<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
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
OCTOBER 29, 2000 1-13933
VLASIC [LOGO]
FOODS INTERNATIONAL INC.
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: 856-969-7100
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 45,418,203 SHARES OF COMMON STOCK OUTSTANDING AS OF DECEMBER 1,
2000.
<PAGE> 2
VLASIC FOODS INTERNATIONAL
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
No.
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations (unaudited) for the three months 2
ended October 29, 2000 and October 31, 1999
Consolidated Balance Sheets as of October 29, 2000 (unaudited) and July 3
30, 1999 (audited)
Consolidated Statements of Cash Flows (unaudited) for the three months 4
ended October 29, 2000 and October 31, 1999
Consolidated Statements of Shareowners' Deficit (unaudited) for the 5
three months ended October 29, 2000 and October 31, 1999
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Results of Operations 17
and Financial Condition
Item 3. Market Risk 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURE PAGE 30
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
--------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
October 29, October 31,
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ 215,252 $ 234,935
--------- ---------
Costs and expenses
Cost of products sold 148,353 155,261
Marketing and selling expenses 54,613 45,309
Administrative expenses 14,668 11,409
Research and development expenses 1,786 2,066
Other expense, net (3,159) 585
Special items 117,000 --
--------- ---------
Total costs and expenses 333,261 214,630
--------- ---------
Earnings (loss) before interest and taxes (118,009) 20,305
Interest expense 14,758 11,619
Interest income 294 95
--------- ---------
Earnings (loss) before taxes (132,473) 8,781
Taxes on earnings 16,400 3,425
--------- ---------
Earnings (loss) from continuing operations (148,873) 5,356
Earnings (loss) from discontinued
operations, net of tax -- (1,247)
--------- ---------
Net earnings (loss) $(148,873) $ 4,109
========= =========
Earnings (loss) per share - basic
Earnings (loss) from continuing operations $ (3.28) $ 0.12
Earnings (loss) from discontinued operations $ -- $ (0.03)
--------- ---------
Net earnings (loss) $ (3.28) $ 0.09
========= =========
Weighted average shares outstanding - basic 45,418 45,502
Earnings (loss) per share - assuming dilution
Earnings (loss) from continuing operations $ (3.28) $ 0.12
Earnings (loss) from discontinued operations $ -- $ (0.03)
--------- ---------
Net earnings (loss) $ (3.28) $ 0.09
========= =========
Weighted average shares outstanding
- assuming dilution 45,418* 45,529*
</TABLE>
*Excludes potentially dilutive shares as the result would be antidilutive.
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 4
VLASIC FOODS INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
October 29, July 30,
2000 2000
--------- ---------
(unaudited) (audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 10,012 $ 24,092
Restricted cash 7,358 9,873
Accounts receivable 65,346 55,836
Inventories 135,464 129,973
Other current assets 6,004 3,079
--------- ---------
Total current assets 224,184 222,853
--------- ---------
Plant assets, net 176,652 266,347
Deferred income taxes -- 16,193
Other assets, principally intangible assets, net 57,481 76,780
--------- ---------
Total assets $458,317 $ 582,173
========= =========
Current liabilities
Notes payable $ 285,783 $ 285,287
Payable to suppliers and others 51,470 51,245
Accrued liabilities 70,498 60,423
--------- ---------
Total current liabilities 407,751 396,955
--------- ---------
Long-term debt 197,258 197,230
Deferred income taxes 3,095 3,171
Other liabilities 41,885 44,285
--------- ---------
Total liabilities 649,989 641,641
--------- ---------
Shareowners' deficit
Preferred stock, no par value; authorized 4,000 shares;
none issued -- --
Common stock, no par value; authorized 56,000 shares;
issued 45,418 shares at October 29, 2000 and July 30, 2000 137,758 137,758
Accumulated deficit (330,381) (181,508)
Accumulated other comprehensive loss 951 (15,718)
--------- ---------
Total shareowners' deficit (191,672) (59,468)
--------- ---------
Total liabilities and shareowners' deficit $ 458,317 $ 582,173
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 5
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
October 29, October 31,
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities
Earnings (loss) from continuing operations $(148,873) $ 5,356
Non-cash charges to earnings (loss) from continuing operations
Special items 117,000 --
Depreciation and amortization 7,945 7,530
Amortization of debt issuance costs 2,104 388
Loss on sale of plant assets 184 --
Deferred income taxes 16,197 2,148
Postretirement healthcare benefits 874 1,050
Deferred compensation (3,300) 99
Other, net 75 28
Changes in working capital
Accounts receivable (10,016) (25,513)
Inventories (6,490) (14,673)
Payable to suppliers and other 717 (13,200)
Other current assets and liabilities 6,143 (4,018)
--------- --------
Net cash used in operating activities (17,440) (40,805)
--------- --------
Cash flows from investing activities
Purchases of plant assets (1,922) (3,664)
Sales of plant assets 521 189
Proceeds from businesses sold 4,751 --
Other, net (238) (35)
--------- --------
Net cash provided by (used in) investing activities 3,112 (3,510)
--------- --------
Cash flows from financing activities
Borrowings of senior credit facility 2,000 64,400
Repayments of senior credit facility (1,500) (34,300)
Repayments of short-term debt and capital lease obligations (25) (44)
--------- --------
Net cash provided by financing activities 475 30,056
--------- --------
Net cash provided by discontinued operations -- 3,414
Effect of exchange rate changes on cash (227) (259)
--------- --------
Net change in cash and cash equivalents (14,080) (11,104)
Cash and cash equivalents - beginning of period 24,092 11,316
--------- --------
Cash and cash equivalents - end of period $ 10,012 $ 212
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 6
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF SHAREOWNERS' DEFICIT (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
-------------------- Accumulated Comprehensive Shareowners'
Shares Amount Deficit Earnings (Loss) Deficit
------ ------ ------- --------------- -------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1999 45,418 $ 137,758 $ (151,446) $ (6,713) $ (20,401)
Comprehensive earnings:
Net earnings 4,109 4,109
Other comprehensive earnings
Foreign currency translation adjustments 1,242 1,242
-----------
Comprehensive earnings 5,351
------ --------- ---------- ----- ----------
Balance at October 31, 1999 45,418 $ 137,758 $ (147,337) $ (5,471) $ (15,050)
====== ========= ========== ===== ==========
Balance at July 30, 2000 45,418 $ 137,758 $ (181,508) $ (15,718) $ (59,468)
Comprehensive earnings (loss):
Net loss (148,873) (148,873)
Cumulative effect of accounting change 1,306 1,306
Other comprehensive earnings (loss)
Foreign currency translation adjustments 15,943 15,943
Change in fair value of derivative financial instrument (580) (580)
-----------
Comprehensive earnings (loss) (132,204)
------ --------- ---------- ----- ----------
Balance at October 29, 2000 45,418 $ 137,758 $ (330,381) $ 951 $ (191,672)
====== ========= ========== ===== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 7
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements for the three
months ended October 29, 2000 and October 31, 1999 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 beginning on page 17 and in our Annual
Report, Form 10-K for the fiscal year ended July 30, 2000.
2. GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As discussed in Note 10, we
have significant borrowings which require, among other things, compliance with
certain financial ratios, specifically a debt/EBITDA ratio and a fixed charge
coverage ratio, on a quarterly basis. As a result of operating losses incurred
during the second, third, and fourth quarters in fiscal 2000, and the first
quarter in fiscal 2001, we were not in compliance with the financial ratio
covenants under our senior credit facility. However, we requested and received a
waiver through February 28, 2001 in consideration for the payment of a fee and
an increase in interest rates. There are three key provisions of the waiver: (1)
an escrow deposit to pay the January 2, 2001 interest payment of $10.25 million
on the senior subordinated notes ("January Interest Payment") must be
established by December 28, 2000 and cannot be funded with funds generated from
operations or proceeds of asset sales, as is more fully described below; (2)
certain events, including the payment in full of our indebtedness outstanding
under the senior credit facility, must take place by the expiration of the
waiver, or if there is a Standstill Period (as defined and discussed below), the
expiration of the Standstill Period, or else we will be required to pay an
additional fee in the amount of $1.5 million to the senior credit facility bank
syndicate; and (3) we must comply with certain tests of minimum sales and net
worth and maximum capital expenditures.
If the January Interest Payment is not paid within 30 days of the due
date, there would be an event of default which upon a vote of the holders of at
least 25% of the senior subordinated notes could cause them to be accelerated.
The terms of the waiver require the Company to deposit an amount in escrow
on or before December 28, 2000 for payment of the January Interest Payment
("Escrow"). The waiver as presently in force precludes the Escrow from being
funded with funds generated from operations or proceeds of asset sales. Failure
to timely fund the Escrow would cause the waiver to expire on December 28, 2000.
In such event, the waiver provides for a "Standstill Period" following
expiration of the waiver during which Events of Default would continue to be
waived. However, if the Escrow is not funded on or before December 28, 2000, the
principal of the bank loans could be accelerated and a "payment blockage notice"
could be delivered on the Company preventing it from making the January Interest
Payment. The Standstill Period would expire on the later of (a) January 30, 2001
and (b) a forbearance date specified in any agreement by the holders of more
than 75% of the outstanding senior subordinated notes to not accelerate the
principal of such notes or enforce any other remedies for the enforcement of
collection of such notes. The expiration of the Standstill Period would,
however, be no later than February 28, 2001.
It is unlikely that we will be able to make the escrow deposit by December
28, 2000 or the January Interest Payment prior to the end of the grace period on
January 30, 2001. However, we expect that the senior credit facility bank group
will allow us to proceed with the strategic review process at least until the
end of January.
A breach of any of the terms and conditions of the waiver, or subsequent
breaches of conditions of the senior credit facility not covered by the waiver
could result in acceleration of our indebtedness, in which case the debt
6
<PAGE> 8
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
2. GOING CONCERN MATTERS (CONTINUED)
would become immediately due and payable. Given our current situation, we have
ongoing regular discussions with the members of the senior credit facility. As
part of these discussions, we review our compliance with the applicable
financial covenants of the waiver. We believe we are in compliance with the
financial covenants of the waiver as of October 29, 2000. However, although we
believe we are in compliance with the financial covenants of the waiver as of
the end of the first fiscal quarter, October 29, 2000, we believe, that because
of a projected loss in our second fiscal quarter ending January 28, 2001, it is
probable that we will not be in compliance with the minimum net worth test as of
the end of the second fiscal quarter.
We are exploring strategic opportunities for the Company, which is likely
to result in the sale of the Company in whole or in part. The investment banking
firm of Lazard Freres & Co. has been hired to assist with this strategic review
and to solicit bids on our behalf. We have received bids for our businesses and
are in continuing discussions with one or more potential buyers for a part or
the whole of the Company. Since this process is still ongoing, no assurances can
be given that definitive contracts will be signed or that, if signed, closings
will occur. It is also possible that, if the Board of Directors determines the
proposed selling prices are insufficient, one or more of the businesses will be
retained to be sold possibly in the future.
Our ability to operate as a going concern is dependent upon our ability to
either refinance our senior credit facility or avoid default and acceleration
under it. As it is unlikely that the Company can secure alternative financing
sources, either the process of selling the Company in whole or in part must be
completed by the expiration of the Standstill Period described above and all the
loans under the senior credit facility repaid or the senior credit facility bank
group must agree to a further waiver and extension. If the Company is not sold
by the expiration of the Standstill Period described above or the waiver has not
been extended, there will be an event of default and it is probable that the
Company could not raise the funds to pay off all of its debts.
It is possible that the sales of our businesses will either not be
complete by the end of the Standstill Agreement or, if complete, will not
generate sufficient proceeds to repay the loans under the senior credit
facility. Further, it is unlikely we will make the January Interest Payment.
Nevertheless, assuming that our vendors continue to provide us trade credit as
they have to date, our cash flow forecasts indicate that we will generate enough
funds from operations to meet our operating cash needs until the height of
pickle packing season in July 2001.
Unfavorable developments which could result from any of the above
contingencies or otherwise could lead to a default under the senior credit
facility or the senior subordinated notes under which the debts would become
immediately due and payable or could lead to a contraction in the availability
of trade credit, either of which might require that we would file for protection
from our creditors under the Bankruptcy Act.
3. SPECIAL ITEMS
ADJUSTMENT OF ASSETS TO FAIR VALUE - As disclosed in the Summary of
Significant Accounting Policies in our Form 10K, we periodically review the
recoverability of plant assets and intangibles based principally on an analysis
of cash flows. We made such a review and two adjustments were necessary and were
recorded in the first quarter of fiscal 2001 to reduce certain assets to fair
value.
As the result of ongoing diminished cash flows in our operations in the
United Kingdom, the carrying value of the net assets of our UK businesses was
reduced to fair value based upon estimates of selling values less costs to sell.
This asset impairment amounted to $96 million.
7
<PAGE> 9
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
3. SPECIAL ITEMS (CONTINUED)
As the result of the revised contract for frozen foodservice copacking for
Campbell Soup Company, the carrying value of one of our buildings in the Omaha
frozen food plant was reduced to fair value based upon estimated selling values
less costs to sell. This asset impairment amounted to $21 million.
These asset impairment charges are included in the "Special Items" line of
the Consolidated Statement of Operations for the three months ended October 29,
2000. There are no tax benefits associated with these charges. Therefore, net
earnings and earnings per share were reduced by $117.0 million or $2.58 per
share.
INCOME TAXES - DEFERRED TAX VALUATION ALLOWANCE - Although the strategic
review process is not yet complete, based on recent discussions, management has
reason to believe that the net proceeds to be realized upon sale of the company
in whole or in part will not result in a taxable gain of the magnitude necessary
to realize the net book value of the U.S. deferred tax asset on the July 30,
2000 balance sheet. Accordingly, a valuation allowance of $16.3 million was
recorded in the first quarter fiscal 2001 to reduce the net carrying value of
the deferred tax asset to zero. Also, no tax benefit was provided for the first
quarter fiscal 2001 operating losses in the U.S. or the UK.
4. DISCONTINUED OPERATIONS
In an effort to focus on our core "Vlasic" and "Swanson" businesses and to
pay down debt, we sold Vlasic Farms, Inc., our fresh mushroom business to
Money's Mushrooms Ltd. on January 31, 2000. The sale price was $50 million, less
post-closing purchase price adjustments of approximately $4.8 million. The net
proceeds, net of transaction closing costs and amounts held on deposit to cover
certain future costs related to the transaction, were used to repay a portion of
the indebtedness outstanding under our senior credit facility. Funds of $2.5
million remain on deposit for the anticipated severance payments and certain
other indemnified costs and are included in the Restricted cash amounts on the
Consolidated Balance Sheet at October 29, 2000. Any funds held on deposit
remaining after payment of the specified items will be used to repay a portion
of the indebtedness outstanding under our senior credit facility.
Liabilities retained by us included certain indemnified costs, property
taxes and medical claims totalling $1.5 million and are included in Accrued
liabilities on the Consolidated Balance Sheet at October 29, 2000. We also
retained pre-sale projected benefit obligations for pensions and other
postretirement benefits of approximately $14.1 million and $8.1 million,
respectively as of July 30, 2000. The projected benefit obligations for pensions
and other postretirement benefit are recorded in Other liabilities on the
Consolidated Balance Sheet as of October 29, 2000.
In conjunction with the sale we entered into a Transition Services
Agreement with the buyers through January 31, 2001, whereby we will continue to
perform certain administrative and accounting functions for fees that
approximate cost. During the three months ended October 29, 2000, we received
$0.4 million in such fees, which are included in Other expense, net in the
Consolidated Statements of Operations.
We remain contingently liable for workers' compensation claims incurred
prior to the sale of the mushroom business of approximately $4 million in the
event the buyer fails to satisfy this liability. On November 2, 2000, the buyer
filed for protection under Chapter 11 of the U.S. bankruptcy code. We are unable
at this time to make any assessment of the likelihood of our being required to
make any payments for these workers' compensation claims.
In accordance with Accounting Principles Board Opinion No. 30 (APB 30),
"Reporting the Results of Operations - Reporting the Effect of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", the results of Vlasic Farms, Inc. have been reported
separately as a discontinued operation for the three months ended October 31,
1999 and for the subsequent period through December 17, 1999, the measurement
date. The loss from discontinued operations subsequent to the
8
<PAGE> 10
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
4. DISCONTINUED OPERATIONS (CONTINUED)
measurement date of December 17, 1999 through January 30, 2000 (the phase-out
period) of $0.8 million was deferred and recorded as a reduction to the net gain
on disposal in the third quarter fiscal 2000. Net sales, earnings (loss) before
taxes and net loss applicable to discontinued operations were as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
-----------
October 31,
1999
-----------
<S> <C>
Net sales $ 29,469
===========
Loss before taxes $ (2,022)
Taxes on earnings 775
-----------
Loss from discontinued operations, net of tax $ (1,247)
===========
</TABLE>
5. CHANGE IN ACCOUNTING PRINCIPLE
Effective July 31, 2000, the Company adopted the Financial Accounting
Standards Board's (FASB) Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Financial Instruments and Hedging Activities." This
statement requires all derivative instruments to be measured at fair value and
be recognized as either assets or liabilities in the balance sheet. As of the
date of adoption, the Company was a counterparty to an interest rate swap
agreement to effectively hedge a certain amount of its exposure to variability
in the interest payments on the borrowings under the Senior Credit Facility (see
Note 10). Interest rate swaps have been used by the Company to manage risk
associated with interest rate movements and to achieve an acceptable proportion
of variable versus fixed rate debt. The swap has a notional amount of $50
million, matures February 2003 and obligates the company to pay interest at a
fixed rate of 5.895% while receiving from the counterparty interest payments at
3 month LIBOR, which was 6.815% as of October 29, 2000. The adjustment made on
July 31, 2000 to reflect the interest rate swap at fair value in Other current
assets was approximately $1.3 million. As the interest rate swap is a cash flow
hedge, this adjustment was recorded to Accumulated other comprehensive earnings
(loss) as the cumulative effect of an accounting change. During the first
quarter, the fair value of the interest rate swap decreased by approximately
$0.6 million. This loss is reflected in Other comprehensive earnings (loss).
During November 2000, the Company terminated the interest rate swap,
receiving approximately $0.6 million. The proportion of variable versus fixed
rate debt was impacted by this termination, but remains at a level deemed
acceptable under the Company's risk management policy.
9
<PAGE> 11
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
6. RESTRUCTURING CHARGES
<TABLE>
<CAPTION>
Severance
and Benefits
------------
<S> <C>
Balance at July 30, 2000 $ 487
Fiscal 2001 spending (155)
-----
Balance at October 29, 2000 $ 332
=====
</TABLE>
A special charge of $1.5 million ($1.0 million after-tax) was recorded in
the second quarter of fiscal 2000 associated with reductions in the United
States headquarters workforce. This restructuring program was designed to
streamline the organization and reflects the need for a smaller infrastructure.
In the fourth quarter of fiscal 2000, it was estimated that $0.3 million ($0.2
million after-tax) of the original reserve would not be utilized due to higher
than anticipated voluntary employee turnover. Accordingly, this amount was
reversed. The $1.2 million net charge ($0.8 million after-tax) represented
severance and employee benefit costs that were expected to be paid in cash. As
of October 29, 2000, twenty-one individuals had been severed. This restructuring
program is substantially complete. The restructuring accruals are included in
Accrued liabilities on the Consolidated Balance Sheets.
7. RESTRICTED CASH
<TABLE>
<CAPTION>
October 29, July 30,
2000 2000
------ ------
<S> <C> <C>
Funds held on deposit related to mushroom divestiture $2,458 $7,272
Funds held on deposit related to workers' compensation letter of credit 4,900 2,039
Proceeds from asset sale -- 562
------ ------
Total $7,358 $9,873
====== ======
</TABLE>
In connection with the divestiture of Vlasic Farms, Inc. during fiscal
2000, funds of $7.3 million, including interest, were held on deposit for
anticipated purchase price adjustments, severance payments and certain other
indemnified costs. In July 2000, upon determination of the final purchase price,
we paid to the buyer approximately $4.8 million from our general cash account. A
like amount was released to us during August 2000 from funds held on deposit.
The remaining deposit amount held in restricted cash will be used for payment of
severance and other indemnified costs.
In order to satisfy certain worker's compensation self-insurance security
deposit requirements, we have two irrevocable letters of credit which we were
required to collaterize with deposits of $2.7 million and $2.2 million,
respectively.
Additionally, in conjunction with an asset sale in July 2000, we received
proceeds of $562 which in accordance with the terms and conditions of our senior
credit facility were required to be used to pay down amounts under the senior
credit facility. As such, this amount was held in restricted cash at July 30,
2000 and during August 2000, was used to repay a portion of the indebtedness
outstanding under our senior credit facility.
10
<PAGE> 12
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
8. SEGMENT AND GEOGRAPHIC AREA INFORMATION
We have three segments that are organized based upon similar economic
characteristics, manufacturing processes, marketing strategies and distribution
channels. The FROZEN FOODS segment consists of Swanson frozen foods in the
United States and Canada and contract manufacturing of primarily frozen
foodservice products in the United States. The GROCERY PRODUCTS segment includes
Vlasic retail and foodservice pickles and condiments and Open Pit barbecue sauce
in the United States. The UNITED KINGDOM OPERATIONS segment includes Freshbake
frozen foods and SonA and Rowats pickles, canned beans and vegetables in the
United Kingdom. For the three months ended October 31, 1999, the Vlasic Farms
mushroom business was classified as a discontinued operation and excluded from
segment information. General corporate expenses and assets had previously been
allocated to the segments. We evaluate segment performance based on earnings
before interest and taxes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
October 29, October 31,
SEGMENT INFORMATION 2000 1999
---------- ----------
<S> <C> <C>
Net Sales
Frozen Foods $ 135,174 $ 139,929
Grocery Products 52,629 58,944
United Kingdom Operations 27,449 36,062
--------- ---------
Total $ 215,252 $ 234,935
========= =========
Earnings (Loss) Before Interest and Taxes
from Continuing Operations
Frozen Foods $ (14,709) $ 15,243
Grocery Products (3,690) 7,569
United Kingdom Operations (99,891) (405)
Unallocated Corporate Expenses 281 (2,102)
--------- ---------
Total $(118,009) $ 20,305
========= =========
</TABLE>
<TABLE>
<CAPTION>
October 29, July 30,
2000 2000
---------- ---------
<S> <C> <C>
Total Assets
Frozen Foods $207,421 $262,828
Grocery Products 200,439 182,351
United Kingdom Operations 50,457 136,994
-------- --------
Total $458,317 $582,173
======== ========
</TABLE>
11
<PAGE> 13
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
8. SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
October 29, October 31,
GEOGRAPHIC INFORMATION 2000 1999
---------- -----------
<S> <C> <C>
Net Sales
United States $ 181,044 $192,756
Europe and Canada 34,208 42,179
--------- --------
Total $ 215,252 $234,935
========= ========
Earnings (Loss) Before Interest and Taxes
from Continuing Operations
United States $ (18,928) $ 19,599
Europe and Canada (99,081) 706
--------- --------
Total $(118,009) $ 20,305
========= ========
</TABLE>
9. INVENTORIES
<TABLE>
<CAPTION>
October 29, July 30,
2000 2000
----------- ---------
<S> <C> <C>
Raw materials, containers and supplies $ 26,311 $ 31,148
Finished product 121,187 108,560
--------- ---------
147,498 139,708
Less: Adjustment to LIFO basis (12,034) (9,735)
--------- ---------
Total $ 135,464 $ 129,973
========= =========
</TABLE>
Inventories for which the last in, first out (LIFO) method of determining
cost is used represented approximately 80% and 73% of inventories at October 29,
2000 and July 30, 2000, respectively.
12
<PAGE> 14
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
10. DEBT
<TABLE>
<CAPTION>
October 29, July 30,
2000 2000
-------- --------
<S> <C> <C>
Notes payable
Senior credit facility $285,700 $285,200
Other 83 87
-------- --------
Total notes payable $285,783 $285,287
======== ========
Long-term debt
$200 million 10 1/4% Senior subordinated notes due 2009,
less unamortized discount $197,195 $197,146
Capital lease obligations and other 63 84
-------- --------
Total long-term debt $197,258 $197,230
======== ========
</TABLE>
In fiscal 1999, we issued senior subordinated notes with an aggregate
principal amount of $200 million at an issue price of 98.472%. The notes mature
on July 1, 2009. Interest on the notes accrues at the rate of 10 1/4% per annum
and is payable semi-annually in arrears on January 1 and July 1 of each year,
commencing on January 1, 2000. On or after July 1, 2004, the notes may be
redeemed in whole or in part at a stated price.
The amended senior credit facility consists of (1) a senior secured term
loan in a principal amount of $100 million and (2) senior secured revolving
credit commitments providing for revolving loans, in the aggregate amount of up
to $223.5 million. The senior credit facility has a final maturity date of
February 20, 2003. We are required to make mandatory prepayments on the senior
credit facility and permanently reduce revolving credit commitments under
certain circumstances, including upon certain asset sales, issuance of debt
securities, issuance of equity securities and receipt of casualty proceeds which
includes property insurance proceeds and condemnation awards. At our option,
subject to certain requirements, loans may be prepaid in whole or in part. Under
the revolving credit facility, the maximum amount of borrowings available is
equal to the revolving credit commitment less any outstanding revolving loans.
As discussed below, we have received a waiver under the senior credit
facility for violations of certain covenants which extend through February 28,
2001. A condition of the waiver received includes repayment in full of the
indebtedness outstanding under the senior credit facility by the expiration of
the waiver, or if there is a Standstill Period (as defined and discussed below),
the expiration of the Standstill Period, or a penalty of $1.5 million will be
incurred. Borrowings under the senior credit facility bear interest at rates
that, at our option, vary with the prime rate, CD rate, LIBOR or money market
rates plus applicable credit margins. The average interest rate at October 29,
2000 was 9.9%. We are obligated to pay a facility fee of 0.5% on the credit
exposure of the banks. At October 29, 2000, the amount available for borrowing
under the senior credit facility was $34.5 million.
The senior credit facility and our senior subordinated debt described
above, contain a number of significant covenants that, among other things,
restrict our ability to engage in mergers and sales of assets, create liens on
our assets, incur additional indebtedness, make investments and acquisitions, or
engage in transactions with our subsidiaries and affiliates. In addition, under
the senior credit facility, we are required to comply with specified ratios and
tests, including maximum debt/EBITDA ratio, minimum fixed charge coverage ratio,
minimum sales and minimum net worth and a limitation on capital expenditures. A
breach of any of these covenants could result in a default under our debt
agreements.
13
<PAGE> 15
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
10. DEBT (CONTINUED)
As a result of operating losses incurred during the second, third and
fourth quarters of fiscal 2000, and the first quarter of fiscal 2001, we were
not in compliance with the financial ratio covenants under our senior credit
facility. However, we requested and received waivers covering the debt/EBITDA
ratio and the fixed charge coverage ratio of the facility through June 28, 2000.
The waivers required the payment of a fee, an increase in interest rates,
delivery and compliance with a cash budget, and also established a minimum
EBITDA test. The waiver also required that the senior credit facility be secured
by liens on substantially all U.S. owned real property on or before April 30,
2000. With the addition of the real property liens, the senior credit facility
is secured by liens on substantially all of the Company assets.
On June 28, 2000, the Company executed an amendment of the senior credit
facility and waiver through February 28, 2001. The waiver required the payment
of a fee, an increase in interest rates, delivery and compliance with a cash
budget and also established minimum sales, minimum net worth, and revised
capital expenditure limits. The amendment/waiver also provided for usage of up
to $35 million of borrowings under the facility for the working capital purposes
subject to being in compliance with tests related to the cash budget. The
amendment/waiver provides for the funding of the $35 million availability to be
made 50% by the bank senior credit facility syndicate and 50% by participation
of certain descendants of Dr. John T. Dorrance (Dorrance Family Participants).
The Dorrance Family Participants will provide funding to the Company through
participation in the senior credit facility bank syndicate by providing $1 of
funding for each $1 supplied by the bank syndicate up to a maximum participation
of $17.5 million. The Dorrance Family Participants will receive a one-time fee
of $350,000, interest of 2% per annum over that otherwise payable under the
terms of the senior credit facility, and a fee equal to 5% of the total
outstanding shares multiplied by the excess of the closing price of Vlasic
common stock (on any date of their choice) over $1.94 per share. The loans
provided by the Dorrance Family Participants, together with all fees and accrued
interest, are payable February 28, 2001. The Company believes that the terms of
the transaction discussed above between the Company and the Dorrance Family
Participants, are similar to those that would have been obtained in like
transactions with others considering the nature of the transactions and the
availability of comparable funding.
In addition, the amendment/waiver restricts payments of interest on the
senior subordinated notes after December 31, 2000, to funds generated other than
from operations, asset sales, or borrowings under the senior credit facility.
The amendment/waiver also includes provision for an additional fee of $1.5
million to the syndicate if the loans are not paid in full by the expiration of
the waiver, or if there is a Standstill Period (as defined and discussed below),
the expiration of the Standstill Period.
There are three key provisions of the waiver: (1) an escrow deposit to pay
the January 2, 2001 interest payment of $10.25 million on the senior
subordinated notes ("January Interest Payment") must be established by December
28, 2000 and cannot be funded with funds generated from operations or proceeds
of asset sales, as is more fully described below; (2) certain events, including
the payment in full of our indebtedness outstanding under the senior credit
facility, must take place by the expiration of the waiver, or if there is a
Standstill Period (as defined and discussed below), the expiration of the
Standstill Period, or else we will be required to pay an additional fee in the
amount of $1.5 million to the senior credit facility bank syndicate; and (3) we
must comply with certain monthly tests of minimum sales and net worth and
maximum capital expenditures. For the complete waiver and related agreements,
please see our Form 8-K filed on August 22, 2000.
If the senior subordinated notes interest payment due and payable on
January 2, 2001 ("January Interest Payment") is not paid within 30 days of the
due date, there would be an event of default which upon a vote of the holders of
at least 25% of the senior subordinated notes could cause them to be
accelerated.
14
<PAGE> 16
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
10. DEBT (CONTINUED)
The terms of the waiver require the Company to deposit an amount in escrow
on or before December 28, 2000 for payment of the January Interest Payment
("Escrow"). The waiver as presently in force precludes the Escrow from being
funded with funds generated from operations or proceeds of asset sales. Failure
to timely fund the Escrow would cause the waiver to expire on December 28, 2000.
In such event, the waiver provides for a "Standstill Period" following
expiration of the waiver during which Events of Default would continue to be
waived. However, if the Escrow is not funded on or before December 28, 2000, the
principal of the bank loans could be accelerated and a "payment blockage notice"
could be delivered on the Company preventing it from making the January Interest
Payment. The Standstill Period would expire on the later of (a) January 30, 2001
and (b) a forbearance date specified in any agreement by the holders of more
than 75% of the outstanding senior subordinated notes to not accelerate the
principal of such notes or enforce any other remedies for the enforcement of
collection of such notes. The expiration of the Standstill Period would,
however, be no later than February 28, 2001.
It is unlikely that we will be able to make the escrow deposit by December
28, 2000 or the January Interest Payment prior to the end of the grace period on
January 30, 2001. However, we expect that the senior credit facility bank group
will allow us to proceed with the strategic review process at least until the
end of January.
A breach of any of the terms and conditions of the waiver, or subsequent
breaches of conditions of the senior credit facility not covered by the waiver
could result in acceleration of our indebtedness, in which case the debt would
become immediately due and payable. Given our current situation, we have ongoing
regular discussions with the members of the senior credit facility. As part of
these discussions, we review our compliance with the applicable financial
covenants of the waiver. We believe we are in compliance with the financial
covenants of the waiver as of October 29, 2000. However, although we believe we
are in compliance with the financial covenants of the waiver as of the end of
the first fiscal quarter, October 29, 2000, we believe, that because of a
projected loss in our second fiscal quarter ending January 28, 2001, it is
probable that we will not be in compliance with the minimum net worth test as of
the end of the second fiscal quarter.
We are exploring strategic opportunities for the Company, which is likely
to result in the sale of the Company in whole or in part. The investment banking
firm of Lazard Freres & Co. has been hired to assist with this strategic review
and to solicit bids on our behalf. We have received bids for our businesses and
are in continuing discussions with one or more potential buyers for a part or
the whole of the Company. Since this process is still ongoing, no assurances can
be given that definitive contracts will be signed or that, if signed, closings
will occur. It is also possible that, if the Board of Directors determines the
proposed selling prices are insufficient, one or more of the businesses will be
retained to be possibly sold in the future.
Our ability to operate as a going concern is dependent upon our ability to
either refinance our senior credit facility or avoid default and acceleration
under it. As it is unlikely that the Company can secure alternative financing
sources, either the process of selling the Company in whole or in part must be
complete by the expiration of the Standstill Period described above and all the
loans under the senior credit facility repaid or the senior credit facility bank
group agrees to a further waiver and extension. If the Company is not sold by
the expiration of the Standstill Period described above or the waiver has not
been extended, there will be an event of default and it is probable that the
Company could not raise the funds to pay off all of its debts.
It is possible that the sales of our businesses will either not be
complete by the end of the Standstill Agreement or, if complete, will not
generate sufficient proceeds to repay the loans under the senior credit
facility. Further, it is unlikely we will make the January Interest Payment.
Nevertheless, assuming that our vendors continue to provide us trade credit as
they have to date, our cash flow forecasts indicate that we will generate enough
funds from operations to meet our operating cash needs until the height of
pickle packing season in July 2001.
15
<PAGE> 17
VLASIC FOODS INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
10. DEBT (CONTINUED)
Unfavorable developments which could result from any of the above
contingencies or otherwise could lead to a default under the senior credit
facility or the senior subordinated notes under which the debts would become
immediately due and payable or could lead to a contraction in the availability
of trade credit, either of which might require that we would file for protection
from our creditors under the Bankruptcy Act.
Since the present waiver to the senior credit facility expires on February
28, 2001, the indebtedness under the senior credit facility has been classified
as a current liability in the Consolidated Balance Sheet at October 29, 2000.
Because the Company is not in default of any covenants related to the Senior
Subordinated notes, these notes are classified as long-term debt at October 29,
2000. Although if there were a subsequent default as discussed earlier, the
notes would then be classified as a current liability.
11. TRANSACTIONS WITH CAMPBELL SOUP COMPANY SUBSEQUENT TO THE SPIN-OFF
At the time of the spin-off, we entered into a multi-year agreement with
Campbell Soup Company ("Campbell") which ended March 30, 2000 for the continued
production of frozen foodservice products in the United States by us as well as
a one-year agreement for the production of frozen retail products in Canada by
Campbell. Campbell continues to produce frozen retail products for our Canadian
business. On December 1, 2000, the frozen foodservice contract packing agreement
with Campbell was modified and extended through September 30, 2001. The contract
extension is on less favorable terms to Vlasic. As discussed in Note 3, an asset
impairment charge has been taken relative to the production facilities servicing
this contract. Our fiscal 2001 earnings will be approximately $5 million less
than had the contract been extended at the same terms.
Included in the Consolidated Statements of Operations are sales to
Campbell from our frozen foods segment of $17,752 in first quarter fiscal 2001
and $20,772 in first quarter fiscal 2000. Included in Costs of product sold are
purchases from Campbell of $2,460 in first quarter fiscal 2001, and $2,655 in
first quarter fiscal 2000.
16
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
On March 30, 1998, Campbell Soup Company ("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 United States
and Canada, Vlasic retail and foodservice pickles and condiments in the United
States, Open Pit barbecue sauce, Campbell's mushrooms in the United States,
Freshbake and non-branded frozen foods and SonA and Rowats pickles and beans in
the United Kingdom, Swift and non-branded processed beef in Argentina and Kattus
gourmet foods distribution in Germany. We sold the Kattus business in January
1999 and sold our Argentine beef business, Swift-Armour, in July 1999. The
mushroom business was sold during the third quarter of fiscal 2000 and has been
treated as a discontinued operation. 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 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.
The discussion below summarizes the significant factors affecting our
consolidated operating results, financial condition and liquidity for the three
months ended October 29, 2000 and October 31, 1999. The results for the three
months ended October 29, 2000 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 consolidated financial statements and the related
accompanying notes.
GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As discussed in Note 10, we
have significant borrowings which require, among other things, compliance with
certain financial ratios, specifically a debt/EBITDA ratio and a fixed charge
coverage ratio, on a quarterly basis. As a result of operating losses incurred
during the second, third, and fourth quarters in fiscal 2000, and the first
quarter in fiscal 2001, we were not in compliance with the financial ratio
covenants under our senior credit facility. However, we requested and received a
waiver through February 28, 2001 in consideration for the payment of a fee and
an increase in interest rates. There are three key provisions of the waiver: (1)
an escrow deposit to pay the January 2, 2001 interest payment of $10.25 million
on the senior subordinated notes ("January Interest Payment") must be
established by December 28, 2000 and cannot be funded with funds generated from
operations or proceeds of asset sales, as is more fully described below; (2)
certain events, including the payment in full of our indebtedness outstanding
under the senior credit facility, must take place by the expiration of the
waiver, or if there is a Standstill Period (as defined and discussed below), the
expiration of the Standstill Period, or else we will be required to pay an
additional fee in the amount of $1.5 million to the senior credit facility bank
syndicate; and (3) we must comply with certain tests of minimum sales and net
worth and maximum capital expenditures.
If the January Interest Payment is not paid within 30 days of the due
date, there would be an event of default which upon a vote of the holders of at
least 25% of the senior subordinated notes could cause them to be accelerated.
The terms of the waiver require the Company to deposit an amount in escrow
on or before December 28, 2000 for payment of the January Interest Payment
("Escrow"). The waiver as presently in force precludes the Escrow from being
funded with funds generated from operations or proceeds of asset sales. Failure
to timely fund the Escrow would cause the waiver to expire on December 28, 2000.
In such event, the waiver provides for a "Standstill Period" following
expiration of the waiver during which Events of Default would continue to be
17
<PAGE> 19
waived. However, if the Escrow is not funded on or before December 28, 2000, the
principal of the bank loans could be accelerated and a "payment blockage notice"
could be delivered on the Company preventing it from making the January Interest
Payment. The Standstill Period would expire on the later of (a) January 30, 2001
and (b) a forbearance date specified in any agreement by the holders of more
than 75% of the outstanding senior subordinated notes to not accelerate the
principal of such notes or enforce any other remedies for the enforcement of
collection of such notes. The expiration of the Standstill Period would,
however, be no later than February 28, 2001.
It is unlikely that we will be able to make the escrow deposit by December
28, 2000 or the January Interest Payment prior to the end of the grace period on
January 30, 2001. However, we expect that the senior credit facility bank group
will allow us to proceed with the strategic review process at least until the
end of January.
A breach of any of the terms and conditions of the waiver, or subsequent
breaches of conditions of the senior credit facility not covered by the waiver
could result in acceleration of our indebtedness, in which case the debt would
become immediately due and payable. Given our current situation, we have ongoing
regular discussions with the members of the senior credit facility. As part of
these discussions, we review our compliance with the applicable financial
covenants of the waiver. We believe we are in compliance with the financial
covenants of the waiver as of October 29, 2000. However, although we believe we
are in compliance with the financial covenants of the waiver as of the end of
the first fiscal quarter, October 29, 2000, we believe, that because of a
projected loss in our second fiscal quarter ending January 28, 2001, it is
probable that we will not be in compliance with the minimum net worth test as of
the end of the second fiscal quarter.
We are exploring strategic opportunities for the Company, which is likely
to result in the sale of the Company in whole or in part. The investment banking
firm of Lazard Freres & Co. has been hired to assist with this strategic review
and to solicit bids on our behalf. We have received bids for our businesses and
are in continuing discussions with one or more potential buyers for a part or
the whole of the Company. Since this process is still ongoing, no assurances can
be given that definitive contracts will be signed or that, if signed, closings
will occur. It is also possible that, if the Board of Directors determines the
proposed selling prices are insufficient, one or more of the businesses will be
retained to be possibly sold in the future.
Our ability to operate as a going concern is dependent upon our ability to
either refinance our senior credit facility or avoid default and acceleration
under it. As it is unlikely that the Company can secure alternative financing
sources, either the process of selling the Company in whole or in part must be
complete by the expiration of the Standstill Period described above and all the
loans under the senior credit facility repaid or the senior credit facility bank
group agrees to a further waiver and extension. If the Company is not sold by
the expiration of the Standstill Period described above or the waiver has not
been extended, there will be an event of default and it is probable that the
Company could not raise the funds to pay off all of its debts.
It is possible that the sales of our businesses will either not be
complete by the end of the Standstill Agreement or, if complete, will not
generate sufficient proceeds to repay the loans under the senior credit
facility. Further, it is unlikely we will make the January Interest Payment.
Nevertheless, assuming that our vendors continue to provide us trade credit as
they have to date, our cash flow forecasts indicate that we will generate enough
funds from operations to meet our operating cash needs until the height of
pickle packing season in July 2001.
Unfavorable developments which could result from any of the above
contingencies or otherwise could lead to a default under the senior credit
facility or the senior subordinated notes under which the debts would become
immediately due and payable or could lead to a contraction in the availability
of trade credit, either of which might require that we would file for protection
from our creditors under the Bankruptcy Act.
18
<PAGE> 20
RESULTS OF OPERATIONS
OVERVIEW
Net sales for the first three months of fiscal 2001 were $215.3 million
compared to net sales of $234.9 million for the first three months of fiscal
2000, or a decrease of 8.4%.
For the three months ended October 29, 2000, we incurred a net loss from
continuing operations of $148.9 million, or ($3.28) per share, compared to net
earnings from continuing operations for the three months ended October 31, 1999
of $5.4 million, or $.12 per share. The fiscal 2001 results were adversely
impacted by the following special items, as well as reduced earnings from
business operations:
- writedowns of impaired assets of $96 million and $21 million
relating to our UK operations and our Omaha frozen food plant,
respectively,
- a valuation allowance recorded against U.S. net operating loss
carryforwards reducing existing deferred tax assets by $16.3
million, as well as not providing for any tax benefit for the
current quarter's operating loss. Such benefit would have been
approximately $5.7 million.
In addition to the special items noted above, results were negatively
impacted by:
- lower sales of Vlasic pickles and Swanson frozen foods resulting
from reduced levels of inventories held by our customers.
Consumption was up 1% in pickles and flat in Swanson,
- unfavorable sales mix of Vlasic grocery products,
- intense competitive and pricing pressure in both of our UK
businesses,
- higher manufacturing costs due to higher ingredient
costs and lower manufacturing volume,
- higher trade marketing expenses consistent with fiscal 2000 annual
costs,
- higher administrative costs related to employee retention
and incentive payments as well as professional fees related to the
strategic review process,
- higher interest expense related to higher interest rates as well as
fees related to bank waivers.
19
<PAGE> 21
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
----------------------------
October 29, October 31,
2000 1999
----------- -----------
<S> <C> <C>
Net sales 100.0% 100.0%
------ ------
Cost of products sold 68.9% 66.0%
Marketing and selling expenses 25.4% 19.3%
Administrative expenses 6.8% 4.9%
Research and development expenses 0.8% 0.9%
Other expense (1.5)% 0.3%
Special items 54.4% --
------ ------
Total costs and expenses 154.7% 91.4%
------ ------
Earnings (loss) before interest and taxes
from continuing operations (54.7)% 8.6%
====== ======
</TABLE>
THREE MONTHS ENDED OCTOBER 29, 2000 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1999
NET SALES. Net sales of $215.3 million for the three months ended October
29, 2000 decreased 8.4% from net sales of $234.9 million for the three months
ended October 31, 1999. This decrease was primarily due to a decline of 12% in
sales of Vlasic pickles and a 2% decline in Swanson frozen foods related to
reduced inventories held by our customers. Consumption increased 1% in Vlasic
pickles and was flat in Swanson. Also, intense competition and pricing pressure
in the UK resulted in a 17% decline in Freshbake sales and a 9% decline in SonA
sales. UK sales were further impacted negatively by a 10% decline in the value
of the British pound.
COST OF PRODUCTS SOLD. Cost of products sold as a percentage of net sales
for the three months ended October 29, 2000 was 68.9% compared to 66.0% for
three months ended October 31, 1999. The increase in cost of products sold as a
percentage of net sales is primarily attributable to higher manufacturing cost
due to higher ingredient costs, lower absorption from lower manufacturing
volume, unfavorable pickle sales mix and pricing pressure in the UK.
MARKETING AND SELLING EXPENSES. Marketing and selling expenses as a
percentage of net sales increased to 25.4% for the three months ended October
29, 2000 compared to 19.3% for the three months ended October 31, 1999. On an
annual basis for Fiscal 2000, after adjustment for certain unusual costs as
discussed in our Form 10-K, marketing and selling expenses as a percentage of
net sales was approximately 25.3%. Fiscal 2001 expenses are expected to be
consistent with that level.
ADMINISTRATIVE EXPENSES. Administrative expenses as a percentage of net
sales increased for the three months ended October 29, 2000 to 6.8% from 4.9%
for the three months ended October 31, 1999. The increase in the first quarter
of fiscal 2001 when compared to 2000 was attributable to higher administrative
costs related to employee retention and incentive payments as well as
professional fees related to the strategic review process. Excluding these
costs, underlying administrative expenses declined by over 3% in the first
quarter of fiscal 2001 compared to the first quarter of fiscal 2000 because of
cost reduction efforts resulting in lower headcount.
20
<PAGE> 22
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses as a
percentage of net sales declined to 0.8 percent of net sales for the three
months ended October 29, 2000 compared to 0.9 percent of net sales for the three
months ended October 31, 1999 due to cost reduction efforts.
OTHER EXPENSE, NET. Other expense includes a credit of approximately $3.3
million due to expected settlement of deferred compensation in amounts less than
originally estimated. The Company has settled this obligation in November 2000.
SPECIAL ITEMS.
As disclosed in the Summary of Significant Accounting Policies in our Form
10K, we periodically review the recoverability of plant assets and intangibles
based principally on an analysis of cash flows. We made such a review and two
adjustments were necessary and were recorded in the first quarter of fiscal 2001
to reduce certain impaired assets to fair value.
As the result of ongoing diminished cash flows in our operations in the
United Kingdom, the carrying value of the net assets of our UK businesses was
reduced to fair value based upon estimates of selling values less costs to sell.
This asset impairment amounted to $96 million.
As the result of the revised contract for frozen foodservice copacking for
Campbell Soup Company, the carrying value of one of our buildings in the Omaha
frozen food plant was reduced to fair value based upon estimates of selling
values less costs to sell. This asset impairment amounted to $21 million.
These asset impairment charges are included in the "Special Items" line of
the Consolidated Statement of Operations for the three months ended October 29,
2000. There are no tax benefits associated with these charges. Hence, net
earnings and earnings per share were reduced by $117.0 million or $2.58 per
share.
EARNINGS (LOSS) BEFORE INTEREST AND TAXES FROM CONTINUING OPERATIONS.
Losses before interest and taxes from continuing operations for the three months
ended October 29, 2000 were $118.0 million compared to earnings from continuing
operations of $20.3 million for the three months ended October 31, 1999. This
decrease in the first quarter of fiscal 2000 was principally driven by the $96
million writedown of UK assets, $21 million writedown of the Omaha frozen food
plant assets, lower Vlasic pickle sales, poor operating results in the UK,
higher marketing expenses and higher employee retention and incentive payments.
INTEREST EXPENSE, NET. Interest expense, net, for the three months ended
October 29, 2000 was $14.6 million compared to $11.5 million for the three
months ended October 31, 1999. We incurred higher interest expense in the first
quarter of fiscal 2001 primarily as a result of higher interest rates as well as
fees related to bank waivers.
TAXES ON EARNINGS. The provision for taxes in the first quarter of fiscal
2001 was $16.4 million although there was a loss before taxes of $132.5 million.
Although the strategic review process is not yet complete, based on recent
discussions, management now believes that the net proceeds to be realized upon
sale of the company in whole or in part will not result in a taxable gain of the
magnitude necessary to realize the net book value of the U.S. deferred tax asset
on the July 30, 2000 balance sheet. A valuation allowance of $16.3 million was
recorded against existing deferred tax assets. However, a provision for Canadian
taxes where the company has taxable earnings was recorded.
LOSS FROM DISCONTINUED OPERATIONS. The divested Vlasic Farms mushroom
business has been classified as a discontinued operation in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- Reporting the Effect of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
During the three months ended October 31, 1999 the discontinued operations
recorded a loss of $1.2 million.
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<PAGE> 23
RESULTS BY SEGMENT
The following table sets forth segment information for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
October 29, October 31,
SEGMENT INFORMATION 2000 1999
----------- -----------
<S> <C> <C>
Net Sales
Frozen Foods $ 135,174 $ 139,929
Grocery Products 52,629 58,944
United Kingdom Operations 27,449 36,062
--------- ---------
Total $ 215,252 $ 234,935
========= =========
Earnings (Loss) Before Interest and Taxes
from Continuing Operations
Frozen Foods $ (14,709) $ 15,243
Grocery Products (3,690) 7,569
United Kingdom Operations (99,891) (405)
Unallocated Corporate Expenses 281 (2,102)
--------- ---------
Total $(118,009) $ 20,305
========= =========
</TABLE>
THREE MONTHS ENDED OCTOBER 29, 2000 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1999
Net sales of the frozen foods segment decreased approximately 3.4% to
$135.2 million for the three months ended October 29, 2000 compared to the same
period of the prior year due to lower Swanson U.S. sales related to lower levels
of inventories held by our customers. Consumption was flat compared to a year
ago. The segment's earnings (loss) before interest and taxes was ($14.7) million
for the three months ended October 29, 2000 compared to $15.2 million for the
three months ended October 31, 1999. This decline was primarily due to the $21
million writedown of the Omaha frozen food plant assets. A third of the
remaining decline was due to higher ingredient costs and lower manufacturing
volume, while one quarter of the remaining decline was due to lower sales
volumes. The rest of the decline was due to higher marketing expenses, which
although higher in the quarter, were at the same percentage of net sales as
Fiscal 2000 annual levels, and higher spending for consumer coupons.
Net sales of the grocery products segment decreased 10.7% to $52.6 million
for the three months ended October 29, 2000 compared to the same period in
fiscal 2000. The segment's loss before interest and taxes was $(3.7) million for
the three months ended October 29, 2000 compared to earnings of $7.6 million for
the three months ended October 31, 1999. The decline in net sales is driven by a
retail pickle volume decline of 16% due to the lower inventories held by our
customers, unfavorable pickle mix resulting in a 3% decline in revenue,
partially offset by a 37% increase in foodservice pickle sales and a 55%
increase in barbecue sauce sales. Approximately one half of the decline in
earnings is the result of the volume mix decline, fifteen percent is due to
standard introductory allowance payments to gain new distribution and the
remainder is due to trade marketing expenses, which although higher in the
quarter, were at the same percentage of net sales as Fiscal 2000 annual levels.
Net sales of the United Kingdom Operations segment decreased 23.9% to
$27.4 million for the three months ended October 29, 2000 compared to the same
period of the prior year. The segment's earnings (loss) before interest and
taxes of $(99.9) million for the three months ended October 29, 2000 compared to
$(0.4) million for the three months ended October 31, 1999. Approximately 40% of
the sales decline was due to the lower value of the British pound. The remaining
14% decline in net sales is the result of intense competitive and pricing
activity in both UK businesses, Freshbake and SonA. This change in net earnings
was primarily due to the $96 million
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<PAGE> 24
writedown of the UK assets. The remainder of the loss is driven by the reduced
sales volume, as well as reduced selling prices resulting from competitive
activity and higher manufacturing costs resulting from lower manufacturing
volume.
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 indebtedness assumed from Campbell
and $60 million incurred to repay certain intercompany payables representing
advances from Campbell to subsidiaries of Vlasic.
In fiscal 1999, we issued senior subordinated notes with an aggregate
principle amount of $200 million at an issue price of 98.472%. The notes mature
on July 1, 2009. Interest on the notes accrues at the rate of 10 1/4% per annum
and is payable semi-annually in arrears on January 1 and July 1 of each year,
commencing on January 1, 2000. On or after July 1, 2004, the notes may be
redeemed in whole or in part at a stated price.
The amended senior credit facility consists of (1) a senior secured term
loan in a principal amount of $100 million and (2) senior secured revolving
credit commitments providing for revolving loans, in the aggregate amount of up
to $223.5 million. The senior credit facility has a final maturity date of
February 20, 2003. We are required to make mandatory prepayments on the senior
credit facility and permanently reduce revolving credit commitments under
certain circumstances, including upon certain asset sales, issuance of debt
securities, issuance of equity securities and receipt of casualty proceeds which
includes property insurance proceeds and condemnation awards. At our option,
subject to certain requirements, loans may be prepaid in whole or in part. Under
the revolving credit facility, the maximum amount of borrowings available is
equal to the revolving credit commitment less any outstanding revolving loans.
As discussed below, we have received a waiver under the senior credit
facility for violations of certain covenants which extend through February 28,
2001. A condition of the waiver received includes repayment in full of the
indebtedness outstanding under the senior credit facility by the expiration of
the waiver, or if there is a Standstill Period (as defined and discussed below),
the expiration of the Standstill Period, or a penalty of $1.5 million will be
incurred. Borrowings under the senior credit facility bear interest at rates
that, at our option, vary with the prime rate, CD rate, LIBOR or money market
rates plus applicable credit margins. The average interest rate at October 29,
2000 was 9.9%. We are obligated to pay a facility fee of 0.5% on the credit
exposure of the banks. At October 29, 2000, the amount available for borrowing
under the senior credit facility was $34.5 million.
The senior credit facility and our senior subordinated debt described
above, contain a number of significant covenants that, among other things,
restrict our ability to engage in mergers and sales of assets, create liens on
our assets, incur additional indebtedness, make investments and acquisitions, or
engage in transactions with our subsidiaries and affiliates. In addition, under
the senior credit facility, we are required to comply with specified ratios and
tests, including maximum debt/EBITDA ratio, minimum fixed charge coverage ratio,
minimum sales and minimum net worth and a limitation on capital expenditures. A
breach of any of these covenants could result in a default under our debt
agreements.
As a result of operating losses incurred during the second, third and
fourth quarters of fiscal 2000, and the first quarter of fiscal 2001, we were
not in compliance with the financial ratio covenants under our senior credit
facility. However, we requested and received waivers covering the debt/EBITDA
ratio and the fixed charge coverage ratio of the facility through June 28, 2000.
The waivers required the payment of a fee, an increase in interest rates,
delivery and compliance with a cash budget, and also established a minimum
EBITDA test. The waiver also required that the senior credit facility be secured
by liens on substantially all U.S. owned real property on or before April 30,
2000. With the addition of the real property liens, the senior credit facility
is secured by liens on substantially all of the Company assets.
On June 28, 2000, the Company executed an amendment of the senior credit
facility and waiver through February 28, 2001. The waiver required the payment
of a fee, an increase in interest rates, delivery and compliance with a cash
budget and also established minimum sales, minimum net worth, and revised
capital expenditure limits. The amendment/waiver also provided for usage of up
to $35 million of borrowings under the
23
<PAGE> 25
facility for the working capital purposes subject to being in compliance with
tests related to the cash budget. The amendment/waiver provides for the funding
of the $35 million availability to be made 50% by the bank senior credit
facility syndicate and 50% by participation of certain descendants of Dr. John
T. Dorrance (Dorrance Family Participants). The Dorrance Family Participants
will provide funding to the Company through participation in the senior credit
facility bank syndicate by providing $1 of funding for each $1 supplied by the
bank syndicate up to a maximum participation of $17.5 million. The Dorrance
Family Participants will receive a one-time fee of $350,000, interest of 2% per
annum over that otherwise payable under the terms of the senior credit facility,
and a fee equal to 5% of the total outstanding shares multiplied by the excess
of the closing price of Vlasic common stock (on any date of their choice) over
$1.94 per share. The loans provided by the Dorrance Family Participants,
together with all fees and accrued interest, are payable February 28, 2001. The
Company believes that the terms of the transaction discussed above between the
Company and the Dorrance Family Participants, are similar to those that would
have been obtained in like transactions with others considering the nature of
the transactions and the availability of comparable funding.
In addition, the amendment/waiver restricts payments of interest on the
senior subordinated notes after December 31, 2000, to funds generated other than
from operations, asset sales, or borrowings under the senior credit facility.
The amendment/waiver also includes provision for an additional fee of $1.5
million to the syndicate if the loans are not paid in full by the expiration of
the waiver, or if there is a Standstill Period (as defined and discussed below),
the expiration of the Standstill Period.
There are three key provisions of the waiver: (1) an escrow deposit to pay
the January 2, 2001 interest payment of $10.25 million on the senior
subordinated notes ("January Interest Payment") must be established by December
28, 2000 and cannot be funded with funds generated from operations or proceeds
of asset sales, as is more fully described below; (2) certain events, including
the payment in full of our indebtedness outstanding under the senior credit
facility, must take place by the expiration of the waiver, or if there is a
Standstill Period (as defined and discussed below), the expiration of the
Standstill Period, or else we will be required to pay an additional fee in the
amount of $1.5 million to the senior credit facility bank syndicate; and (3) we
must comply with certain monthly tests of minimum sales and net worth and
maximum capital expenditures. For the complete waiver and related agreements,
please see our Form 8-K filed on August 22, 2000.
If the senior subordinated notes interest payment due and payable on
January 2, 2001 ("January Interest Payment") is not paid within 30 days of the
due date, there would be an event of default which upon a vote of the holders of
at least 25% of the senior subordinated notes could cause them to be
accelerated.
The terms of the waiver require the Company to deposit an amount in escrow
on or before December 28, 2000 for payment of the January Interest Payment
("Escrow"). The waiver as presently in force precludes the Escrow from being
funded with funds generated from operations or proceeds of asset sales. Failure
to timely fund the Escrow would cause the waiver to expire on December 28, 2000.
In such event, the waiver provides for a "Standstill Period" following
expiration of the waiver during which Events of Default would continue to be
waived. However, if the Escrow is not funded on or before December 28, 2000, the
principal of the bank loans could be accelerated and a "payment blockage notice"
could be delivered on the Company preventing it from making the January Interest
Payment. The Standstill Period would expire on the later of (a) January 30, 2001
and (b) a forbearance date specified in any agreement by the holders of more
than 75% of the outstanding senior subordinated notes to not accelerate the
principal of such notes or enforce any other remedies for the enforcement of
collection of such notes. The expiration of the Standstill Period would,
however, be no later than February 28, 2001.
It is unlikely that we will be able to make the escrow deposit by December
28, 2000 or the January Interest Payment prior to the end of the grace period on
January 30, 2001. However, we expect that the senior credit facility bank group
will allow us to proceed with the strategic review process at least until the
end of January.
A breach of any of the terms and conditions of the waiver, or subsequent
breaches of conditions of the senior credit facility not covered by the waiver
could result in acceleration of our indebtedness, in which case the debt would
become immediately due and payable. Given our current situation, we have ongoing
regular discussions with the members of the senior credit facility. As part of
these discussions, we review our compliance with the applicable financial
covenants of the waiver. We believe we are in compliance with the financial
covenants of the waiver as of October 29, 2000. However, although we believe we
are in compliance with the financial covenants
24
<PAGE> 26
of the waiver as of the end of the first fiscal quarter, October 29, 2000, we
believe, that because of a projected loss in our second fiscal quarter ending
January 28, 2001, it is probable that we will not be in compliance with the
minimum net worth test as of the end of the second fiscal quarter.
We are exploring strategic opportunities for the Company, which is likely
to result in the sale of the Company in whole or in part. The investment banking
firm of Lazard Freres & Co. has been hired to assist with this strategic review
and to solicit bids on our behalf. We have received bids for our businesses and
are in continuing discussions with one or more potential buyers for a part or
the whole of the Company. Since this process is still ongoing, no assurances can
be given that definitive contracts will be signed or that, if signed, closings
will occur. It is also possible that, if the Board of Directors determines the
proposed selling prices are insufficient, one or more of the businesses will be
retained to be possibly sold in the future.
Our ability to operate as a going concern is dependent upon our ability to
either refinance our senior credit facility or avoid default and acceleration
under it. As it is unlikely that the Company can secure alternative financing
sources, either the process of selling the Company in whole or in part must be
complete by the expiration of the Standstill Period described above and all the
loans under the senior credit facility repaid or the senior credit facility bank
group agrees to a further waiver and extension. If the Company is not sold by
the expiration of the Standstill Period described above or the waiver has not
been extended, there will be an event of default and it is probable that the
Company could not raise the funds to pay off all of its debts.
It is possible that the sales of our businesses will either not be
complete by the end of the Standstill Agreement or, if complete, will not
generate sufficient proceeds to repay the loans under the senior credit
facility. Further, it is unlikely we will make the January Interest Payment.
Nevertheless, assuming that our vendors continue to provide us trade credit as
they have to date, our cash flow forecasts indicate that we will generate enough
funds from operations to meet our operating cash needs until the height of
pickle packing season in July 2001.
Unfavorable developments which could result from any of the above
contingencies or otherwise could lead to a default under the senior credit
facility or the senior subordinated notes under which the debts would become
immediately due and payable or could lead to a contraction in the availability
of trade credit, either of which might require that we would file for protection
from our creditors under the Bankruptcy Act.
Since the present waiver to the senior credit facility expires on February
28, 2001, the indebtedness under the senior credit facility has been classified
as a current liability in the Consolidated Balance Sheet at October 29, 2000.
Because the Company is not in default of any covenants related to the Senior
Subordinated notes that could or would require early repayment of the notes,
these notes are classified as long-term debt at October 29, 2000. Although if
there were a subsequent default as discussed earlier, the notes would then be
classified as a current liability.
Our liquidity needs will be primarily for working capital and interest
service requirements on our debt obligations as well as capital expenditures.
Capital expenditures for fiscal year 2001 are expected to approximate $20
million. We believe that our capital expenditures for the foreseeable future
will be focused on equipment replacement.
It is unlikely that we will be able to make the escrow deposit by December
28, 2000 or the January Interest Payment by the end of the grace period, January
30, 2001. The failure to make the escrow deposit will cause the present waiver
of events of default under the senior credit facility to expire and failure to
make the January Interest Payment prior to the lapse of the grace period will be
an event of default under the senior subordinated note indenture. Both groups of
lenders would have the right to accelerate payment, as discussed above. Assuming
that neither group accelerates payment and assuming that our vendors continue to
provide us trade credit as they have to date, our cash flow forecasts indicate
that we will generate enough funds from operations to meet our operating cash
needs until the height of the pickle packing season in July 2001. Our liquidity
for periods beyond January 30, 2001 is dependent on the outcome of the strategic
review process. See also "Going Concern Matters" on page 6.
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<PAGE> 27
CASH FLOWS FOR THE THREE MONTHS ENDED OCTOBER 29, 2000 COMPARED TO THREE MONTHS
ENDED OCTOBER 31, 1999
Net cash used in operating activities was $17.4 million for the three
months ended October 29, 2000 compared to net cash used of $40.8 million for the
three months ended October 31, 1999. The change in cash flows from operations
was principally due to improved collections of accounts receivable and
reductions in inventory levels.
Net cash provided by investing activities was $3.1 million for the three
months ended October 29, 2000 compared to net cash used of $3.5 million for the
three months ended October 31, 1999. During August, 2000 the Company received
the remaining cash proceeds of approximately $4.8 million from the fiscal 2000
sale of Vlasic Farms, Inc. Capital expenditures were $1.9 million for the three
months ended October 29, 2000 compared to $3.7 million for the three months
ended October 31, 1999. Capital expenditures for fiscal year 2001 are not
expected to exceed $20 million.
Net cash provided by financing activities was $0.4 million for the three
months ended October 29, 2000 compared to $30.0 million for the three months
ended October 31, 1999 principally due to decreases in borrowings under the
senior credit facility.
SEASONALITY
Our sales and cash flows are affected by seasonal cyclicality during
certain parts of the year. Sales of frozen foods tend to be marginally higher
during the 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, 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,
historically requiring us to draw more heavily on the revolving credit
commitments under our senior credit facility. Because of our commitment to
focusing on cash generation, current year requirements were principally funded
from existing cash balances.
RECENT DEVELOPMENTS
In May 2000, the Emerging Issues Task Force (EITF) issued EITF No.
2000-14, "Accounting for Coupons, Rebates and Discounts" that addressed
accounting for sales incentives. The Task Force concluded that in accounting for
cash sales incentives offered by a manufacturer (for example, coupons to be used
at the point of retail sale or mailed in after the retail sale), the
manufacturer should recognize the incentive as a reduction of revenue on the
later date of the manufacturer's sale to the retailer or the date the offer is
made to the public. The reduction of revenues should be measured based on the
estimated amount of incentives to be claimed by the ultimate customers. We are
currently evaluating the effect that implementation of this pronouncement will
have to our financial statements. We must adopt this pronouncement in our fourth
quarter of fiscal 2001.
In September 2000, the EITF reached a final consensus on issue EITF No.
2000-10, "Accounting for Shipping and Handling Revenues and Costs." The Task
Force concluded that amounts billed to customers related to shipping and
handling should be classified as cost of products sold. Implementation of this
standard will result in a reclassification of outbound freight costs from a
reduction of net sales to cost of products sold on our Consolidated Statements
of Operations. We must adopt this pronouncement in our fourth quarter of fiscal
2001.
26
<PAGE> 28
FORWARD-LOOKING INFORMATION
This report and our filings with the Securities and Exchange Commission contain
certain forward-looking statements within the meaning of the Securities Act of
1933 and the Securities Exchange Act of 1934. We caution readers that any such
forward-looking statements made by us or on our behalf are based on our current
expectations and beliefs but are not guarantees of future performance. Actual
results could differ materially from those expressed or implied in the
forward-looking statements. Important factors that could cause such differences
include, but are not limited to:
- our ability to successfully maintain necessary financing arrangements;
- the results of our strategic review process;
- our ability to continue to comply with covenants and the terms of the
senior credit facility (and any waivers thereto), and the senior
subordinated notes;
- acceleration of our senior credit facility or senior subordinated notes;
- continued availability of current trade credit terms;
- changes in accounting estimates developed in connection with the
application of generally accepted accounting principles;
- changes in accounting policies and practices;
- our ability to successfully execute measures, processes and procedures to
properly capture and analyze trade marketing spending and customer
deductions;
- our ability to maintain capital expenditures within the forecast limits,
which are based on assumptions about infrastructure requirements;
- issues associated with our business and information systems and embedded
technology;
- the impact of strong competitive response to our efforts to leverage our
brand power with product innovation and new advertising;
- the inherent risks in the marketplace associated with our products,
including uncertainties about trade and consumer acceptance;
- changes in prices of raw materials and other inputs;
- the impact of unforeseen economic and political changes in international
markets where we compete;
- the market risks associated with financial instruments which may be
subject to unforeseen economic changes, such as currency exchange rates,
interest rates, inflation rates and recessionary trends;
- our ability to achieve the gains anticipated from our cost productivity
programs; and
- our ability to achieve the forecasted savings related to restructuring
programs.
27
<PAGE> 29
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 an interest rate swap
contract with a notional value of $50 million to hedge a portion of our U.S.
variable interest rate bank borrowings. As of October 29, 2000, the interest
rate swap contract provided that we pay an average interest rate of 5.9% and
receive an average interest rate of 6.8%. We would have received approximately
$0.7 million to settle the interest rate swap contract as of October 29, 2000.
We terminated the contract during November, 2000, receiving approximately $0.6
million.
There have been no other material changes in our market risk during the
three months ended October 29, 2000. Therefore, at the current time, we have no
material financial instruments outstanding. For additional information, refer to
page 24 of our Annual Report for the fiscal year ended July 30, 2000.
28
<PAGE> 30
PART II. OTHER INFORMATION
-------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
As previously reported in our Form 10-K, dated October 17, 2000, 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
None
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 is 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 27
in Management's Discussion and Analysis of Results of Operations and
Financial Condition of this Quarterly Report on Form 10-Q and in our
Annual Report on Form 10-K for the fiscal year ended July 30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
(3)(ii) Amended By-Laws
(27) Financial Data Schedule
29
<PAGE> 31
B. Reports on Form 8-K
We filed a Current Report on Form 8-K dated June 28, 2000 with the
Securities and Exchange Commission, on August 28, 2000, regarding
the announcement that an agreement reached with the senior credit
facility bank syndicate to extend our existing waiver of certain
covenants of that facility through February 28, 2001.
We also filed a Current Report on Form 8-K dated September 29, 2000
with the Securities and Exchange Commission, on October 2, 2000,
regarding Vlasic Foods International Inc. and Campbell Soup Company
agreement to extend until December 1, 2000, the date for notice of
termination under the Foodservice Supply Amendment Agreement between
Vlasic Foods International Inc. (the "Company") and Campbell Soup
Company dated March 24, 2000.
SIGNATURE
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: December 13, 2000 By: /s/ Joseph Adler
--------------------------------
Joseph Adler
Vice President and Controller
(Principal Financial and Accounting Officer)
30
