-off, Campbell contributed the following businesses:
Swanson frozen foods in the U.S. and Canada, Vlasic pickles, Open Pit barbecue
sauce, Campbell mushrooms in the U.S., Freshbake and non-branded frozen foods
and SonA and Rowats pickles and beans in the U.K., Swift and non-branded
processed beef in Argentina and Kattus gourmet foods distribution (the "Kattus
business") in Germany. Our historical financial statements at dates and for
periods ended prior to the date of the spin-off present the combined historical
financial position, results of operations and cash flows of these businesses. We
sold the Kattus business in January 1999. Prior to the spin-off, the businesses
contributed by Campbell had been separately managed within multiple Campbell
business divisions.
In connection with the spin-off, we incurred incremental debt of
approximately $560 million under a five year $750 million unsecured revolving
credit facility, consisting of $500 million of indebtedness assumed from
Campbell and $60 million incurred to repay certain intercompany payables
representing advances from Campbell to subsidiaries of Vlasic. On a historical
basis, we were not allocated any amount of Campbell's debt and our historical
financial statements prior to the spin-off do not reflect the interest expense
associated with the debt incurred in connection with the spin-off. Therefore, we
believe that the pro forma statements of earnings appearing on page 11,
reflecting pro forma interest expense as if the spin-off had occurred at the
beginning of fiscal 1998, provide more meaningful comparisons than our
historical financial statements.
Our results have also been affected to a significant extent by a number of
unusual and special, cash and non-cash charges, including: (a) duplicative
expenses arising from transition service charges from Campbell for certain
services (such as payroll, employee benefits administration, information
technology, research and development, customer service and accounting services)
which overlap our internal expenses until the completion of our infrastructure;
(b) costs incurred by us for the development of an independent information
technology structure; and (c) gain on the sale of the Kattus business.
For periods prior to the spin-off, our historical financial statements
reflect expenses allocated by Campbell for selling, general and administrative
services (including finance, legal, information systems, research and
development, benefits, facilities and shared sales and distribution support).
Such expenses were allocated based on net sales, utilization or other methods.
The allocated expenses for these services are not necessarily indicative of the
expenses that we would have incurred had we been a separate, independent entity
that managed these functions. As described above, Campbell has been providing
certain of these services to us on a transitional basis since the spin-off. We
have established a new corporate infrastructure to operate on a stand-alone
basis, and as of February 1999 we have substantially completed all of the
operating and management systems and capabilities necessary to handle internally
all services that had previously been provided by Campbell (except for payroll
which will be completed on April 1, 1999).
The discussion below summarizes the significant factors affecting our
consolidated operating results, financial condition and liquidity for the three
and six months ended January 31, 1999 and February 1, 1998. The results of
operations for the periods prior to the spin-off may not necessarily be
indicative of the results of operations that would have occurred if we had
operated as an independent company prior to the spin-off and are not necessarily
indicative of our future performance. The results for the six months ended
January 31, 1999 are not necessarily indicative of the results of operations to
be expected for the full year. The following discussion of results of operations
and liquidity and capital resources should be read in conjunction with our
historical and pro forma consolidated financial statements and the related
accompanying notes.
12
<PAGE> 14
RESULTS OF OPERATIONS
Overview
Net sales for the first six months of fiscal 1999 were $683.7 million, a
decrease of $39.5 million or 5.5% from the net sales of the first six months of
fiscal 1998. Net earnings for the first six months of fiscal 1999 were $16.5
million, a decrease of $17.8 million from net earnings of $34.3 million for the
first six months of fiscal 1998.
However, the historical financial statements for the first six months of
fiscal 1998 reflected minimal interest expense prior to the spin-off as there
was no allocation of interest expense on Campbell's net investment. Subsequent
to the spin-off, interest expense included interest on the debt assumed from
Campbell as well as the debt related to the increase in working capital. We
believe the pro forma financial information appearing on page 11 provides more
meaningful comparisons. In addition, the first six months of fiscal 1999 net
earnings included one-time charges of approximately $7.0 million pre-tax, $4.4
million after-tax, for duplicative administrative transition costs and costs
related to the development of our information technology infrastructure, which
were partially offset by the $3.2 million gain on the January 1999 sale of the
Kattus business.
Assuming that the spin-off had been consummated as of the beginning of
fiscal 1998, pro forma net interest expense would have been approximately $20.3
million and pro forma net earnings would have been approximately $21.2 million,
or $0.46 per diluted share for the first six months of fiscal 1998. Net earnings
before one-time charges and the gain on sale of the Kattus business were $17.7
million, or $0.39 per diluted share for the first six months of fiscal 1999 or a
decrease of $3.5 million on a comparable basis.
For the second quarter of fiscal 1999, net earnings before one-time charges
and the gain on the sale of the Kattus business were $10.8 million, or $0.24 per
diluted share, a decrease of $1.2 million from the pro forma net earnings of
$12.0 million, or $0.26 per diluted share for the second quarter of fiscal 1998.
Consolidated Statements of Earnings
The following table sets forth certain items in our consolidated statements
of earnings as percentages of our net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------------
January 31, February 1, January 31, February 1,
1999 1998 1999 1998
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Cost of products sold 70.0% 71.4% 71.0% 71.8%
Marketing and selling expenses 17.3% 15.5% 16.7% 15.9%
Administrative expenses 5.4% 3.7% 5.5% 4.0%
Research and development expenses 0.5% 0.5% 0.5% 0.5%
Other expenses (income) 0.0% 0.4% 0.1% 0.0%
Special credits -0.9% 0.0% -0.5% 0.0%
------ ------ ------ ------
Total costs and expenses 92.3% 91.5% 93.3% 92.2%
------ ------ ------ ------
Earnings before interest and taxes 7.7% 8.5% 6.7% 7.8%
====== ====== ====== ======
</TABLE>
13
<PAGE> 15
Three Months Ended January 31, 1999 Compared to Three Months Ended February 1,
1998
Net sales. Net sales of $356.6 million in the second quarter of fiscal 1999
decreased 5.0% from net sales in the second quarter of fiscal 1998. The sales
decrease was primarily due to decreased volumes in the Swanson frozen food
business as a result of lower consumption. This lower consumption was in part
attributable to the timing of our marketing efforts, as our new Swanson TV
advertising campaign aired during the last month of the period, and also
increased competitive activities. A decline in U.K. sales in the frozen foods
businesses and reduced exports in Swift-Armour also contributed to the overall
decline in net sales. However, these declines were partially offset by increases
in the Vlasic pickle and the Kattus businesses in the second quarter of fiscal
1999.
Cost of products sold. Cost of products sold as a percentage of net sales
decreased to 70.0% in the second quarter of fiscal 1999 compared to 71.4% in the
same period of the prior year resulting from the benefit of cost savings
programs and lower cattle costs in Argentina in the second quarter of fiscal
1999, partially offset by yield problems at a few of our mushroom farms.
Marketing and selling expenses. Marketing and selling expenses as a
percentage of net sales increased in the second quarter of fiscal 1999 to 17.3%
from 15.5% in the second quarter of fiscal 1998. This increase was principally
due to greater advertising in both the Swanson frozen foods and Vlasic pickle
businesses, and a smaller increase in trade spending which was partially offset
by lower selling expenses resulting from lower volumes.
Administrative expenses. Administrative expenses, as a percentage of net
sales, increased in the second quarter of fiscal 1999 to 5.4% from 3.7% in the
same period of the prior year primarily as a result of duplicative
administrative transition costs and costs related to the development of our
information technology infrastructure.
Research and development expenses. Research and development expenses as a
percentage of net sales remained unchanged in the second quarter of fiscal 1999
compared to the same period of fiscal 1998.
Other expenses (income). The decline in other expenses in the second
quarter of fiscal 1999 was attributable to certain expenses included in the
second quarter of fiscal 1998 pertaining to a Campbell-related long-term
incentive program that ended in fiscal 1998.
Special credits. A special credit of $3.2 million was recorded in the
second quarter of fiscal 1999 relating to a gain on the January 1999 sale of the
Kattus business.
Earnings before interest and taxes. Earnings before interest and taxes as a
percentage of net sales were 7.7% in the second quarter of fiscal 1999 compared
to 8.5% in the second quarter of fiscal 1998. The one-time charges of $3.5
million incurred in the second quarter of fiscal 1999 for duplicative
administrative transition costs and costs related to the development of our
information technology infrastructure were partially offset by the $3.2 million
special credit for the gain on the sale of the Kattus business. Excluding these
items, earnings before interest and taxes would have been 7.8% of net sales in
the second quarter of fiscal 1999. The change from the same period in the prior
year was driven by:
o lower sales primarily in the Swanson frozen food and U.K. frozen
food businesses;
o increased marketing and advertising costs in the Swanson frozen
food and Vlasic pickle businesses;
o yield problems at a few of our mushroom farms; and
o improvements in Argentine cattle prices experienced in the second
quarter of fiscal 1999 compared to the second quarter of fiscal 1998.
Interest expense. Interest expense for the second quarter of fiscal 1999
was $10.8 million. The historical financial statements for the second quarter of
fiscal 1998 reflected minimal interest expense prior to the spin-off as there
was no allocation of interest expense on Campbell's net investment. Subsequent
to the spin-off, interest expense included interest on the $500 million of debt
assumed from Campbell as well as the $60 million incurred to repay certain
intercompany payables representing advances from Campbell to Vlasic's
subsidiaries. We believe the pro forma financial information appearing on page
11 provides more meaningful comparisons. Assuming that the spin-off had been
consummated as of the beginning of fiscal 1998, pro forma interest expense would
have been approximately $10.0 million for the second quarter of fiscal 1998.
14
<PAGE> 16
Taxes on earnings. The effective tax rate was 29.8% in the second quarter
of fiscal 1999 compared to 40.7% in the second quarter of fiscal 1998. Excluding
the special credit relating to the sale of the Kattus business, which was not
taxable, the tax rate was 36.7%. The fiscal 1999 rate was lower than the fiscal
1998 rate due to prior year losses in Germany for which no tax benefit was
available. For fiscal year 1999, we expect an effective tax rate of
approximately 36% to 37% which includes the impact of a new minimum tax law
imposed by the Argentine government in December 1998 on business assets in that
country.
Cumulative effect of accounting change. In the second quarter of fiscal
1998, we recorded the cumulative effect of an accounting change of $0.6 million,
after tax, for the adoption of the Emerging Issues Task Force (EITF) Issue
97-13, "Accounting for Costs Incurred in Connection with Consulting Contract
that Combines Business Process Reengineering and Information Technology
Transformation".
Net earnings. Net earnings of $11.8 million, or $0.26 per diluted share for
the second quarter of fiscal 1999 represented a decrease of $6.4 million from
net earnings of $18.2 million in the second quarter of fiscal 1998. Excluding
the one-time charges, net of tax, for duplicative administrative transition
costs and costs related to the development of our information technology
infrastructure, and the Kattus special credit, net earnings for the second
quarter of fiscal 1999 would have been $10.8 million, or $0.24 per diluted
share. Pro forma net earnings for the second quarter of fiscal 1998 were $12.0
million, or $0.26 per diluted share.
Six Months Ended January 31, 1999 Compared to Six Months Ended February 1, 1998
Net sales. Net sales of $683.7 million in the first six months of fiscal
1999 decreased 5.5% from the first six months of fiscal 1998. The sales decrease
was primarily due to decreased volumes in the Swanson frozen food and Vlasic
pickle businesses as a result of decreased volumes driven of lower consumption.
This lower consumption was in part attributable to the timing of our marketing
efforts, as our new Swanson TV advertising campaign aired during the last month
of the period, and also increased competitive activities. Declines in
Swift-Armour exports and sales in the U.K. frozen foods businesses contributed
to the overall decline in net sales, partially offset by increases in the Kattus
businesses.
Cost of products sold. Cost of products sold as a percentage of net sales
decreased slightly to 71.0% in the first six months of fiscal 1999 compared to
71.8% in the same period of the prior year resulting from the benefit of cost
savings programs and lower cattle costs in Argentina in the first six months of
fiscal 1999, partially offset by yield problems at a few of our mushroom farms.
Marketing and selling expenses. Marketing and selling expenses as a
percentage of net sales increased in the first six months of fiscal 1999 to
16.7% from 15.9% in the first six months of fiscal 1998, although actual total
dollars decreased from the same period of the prior year as a result of lower
selling expenses due to volume declines. However, advertising spending was up
from the prior year primarily due to a significant increase in advertising in
the Swanson frozen foods business, partially offset by lower advertising in the
Vlasic pickle business resulting from a shift in the timing of our marketing
campaigns.
Administrative expenses. Administrative expenses, as a percentage of net
sales, increased in the first six months of fiscal 1999 to 5.5% from 4.0% in the
same period of the prior year primarily as a result of duplicative
administrative transition costs and costs related to the development of our
information technology infrastructure.
Research and development expenses. Research and development expenses as a
percentage of net sales remained unchanged in the first six months of fiscal
1999 compared to the same period of fiscal 1998.
Other expenses (income). Other expenses (income) in the first six months of
fiscal 1998 included a gain on fire insurance settlement, which was partially
offset by expenses pertaining to a Campbell-related long term incentive program
that ended in fiscal 1998.
Special credits. A special credit of $3.2 million was recorded in the
second quarter of fiscal 1999 relating to a gain on the January 1999 sale of the
Kattus business.
15
<PAGE> 17
Earnings before interest and taxes. Earnings before interest and taxes as a
percentage of net sales were 6.7% in the first six months of fiscal 1999
compared to 7.8% in the first six months of fiscal 1998. Excluding the one-time
charges of $7.0 million incurred in the first six months of fiscal 1999 for
duplicative administrative transition costs and costs related to the development
of our information technology infrastructure and excluding the $3.2 million
special credit for the gain on the sale of the Kattus business, earnings before
interest and taxes would have been 7.2% of net sales. The decline was primarily
attributable to lower sales volumes.
Interest expense. Interest expense for the first six months of fiscal 1999
was $21.3 million. The historical financial statements for the first six months
of fiscal 1998 reflected minimal interest expense prior to the spin-off as there
was no allocation of interest expense on Campbell's net investment. Subsequent
to the spin-off, interest expense included interest on the $500 million of debt
assumed from Campbell as well as the $60 million incurred to repay certain
intercompany payables representing advances from Campbell to Vlasic's
subsidiaries. We believe the pro forma financial information appearing on page
11 provides more meaningful comparisons. Assuming that the spin-off had been
consummated as of the beginning of fiscal 1998, pro forma interest expense would
have been approximately $20.3 million for first six months of fiscal 1998.
Taxes on earnings. The effective tax rate was 31.9% in the first six months
of fiscal 1999 compared to 37.4% in the first six months of fiscal 1998.
Excluding the special credit relating to the sale of the Kattus business, which
was not taxable, the tax rate was 36.7%. For fiscal year 1999, we expect an
effective tax rate of approximately 36% to 37% which includes the impact of a
new minimum tax law imposed by the Argentine government in December 1998 on
business assets in that country.
Cumulative effect of accounting change. In the second quarter of fiscal
1998, we recorded the cumulative effect of an accounting change of $0.6 million,
after tax, for the adoption of the Emerging Issues Task Force (EITF) Issue
97-13, "Accounting for Costs Incurred in Connection with Consulting Contract
that Combines Business Process Reengineering and Information Technology
Transformation".
Net earnings. Net earnings of $16.5 million, or $0.36 per diluted share for
the first six months of fiscal 1999 represented a decrease of $17.8 million from
net earnings of $34.3 million in the first six months of fiscal 1998. Excluding
the one-time charges, net of tax, for duplicative administrative transition
costs and costs related to the development of our information technology
infrastructure, and the Kattus special credit, net earnings for the first six
months of fiscal 1999 would have been $17.7 million, or $0.39 per diluted share.
Pro forma net earnings for the first six months of fiscal 1998 were $21.2
million, or $0.46 per diluted share.
16
<PAGE> 18
Results by Segment
The following table sets forth certain segment information for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ----------------------------
January 31, February 1, January 31, February 1,
SEGMENT INFORMATION 1999 1998 1999 1998
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales
Frozen Foods $143,229 $161,939 $284,544 $319,593
Grocery Products 126,822 122,088 223,786 224,283
Agricultural Products 87,510 93,811 179,152 185,480
Eliminations (936) (2,521) (3,807) (6,187)
-------- -------- -------- --------
Total $356,625 $375,317 $683,675 $723,169
======== ======== ======== ========
Earnings Before Interest and Taxes
Frozen Foods $ 12,106 $ 19,336 $ 25,588 $ 38,138
Grocery Products 15,355 14,101 23,432 19,087
Agricultural Products 139 (1,430) (3,541) (690)
-------- -------- -------- --------
Total $ 27,600 $ 32,007 $ 45,479 $ 56,535
======== ======== ======== ========
</TABLE>
Three Months Ended January 31, 1999 Compared to Three Months Ended February 1,
1998
Net sales of the frozen foods segment decreased 11.6% to $143.2 million in
the second quarter of fiscal 1999 compared to the second quarter of fiscal 1998.
Lower Swanson U.S. volumes due to lower consumption as a result of the timing of
our marketing efforts, as our new Swanson TV advertising campaign aired during
the last month of the period, and increased competitive activities drove the
sales decrease. The segment's earnings before interest and taxes decreased 37.4%
to $12.1 million in the second quarter of fiscal 1999 compared to the second
quarter of fiscal 1998, driven primarily by lower sales volumes and the
allocation of one-time charges for duplicative administrative transition costs
and certain information technology expenses.
Net sales of the grocery products segment increased 3.9% to $126.8 million
in the second quarter of fiscal 1999 compared to the second quarter of fiscal
1998. This increase was primarily driven by increases in sales in the Kattus
business as well as greater Vlasic pickle volumes. Increased pickle volumes were
driven by higher consumption as a result of more focused trade spending and
co-equity advertising efforts. The segment's earnings before interest and taxes
increased 8.9% to $15.4 million in the second quarter of fiscal 1999 compared to
the second quarter of fiscal 1998. Excluding the gain on sale of the Kattus
business of $3.2 million, earnings before interest and taxes would have been
$12.2 million in the second quarter of fiscal 1999, or a decline of 13.8% from
the same period of the prior year. This decline was primarily due to the
allocation of one-time charges for duplicative administrative transition costs
and certain information technology expenses.
Net sales of the agricultural products segment decreased 6.7% to $87.5
million in the second quarter of fiscal 1999 compared to the second quarter of
fiscal 1998. Declines in Swift-Armour export sales drove the sales decrease,
partially offset by increases in U.S. mushroom sales. The segment had earnings
of $0.1 million in the second quarter of fiscal 1999 compared to a loss of $1.4
million in the same period of the prior year. This change was primarily due to
lower cattle prices in Argentina in the second quarter of fiscal 1999 compared
to the second quarter of fiscal 1998, partially offset by lower mushroom
earnings due to yield problems at a few of our farms and the allocation of
one-time charges for duplicative administrative transition costs and certain
information technology expenses.
17
<PAGE> 19
Six Months Ended January 31, 1999 Compared to Six Months Ended February 1, 1998
Net sales of the frozen foods segment decreased 11.0% to $284.5 million in
the first six months of fiscal 1999 compared to the first six months of fiscal
1998. Lower Swanson U.S volumes due to lower consumption as a result of the
timing of our marketing efforts, as our new Swanson TV advertising campaign
aired during the last month of the period, and increased competitive activities
drove the sales decrease. The segment's earnings before interest and taxes
decreased 32.9% to $25.6 million in the first six months of fiscal 1999 compared
to the first six months of fiscal 1998, driven primarily by lower volumes and
the allocation of one-time charges for duplicative administrative transition
costs and certain information technology expenses.
Net sales of the grocery products segment of $223.8 million for the first
six months of fiscal 1999 represented a slight decline in net sales from the
first six months of fiscal 1998. An increase in sales in the Kattus business for
the six month period was offset by first quarter declines in Vlasic pickle
volumes. The segment's earnings before interest and taxes increased 22.8% to
$23.4 million in the first six months of fiscal 1999. Excluding the gain on sale
of the Kattus business of $3.2 million, earnings before interest and taxes for
the grocery products segment would have been $20.2 million in the first six
months of fiscal 1999, or an increase of 6.0% from the same period of the prior
year. This increase was predominately driven by significant improvements in the
Kattus business, partially offset by the allocation of one-time charges for
duplicative administrative transition costs and certain information technology
expenses.
Net sales of the agricultural products segment decreased 3.4% to $179.2
million in the first six months of fiscal 1999 compared to the first six months
of fiscal 1998. The segment incurred a loss of $3.5 million in the first six
months of fiscal 1999 compared to a loss of $0.7 million in the same period of
the prior year. This was primarily due to lower mushroom earnings as a result of
yield problems at a few of our farms, a gain on insurance settlement in last
year's first quarter, and the allocation of one-time charges for duplicative
administrative transition costs and certain information technology expenses.
Partially offsetting these factors were improvements in Argentine cattle prices
in the first six months of fiscal 1999 compared to the first six months of
fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the spin-off, we incurred incremental debt of
approximately $560 million under a five year $750 million unsecured revolving
credit facility, consisting of $500 million of indebtedness assumed from
Campbell and $60 million incurred to repay certain intercompany payables
representing advances from Campbell to subsidiaries of Vlasic. We amended the
revolving credit facility on September 30, 1998. As a result of this amendment,
$100 million of indebtedness outstanding under the revolving credit facility was
converted to a term loan and the commitment under the revolving credit facility
was reduced to $550 million. The term loan has the same terms and conditions as
the amended revolving credit facility. Borrowings under the amended revolving
credit facility and the term loan bear interest at rates, which at our option,
vary with the prime rate, CD rate, LIBOR or money market rates plus applicable
credit margins. The average interest rate at January 31, 1999 was 6.59%. In
addition, we pay a facility fee ranging from 0.25% to 0.50%. Both the applicable
credit margins and the facility fee are based on the timing of the issuance of
longer term debt. The amended agreement contains covenants, including, but not
limited to: the mandatory repayment of debt; the reduction of the commitment
upon the sale of assets, issuance of equity and the incurrence of additional
debt; restrictions on the issuance of new debt; limitations on capital spending;
restrictions on dividend payments; and certain other financial ratio covenants.
At January 31, 1999, $448.9 million was outstanding under the revolving
credit facility and $100 million was outstanding under the term loan, with an
additional $101.1 million available to support our capital requirements
including working capital needs and capital expenditures. On February 24, 1999,
we announced that we began to explore strategic alternatives involving our
Swift-Armour Argentine beef business. One of the possible alternatives is the
disposition of the business. If we decide to dispose the Swift-Armour business,
the net proceeds from the sale of the business would be used to repay a portion
of the outstanding debt and reduce the commitment under the revolving credit
facility.
Our liquidity needs will be primarily for capital expenditures and working
capital needs. Capital expenditures for fiscal year 1999 are expected to
approximate $50 million, of which $22.9 million had already been expended as of
January 31, 1999. We believe that our capital expenditures for the foreseeable
future will be focused on cost
18
<PAGE> 20
effective maintenance, expenditures intended to result in cost savings and
expenditures related to new product introductions. The amended revolving credit
facility imposes the following annual limits on capital expenditures: $52
million in fiscal 1999; $58 million in fiscal 2000; $63 million in fiscal 2001;
$65 million in fiscal 2002; and $68 million in fiscal 2003.
We anticipate that our operating cash flows, together with available
borrowings under our credit facility, will be sufficient to meet our working
capital requirements, capital expenditure requirements and interest service
requirements on our debt obligations.
Net cash provided by operating activities was $10.7 million in the first
six months of fiscal 1999 compared to net cash used of $46.8 million in the
first six months of fiscal 1998. The improvement in cash flows from operations
was principally driven by a smaller seasonal increase in working capital of
$33.1 million in the first six months of fiscal 1999 compared to $106.6 million
in the first six months of fiscal 1998, partially offset by the impact of lower
net earnings in the first six months of fiscal 1999. The seasonal increase in
working capital resulted from increases in frozen food and pickle receivables.
Net cash provided by investing activities was $3.1 million in the first six
months of fiscal 1999 compared to net cash used of $24.8 million in the first
six months of 1998. Proceeds of $20.7 million from the sale of the Kattus
business were used to pay down debt on our revolving credit facility. Capital
expenditures were $22.9 million in the first six months of fiscal 1999 compared
to $23.3 million in the same period of the prior year.
Net cash used in financing activities of $10.5 million in the first six
months of fiscal 1999 was principally a net reduction in borrowings under the
revolving credit facility. Financing activities were used primarily for working
capital requirements.
SEASONALITY
Sales of frozen foods and mushrooms tend to be marginally higher during
the cold winter months. Sales of pickles, relishes and barbecue sauce tend
to be higher in the summer months. The majority of pickles are packed during a
season extending from May through September. As a result, we tend to have
higher sales and net earnings in the fourth quarter of the fiscal year and our
inventory levels tend to be higher in the first quarter of the fiscal year
which makes our working capital requirements significantly higher in the first
quarter requiring us to draw more heavily on our revolving credit facility.
YEAR 2000
The Year 2000 issue is the result of date-sensitive computer programs using
two digits rather than four to define the applicable year. If not corrected,
this could result in system failures or miscalculations leading to significant
disruptions in a company's operations. Prior to our spin-off from Campbell, a
worldwide information technology project was initiated to identify areas
impacted by Year 2000 issues. The purpose of this high-priority project was to
identify and remediate non-ready systems and devices before business processes
were affected. We completed a global business impact assessment and have plans
for timely correction, retirement, replacement or updating of non-ready systems.
We were aided in this effort by the fact that we were only recently spun-off as
an independent entity on March 30, 1998 and many of our business and information
systems in the U.S. have been newly purchased and implemented with Year 2000
compliant technologies. The implementation of newly purchased systems is
targeted for completion by April 2, 1999 and was approximately 85% completed as
of January 1999.
The actual work of remediating and testing those systems that are not new
has begun. We have completed the work on our identified critical systems and our
other systems have been targeted for completion by July 31, 1999. These phases
of the project were approximately 75% completed as of January 1999. Critical
systems include business planning and control process manufacturing, sales order
billing and warehouse management systems, that, if shut down or interrupted,
could have a material adverse effect on our results of operations, financial
condition and cash flows. We partner with experienced systems integration and
Year 2000 vendors in the execution of our Year 2000 master plan.
19
<PAGE> 21
The project has clear management responsibility, budgets, plans and
reporting requirements. Monthly project tracking and management reporting
processes are in place. The tracking process measures progress (plan versus
actual) for applications at a milestone level. The scope of the project covers
information technology systems, our infrastructure, including plant floor
devices, and our service partners, including logistical operations. An
assessment of our global information technology infrastructure has been
completed and engineers are currently remediating the plant production
facilities. Remediation of the technology infrastructure is targeted for
completion by October 31, 1999 and was approximately 65% completed as of January
1999.
We will test all electronic interfaces with trading partners and suppliers
as part of the new system development project, which are scheduled to be
completed by July 31, 1999. Additionally, questionnaires have been sent to all
major suppliers. Responses from suppliers are continually evaluated and updated
reports are being requested.
We reviewed the risks of Year 2000 issues and believe the risks are
minimized due to our policy of implementing standard tested and certified Year
2000 systems. The completed risk analysis performed by the independent engineers
for plant non-information technology systems has not identified any significant
risks. Because our Year 2000 compliance is dependent upon key third parties also
being Year 2000 compliant on a timely basis, there can be no guarantee that our
efforts will prevent a material adverse impact on our results of operations,
financial condition and cash flows. The possible consequences of not being fully
Year 2000 compliant include temporary plant closings, delays in the delivery of
finished products, delays in the receipt of key ingredients, containers and
packaging supplies, invoice and collection errors and inventory and supply
obsolescence. These consequences could have a material adverse impact on our
results of operations, financial condition and cash flows if we are unable to
conduct business in the ordinary course. We believe that our readiness program
should significantly reduce the adverse effect any such disruptions may have.
Concurrently with the Year 2000 readiness measures described above, we and
our operating subsidiaries are developing contingency plans intended to mitigate
the possible disruption in business operations that may result from the Year
2000 issue, and are developing cost estimates for such plans. Once developed,
contingency plans and related cost estimates will be continually refined as
additional information becomes available.
The anticipated costs associated with modifying current systems to be Year
2000 compliant will be expensed as incurred; such anticipated costs total $3
million of which $0.6 million was incurred during the first six months of fiscal
1999 and $1 million was incurred during fiscal 1998. While there can be no
assurance that we and our suppliers and customers will fully resolve all Year
2000 issues, neither the estimated cost to become Year 2000 operationally
effective nor the outcome of the Year 2000 issue is expected to have a material
impact on our operations, liquidity or financial position.
RECENT DEVELOPMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. We are not required to adopt the statement until fiscal 2000. We
are currently evaluating the effect that implementation of the new standard will
have on our results of operations and financial position.
20
<PAGE> 22
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934. This
information was based on our current views and assumptions regarding future
events and financial performance and is subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in this
report and filings with the Securities and Exchange Commission. Important facts
that could cause such differences include, but are not limited to:
o The impact of strong competitive response to our efforts to leverage brand
power with product innovation and new advertising.
o Market risks associated with financial instruments that may vary due to the
impact of unforeseen economic changes, such as currency exchange rates,
inflation rates and recessionary trends.
o Continued compliance with the covenants and the terms of the amended credit
facility.
o Our ability to maintain capital expenditures within the forecasted limits.
o Impact of the Year 2000 issues associated with our business and information
systems and embedded technology as well as the information technology of
our vendors, suppliers, service providers and customers.
o Implementation of information technology systems by the targeted completion
dates.
o Inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance.
o Our ability to achieve the forecasted savings related to the restructuring
program.
ITEM 3. MARKET RISK
We use or are permitted to use financial instruments, including fixed and
variable rate debt, as well as swap, forward and option contracts, to finance
our operations and to hedge interest rate and currency exposures. The swap,
forward and option contracts are entered into for periods consistent with
related underlying exposures and do not constitute positions independent of
those exposures. We do not enter into contracts for speculative purposes, nor
are we a party to any leveraged instrument.
As disclosed in our Annual Report, we entered into interest rate swap
contracts with a total notional value of $150 million to hedge a portion of our
U.S. variable interest rate bank borrowings. As of January 31, 1999, the
interest rate swap contracts provided that we pay an average interest rate of
5.87% and receive an average interest rate of 5.08%. It would have cost
approximately $4.3 million to settle the interest rate swap contracts as of
January 31, 1999.
We entered into a forward starting swap contract with a 10 year maturity
and a notional amount of $50 million that hedged a portion of the interest rate
exposure associated with the planned issuance of longer term debt in fiscal
1999. In March 1999, we settled the forward starting swap at no expense or
benefit.
There have been no other material changes in our market risk during six
months ended January 31, 1999. For additional information, refer to pages 21 and
22 of our Annual Report for the fiscal year ended August 2, 1998.
21
<PAGE> 23
PART II. OTHER INFROMATION
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
As previously reported in our Form 10-K, dated October 20, 1998, we are not
aware of any pending claims or litigation the outcome of which would have a
material adverse effect on our business, financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. Our Annual Meeting of Shareowners was held on December 1, 1998
c. The matters voted upon and the results of the vote were as follows:
<TABLE>
<CAPTION>
Election of Directors
---------------------
Number of Shares
----------------
Name For Withheld
---- --- --------
<S> <C> <C>
Robert F. Bernstock 40,954,061 188,542
Robert T. Blakely 40,929,347 213,256
Morris A. Cohen 40,927,899 214,704
Richard L. Huber 40,924,843 217,760
Lawrence C. Karlson 40,955,748 186,855
Donald J. Keller 40,954,320 188,283
Shaun F. O'Malley 40,944,837 197,766
</TABLE>
Ratification of Appointment of Independent Accountants -
PricewaterhouseCoopers LLP for the fiscal year ending August 1, 1999.
Votes totaled 40,951,841 for; 33,517 against; and 157,345 abstentions.
ITEM 5. OTHER INFORMATION
A. Cautionary Statement on Forward-Looking statements
This report contains certain forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. This information was based upon our current views and
assumptions regarding future events and financial performance and is
subject to risks and uncertainties that could cause actual results to
differ materially from those expressed in this report. Additional
information concerning factors that could cause actual results to vary
materially from the results anticipated can be found on page 21 in
Management's Discussion and Analysis of Results of Operations and
Financial Condition and in our Annual Report on Form 10-K for the
fiscal year ended August 2, 1998.
22
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
3(ii) Vlasic Foods International Inc.'s Amended and Restated By-Laws,
effective March 2, 1999
(27) Financial Data Schedule
B. Reports on Form 8-K
We did not file any reports on Form 8-K during the second quarter of
fiscal 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VLASIC FOODS INTERNATIONAL INC.
Dated: March 16, 1999 By: /s/ Mitchell P. Goldstein
-----------------------------------------
Mitchell P. Goldstein
Vice President and Chief Financial Officer
23
<PAGE> 1
AMENDED AND RESTATED
BY-LAWS
OF
VLASIC FOODS INTERNATIONAL INC.
Effective March 2, 1999
ARTICLE I
SHAREHOLDERS
SECTION 1.1. Annual Meeting. The annual meeting of the shareholders
of the Company shall be held for the election of directors and for the
transaction of such business as may properly come before the meeting on the
first Tuesday in December of each year (or, if such date is a legal holiday, the
next succeeding business day that is not a legal holiday), at such place and
time, either within or without the State of New Jersey, as may be fixed by
resolution of the Board of Directors.
SECTION 1.2. Call of Special Meeting Except as otherwise provided
by law, and subject to the rights of the holders of any Preferred Stock of the
Company, special meetings of the shareholders may be called only by (A) the
Secretary of the Company to consider or act upon a specified proposal or
proposals which are a proper matter for shareholder action when requested, in
writing, to do so by the holders of not less than a majority of the capital
stock of the Company issued and outstanding and entitled to vote at such
meeting, (B) the Chairman of the Board, (C) the President or (D) the Board of
Directors pursuant to a resolution adopted by a majority of the directors then
in office. Upon a written request of shareholders of the Company entitled to
call a special meeting of shareholders in accordance with the foregoing
sentence, the Secretary shall, as promptly as practicable, cause notice to be
given to the shareholders entitled to vote that a meeting will be held at a time
and date fixed by the Secretary in accordance with Section 1.4 below.
SECTION 1.3. Place of Special Meeting. The Board of Directors, the
Chairman of the Board or the President, as the case may be, may designate the
place of meeting, either within or without the State of New Jersey, for any
special meeting of the shareholders. If no designation is so made, the place of
meeting shall be the principal office of the Company.
SECTION 1.4. Notice of Meeting. Written or printed notice, stating
the place, day and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered by
the Company either personally or by mail, to each shareholder of record entitled
to vote at such meeting. Unless otherwise provided by law, the written notice of
any meeting shall be given not less than ten (10) days nor more than sixty (60)
<PAGE> 2
days before the date of the meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail with postage thereon
prepaid, addressed to the shareholder at his, her or its address as it appears
on the stock transfer books of the Company. Such further notice of any meeting
shall be given as may be required by law. Meetings may be held without notice if
all shareholders entitled to vote are present, or if notice is waived by those
not present in accordance with Section 5.4 of Article V of these By-Laws.
Subject to applicable law and any applicable provisions of the Certificate of
Incorporation of the Company, any special meeting of the shareholders called by
the Board, the Chairman of the Board or the President may be cancelled, by
resolution adopted by the Board of Directors, upon public notice given on or
prior to the date previously scheduled for such meeting of shareholders.
SECTION 1.5. Quorum and Adjournment. Except as otherwise provided
by law, the presence, in person or by proxy, of shareholders entitled to cast at
least a majority of the votes that all shareholders are entitled to cast on a
particular matter shall constitute a quorum for purposes of consideration and
action on the matter. A majority of the shares so present or represented may
adjourn the meeting from time to time, whether or not a quorum of shareholders
is present. Once a quorum is established, the shareholders present in person or
by proxy may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. No notice of the
time and place of adjourned meetings need be given, except as required by law.
SECTION 1.6. Voting; Proxies. Except as otherwise provided by law
or in the Certificate of Incorporation, each shareholder entitled to vote at any
meeting shall be entitled to one vote for each share of stock held by such
shareholder which has voting power upon the matter in question. Any shareholder
entitled to vote at any meeting may vote in person or by proxy. Every proxy
shall be in writing, executed by the shareholder or his or her duly authorized
attorney and dated.
SECTION 1.7. Notice of Shareholder Business and Nominations.
(A) Annual Meetings of Shareholders. (I) Nominations of persons for
election to the Board of Directors of the Company and the proposal of business
to be considered by the shareholders may be made at an annual meeting of
shareholders (a) pursuant to the Company's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any shareholder of the Company who
was a shareholder of record at the time of giving of notice provided for in this
Section 1.7, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Section 1.7.
(II) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (c) of paragraph
(A)(I) of this Section 1.7, the shareholder must have given timely notice
thereof in writing to the Secretary of the Company, and such other business must
otherwise be a proper matter for shareholder action. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Company, not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that with respect to the annual meeting to be held in 1998, the first
anniversary date shall
2
<PAGE> 3
be deemed for all purposes under this Section 1.7 to be December 2, 1998; and
provided, further, that in the event that the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date, notice by
the shareholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of (a) the 60th day prior to such annual meeting
or (b) the 10th day following the day on which public announcement of the date
of such meeting is first made by the Company. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a shareholder's notice as described above. Such shareholder's
notice shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the shareholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (i) the name and
address of such shareholder, as they appear on the Company's books, and of such
beneficial owner and (ii) the class and number of shares of the Company which
are owned beneficially and of record by each of such shareholder and such
beneficial owner.
(III) Notwithstanding anything in the second sentence of
paragraph (A)(II) of this Section 1.7 to the contrary, and subject to any
applicable provisions of the Certificate of Incorporation dealing with vacancies
on the Board of Directors, in the event that the number of directors to be
elected to the Board of Directors of the Company is increased and there is no
public announcement by the Company naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a shareholder's
notice required by this Section 1.7 shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
Company not later than the close of business on the 10th day following the day
on which such public announcement is first made by the Company.
(B) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Company's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
shareholders at which directors are to be elected pursuant to the Company's
notice of meeting (a) by or at the direction of the Board of Directors or (b) by
any shareholder of the Company who is a shareholder of record at the time of
giving of notice provided for in this Section 1.7, who shall be entitled to vote
at the meeting and who complies with the notice procedures set forth in this
Section 1.7. In the event a special meeting of shareholders is called for the
purpose of electing one or more directors to the Board of Directors, any such
shareholder may nominate a person or persons (as the case may be) for election
to such positions, as specified in the Company's notice of meeting, if a
shareholder's notice complying with the
3
<PAGE> 4
requirements of paragraph (A)(II) of this Section 1.7 shall be delivered to the
Secretary at the principal executive offices of the Company not earlier than the
close of business on the 90th day prior to such special meeting and not later
than the close of business on the later of (a) the 60th day prior to such
special meeting or (b) the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a shareholder's notice as described
above.
(C) General. (I) Only such persons who are nominated in accordance with
the procedures set forth in this Section 1.7 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.7. Except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws, the Chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 1.7 and, if any
proposed nomination or business is not in compliance with this Section 1.7, to
declare that such defective proposal or nomination shall be disregarded.
(II) For purposes of this Section 1.7, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(III) Notwithstanding the foregoing provisions of this Section
1.7, a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 1.7. Nothing in this Section 1.7 shall be
deemed to affect any rights (a) of shareholders to request inclusion of
proposals in the Company's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (b) of the holders of any class or series of Preferred Stock to
elect directors under specified circumstances set forth in the Certificate of
Incorporation.
SECTION 1.8. Chairman of Meetings. All meetings of the shareholders
shall be presided over by the Chairman of the Board, or if he or she shall not
be present, by the President. If neither the Chairman of the Board nor the
President shall be present, such meeting shall be presided over by a Vice
President. If none of the Chairman of the Board, the President and a Vice
President shall be present, such meeting shall be presided over by a Chairman to
be elected by the holders of a majority of the shares present or represented at
the meeting.
The Secretary of the Corporation, or if he or she is not present, an
Assistant Secretary of the Corporation, if present, shall act as secretary of
the meeting. If neither the Secretary nor an Assistant Secretary is present,
then the Chairman of the meeting shall appoint a Secretary of the meeting.
SECTION 1.9. Inspectors of Elections. The Board of Directors by
resolution shall appoint one or more inspectors, which inspector or inspectors
may include individuals, other
4
<PAGE> 5
than any director or candidate for the office of director, who serve the Company
in other capacities, including, without limitation, as officers, employees,
agents or representatives, to act at the meetings of shareholders and make a
written report thereof. One or more persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate has been appointed to act or is able to act at a meeting of
shareholders, the Chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall take charge of the polls and shall make a certificate of the
results of the vote taken.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 General Powers. The business and affairs of the company
shall be managed under the direction of its Board of Directors. In addition to
the powers and authorities by these By-Laws expressly conferred upon it, the
Board of Directors may exercise all powers of the Company and do all such lawful
acts and things as are not by law or by the Certificate of Incorporation or by
these By-Laws required to be exercised or done by the shareholders.
SECTION 2.2. Number and Tenure. Subject to the rights of the
holders of any class or series of Preferred Stock to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time pursuant to a resolution adopted by the Board of Directors, but shall not
be less than three or more than fifteen. Each director shall hold office until
the next annual meeting of shareholders and until his or her successor has been
elected and qualified.
SECTION 2.3 Regular Meetings. Regular meetings of the Board of
Directors shall be held without other notice than this Section 2.3 (subject to
any applicable provisions of Section 8.1 of Article VIII of these By-Laws) at
such places within or without the State of New Jersey and at such times as the
Board of Directors may determine. The Board of Directors may, by resolution,
provide the time and place for the holding of additional regular meetings
without other notice than such resolution.
SECTION 2.4 Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a number of directors equal to the lesser of (A) a majority of
directors then in office or (B) three. The person or persons authorized to call
special meetings of the Board of Directors may fix the place and time of the
meetings.
SECTION 2.5. Notice. Notice of any special meeting of directors
shall be given to each director at his or her business or residence in writing
by hand delivery, first class or overnight mail or other overnight or express
delivery service, telegram or facsimile transmission, by electronic mail or
orally by telephone. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice of such meeting, except for amendments to these By-Laws, as
provided under Section 8.1 of Article VIII of
5
<PAGE> 6
these By-Laws, or to the Certificate of Incorporation. A meeting may be held at
any time without notice if all the directors are present or if those not present
waive notice of the meeting in accordance with Section 5.4 of Article V of these
By-Laws.
SECTION 2.6. Action by Consent of Board of Directors. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 2.7. Quorum. A majority of the directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors. Whether or not a quorum is present, a majority of the
directors present at a meeting of the Board may adjourn the meeting to some
later time without further notice. When a quorum is present, the vote of a
majority of the directors present shall decide any question.
SECTION 2.8. Vacancies. Subject to applicable law and the rights of
the holders of any class or series of Preferred Stock pursuant to the Company's
Certificate of Incorporation, vacancies, including those resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
may be filled by the affirmative vote of a majority of directors then in office,
though less than a quorum of the Board of Directors. Any director so elected
shall hold office until the next annual meeting of shareholders and until such
director's successor shall have been elected and qualified. No decrease in the
number of authorized directors constituting the Board of Directors shall shorten
the term of any incumbent director.
SECTION 2.9. Compensation. In addition to reimbursement of
reasonable expenses incurred in attending meetings or otherwise in connection
with his or her attention to the affairs of the Company, each director as such,
as Chairman of the Board and as a member of any committee of the Board of
Directors, shall be entitled to receive such remuneration as may be fixed from
time to time by the Board of Directors, in the form either of fees for
attendance at meetings of the Board of Directors and committees thereof or
annual retainers, or both; but no director who receives a salary or other
remuneration as an employee of the Company or any subsidiary thereof shall
receive any additional remuneration as a director or member of any committee of
the Board of Directors.
SECTION 2.10. Executive and Other Committees. From time to time,
the Board of Directors may by resolution provide for and appoint the members of
an Executive Committee, or any regular or special committee or committees of
directors, and such committees shall have and may exercise such powers as shall
be conferred or authorized by the resolution of appointment, so long as such
powers are not inconsistent with the Certificate of Incorporation and applicable
law.
6
<PAGE> 7
ARTICLE III
OFFICERS
SECTION 3.1 Officers. The officers of the Company shall be a
Chairman of the Board of Directors, a President, a Secretary, a Treasurer, one
or more Vice Presidents, and such other officers as the Board of Directors from
time to time may deem proper. The Chairman of the Board shall be chosen from
among the directors. All officers elected by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article III. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof. The Board may from time to time elect,
or the President may appoint, such other officers (including one or more
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers) and
such agents, as may be necessary or desirable for the conduct of the business of
the Company. Such other officers and agents shall have such duties and shall
hold their offices for such terms as shall be provided in these By-Laws or as
may be prescribed by the Board or such committee or by the President, as the
case may be.
SECTION 3.2. Election and Term of Office. The elected officers of
the Company shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held on the date of the annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each such officer
so elected shall hold office until his or her successor has been elected and
qualified or until his or her earlier death, resignation or removal.
SECTION 3.3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the shareholders and the Board of Directors at which
the Chairman is present. In addition to the foregoing, the Chairman shall have
authority to sign and acknowledge in the name and on behalf of the Company all
stock certificates, contracts or other documents and instruments except when the
signing thereof shall be expressly delegated to an officer or agent by the Board
or required by law to be otherwise signed or executed and, unless otherwise
provided by law or by the Board, authorize any officer, employee or agent of the
Company to sign, execute and acknowledge in his or her place and stead all such
documents and instruments.
SECTION 3.4. President and Chief Executive Officer. The President
shall be the Chief Executive Officer of the Company and, in the absence of the
Chairman, shall preside at all meetings of the shareholders and of the Board of
Directors of the Company at which the President is present. The President shall
have general charge and supervision of the business of the Company and, in
general, shall perform all duties incident to the office of chief executive
officer or president of a corporation and such other duties as may, from time to
time, be assigned to him or her by the Board or as may be provided by law. The
President shall have authority to sign and acknowledge in the name and on behalf
of the Company all stock certificates, contracts or other documents and
instruments and, unless otherwise provided by law or by the Board, may authorize
any officer, employee or agent of the Company to sign, execute and acknowledge
in his or her place and stead all such documents and instruments.
7
<PAGE> 8
SECTION 3.5. Vice-Presidents. Each Vice President shall have such
powers and shall perform such duties as may be assigned to him or her by the
Board of Directors or the President.
SECTION 3.6. Treasurer. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. The
Treasurer shall cause the funds of the Company to be deposited in such banks as
may be authorized by the Board of Directors, or in such banks as may be
designated as depositories in the manner provided by resolution of the Board of
Directors. He or she shall have such further powers and duties and shall be
subject to such directions as may be assigned to him or her from time to time by
the Board of Directors or the President.
SECTION 3.7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose. He or she
shall give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors and shareholders in accordance with
these By-Laws and, when appropriate, shall cause the corporate seal to be
affixed to any instruments executed on behalf of the Company. The Secretary
shall also perform all duties incident to the office of Secretary and such other
duties as may be assigned to him or her by the Board of Directors or the
President.
SECTION 3.8. Vacancies. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any vacancy in an office appointed by the
President because of death, resignation, or removal may be filled by the
President.
ARTICLE IV
STOCK CERTIFICATES AND RELATED MATTERS
SECTION 4.1. Stock Certificates. The interest of each shareholder
of the Company shall be evidenced by certificates for shares of stock in such
form as the appropriate officers of the Company may from time to time prescribe,
or by appropriate registration in book-entry accounts without certificates.
Any certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Company with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
8
<PAGE> 9
SECTION 4.2. Lost, Stolen or Destroyed Certificates. No certificate
for shares of stock in the Company shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Company of a
bond of indemnity in such amount, upon such terms and secured by such surety, as
the Board of Directors or any officer may in its or his or her discretion
require.
ARTICLE V
GENERAL PROVISIONS
SECTION 5.1. Fiscal Year. The fiscal year of the Company shall
begin on the Monday following the Sunday which is nearest to July 31 of each
year and shall end on the Sunday which is nearest to July 31 of the following
year.
SECTION 5.2. Seal. The corporate seal shall be in such form and
shall bear such inscription as may be adopted by the Board of Directors.
SECTION 5.3. Waiver of Notice. Whenever any notice is required to
be given to any shareholder or director of the Company under the provisions of
the Business Corporation Act of the State of New Jersey or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose of, any annual or special meeting of the shareholders or the
Board of Directors or committee thereof need be specified in any waiver of
notice of such meeting. The presence of any such shareholder or director at such
meeting in person or by proxy without protesting prior to the conclusion of the
meeting the lack of notice of such meeting, shall constitute a waiver of notice
by such shareholder or director.
ARTICLE VI
INDEMNIFICATION; ADVANCE OF EXPENSES
SECTION 6.1. Right to Indemnification. (A) Subject to Section 6.3
hereof, the Company shall indemnify to the fullest extent permitted by
applicable law any person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
investigative or of any other kind, or any appeal therefrom (a "Proceeding"), by
reason of the fact that such person is or was a director or officer or employee
of the Company, or is or was serving at the request of the Company as a director
or officer or employee of another corporation or of a partnership, joint
venture, trust or other enterprise or entity, whether or not for profit, whether
domestic or foreign, including service with respect to an employee benefit plan,
its participants or beneficiaries, against all liability, loss and expense
(including judgments, fines, penalties, excise taxes, attorneys' fees and costs
and amounts paid in settlement) actually and reasonably incurred by such person
in connection with such Proceeding, whether or not the indemnified liability
arises or arose from any Proceeding by or in the right of the Company; provided,
however, the Company
9
<PAGE> 10
shall be required to indemnify any person seeking indemnification in connection
with any Proceeding initiated by such person only if such Proceeding was
authorized by the Board of Directors or is a Proceeding to enforce such person's
claim to indemnification pursuant to the rights granted by applicable law, these
By-Laws or otherwise by the Company. No indemnification pursuant to this Article
VI shall be required with respect to any settlement or other nonadjudicated
disposition of any threatened or pending Proceeding unless the Company has given
its prior written consent to such settlement or other disposition.
(B) Without limiting the generality or the effect of this Section
6.1, the Company may enter into one or more agreements with any person which
provide for indemnification greater than or different from that provided in this
Section 6.1.
SECTION 6.2. Advance of Expenses. Subject to Section 6.3 hereof and
the provisions of applicable law, expenses incurred by a director or officer or
employee in defending (or acting as a witness in) a Proceeding shall be paid by
the Company in advance of the final disposition of such Proceeding, provided
that in the event the director, officer or employee is a party to such
Proceeding, such payment shall be made only upon receipt of an undertaking by or
on behalf of the director or officer or employee to repay such amount if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Company under applicable law.
SECTION 6.3. Procedure for Determining Permissibility. To determine
whether any indemnification or advance of expenses under this Article VI is
permissible, the Board of Directors by a majority vote of a quorum consisting of
directors who are not parties to or otherwise involved in such Proceeding may,
and on request of any person seeking indemnification or advance of expenses
shall, determine (A) in the case of indemnification, whether the standards under
applicable law have been met, and (B) in the case of advance of expenses,
whether such advance is appropriate under the circumstances, provided that each
such determination shall be made by independent legal counsel if such quorum is
not obtainable, or, even if obtainable, if a majority vote of a quorum of
disinterested directors so directs or, if a resolution of the Board of Directors
so directs, (I) by a committee of the Board of Directors, in the case of a
determination concerning a director or officer of the Company or (II) by one or
more officers of the Company in the case of a determination concerning any
person other than a director or officer of the Company. The reasonable expenses
of any director or officer in prosecuting a successful claim for
indemnification, and the fees and expenses of any independent legal counsel
engaged to determine permissibility of indemnification or advance of expenses,
shall be borne by the Company.
SECTION 6.4. Contractual Obligation. The obligations of the Company
to indemnify a director or officer or employee under this Article VI, including
if applicable, the duty to advance expenses, shall be considered a contract
between the Company and such director or officer or employee, and no
modification or repeal of any provision of this Article VI shall affect, to the
detriment of the director or officer or employee, such obligations of the
Company in connection with a claim based on any act or failure to act occurring
before such modification or repeal.
SECTION 6.5. Indemnification Not Exclusive; Inuring of Benefit. The
indemnification and advancement of expenses provided by this Article VI shall
not be deemed exclusive of any other right to which one indemnified may be
entitled under any statute, agreement,
10
<PAGE> 11
vote of shareholders or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office, and
shall inure to the benefit of the heirs, legal representatives and estate of any
such person.
SECTION 6.6. Insurance and other Indemnification. The Board of
Directors shall have the power to (A) authorize the Company to purchase and
maintain, at the Company's expense, insurance on behalf of the Company and on
behalf of others to the extent that power to do so has not been prohibited by
statute, (B) create any fund of any nature, whether or not under the control of
a trustee, or otherwise secure any of its indemnification obligations, and (C)
give other indemnification to the extent permitted by statute, including to
agents of the Company.
SECTION 6.7 Delegation of Authority. The Corporation's Board of
Directors hereby delegates to the General Counsel of the Corporation the
authority to determine whether an employee of the Corporation or any subsidiary,
other than a director or officer of the corporation, is entitled to
indemnification or advancement of expenses pursuant to, and in accordance with,
applicable law and this Article VI, subject to such conditions and limitations
as the Board of Directors may prescribe.
ARTICLE VII
PROXIES
SECTION 7.1. Proxies. Unless otherwise provided by resolution
adopted by the Board of Directors, the President or any Vice President, the
Secretary or any Assistant Secretary, may from time to time appoint an attorney
or attorneys or agent or agents of the Company, in the name and on behalf of the
Company, to cast the votes which the Company may be entitled to cast as the
holder of stock or other securities in any other corporation, any of whose stock
or other securities may be held by the Company, at meetings of the holders of
the stock or other securities of such other corporation, or to consent in
writing, in the name of the Company as such holder, to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed in the name and on behalf of the Company and under its corporate
seal or otherwise, all such written proxies or other instruments as he or she
may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. Amendments. These By-Laws may be amended or repealed,
or new By-Laws may be adopted, at any meeting of the Board of Directors or of
the shareholders, provided notice of the proposed change was given in the notice
of the meeting and, in the case of a meeting of the Board of Directors, in a
notice given not less than twenty-four hours prior to the meeting.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-01-1999
<PERIOD-START> NOV-02-1998
<PERIOD-END> JAN-31-1999
<CASH> 19,860
<SECURITIES> 0
<RECEIVABLES> 143,654
<ALLOWANCES> 3,476
<INVENTORY> 175,515
<CURRENT-ASSETS> 354,137
<PP&E> 869,326
<DEPRECIATION> 361,863
<TOTAL-ASSETS> 948,305
<CURRENT-LIABILITIES> 205,821
<BONDS> 558,934
0
0
<COMMON> 137,758
<OTHER-SE> (12,260)
<TOTAL-LIABILITY-AND-EQUITY> 948,305
<SALES> 683,675
<TOTAL-REVENUES> 683,675
<CGS> 485,748
<TOTAL-COSTS> 638,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,740
<INCOME-PRETAX> 24,169
<INCOME-TAX> 7,700
<INCOME-CONTINUING> 16,469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,469
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
