<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
JANUARY 30, 2000 1-13933
VLASIC FOODS INTERNATIONAL INC. LOGO
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 45,502,234 SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 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 Earnings (unaudited) for the three and
six months ended January 30, 2000 and January 31, 1999 2
Consolidated Balance Sheets as of January 30, 2000 (unaudited) and
August 1, 1999 (audited) 3
Consolidated Statements of Cash Flows (unaudited) for the six
months ended January 30, 2000 and January 31, 1999 4
Consolidated Statements of Shareowners' Equity (Deficit) (unaudited)
for the six months ended January 30, 2000 and January 31, 1999 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 13
Item 3. Market Risk 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURE PAGE 25
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
January 30, January 31, January 30, January 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 238,648 $ 324,393 $ 473,583 $ 619,886
--------- --------- --------- ---------
Costs and expenses
Cost of products sold 161,611 218,969 316,872 426,669
Marketing and selling expenses 74,312 61,100 119,621 112,775
Administrative expenses 13,357 17,982 24,766 34,931
Research and development expenses 1,834 1,802 3,900 3,170
Other expense 1,285 43 1,870 586
Special items 345 (3,200) 345 (3,200)
--------- --------- --------- ---------
Total costs and expenses 252,744 296,696 467,374 574,931
--------- --------- --------- ---------
Earnings (loss) before interest and taxes (14,096) 27,697 6,209 44,955
Interest expense 12,256 10,980 23,875 21,740
Interest income 70 185 165 430
--------- --------- --------- ---------
Earnings (loss) before taxes (26,282) 16,902 (17,501) 23,645
Taxes on earnings (10,070) 5,037 (6,645) 7,502
--------- --------- --------- ---------
Earnings (loss) from continuing operations (16,212) 11,865 (10,856) 16,143
Discontinued operations
Earnings (loss) from discontinued
operations, net of tax (5,452) (60) (6,699) 326
--------- --------- --------- ---------
Net earnings (loss) $ (21,664) $ 11,805 $ (17,555) $ 16,469
========= ========= ========= =========
Earnings (loss) per share - basic
Earnings (loss) from continuing operations $ (0.36) $ 0.26 $ (0.24) $ 0.35
Earnings (loss) from discontinued operations (0.12) - (0.15) 0.01
--------- --------- --------- ---------
Net earnings (loss) $ (0.48) $ 0.26 $ (0.39) $ 0.36
========= ========= ========= =========
Weighted average shares outstanding - basic 45,502 45,500 45,502 45,495
Earnings (loss) per share - assuming dilution
Earnings (loss) from continuing operations $ (0.36) $ 0.26 $ (0.24) $ 0.35
Earnings (loss) from discontinued operations (0.12) - (0.15) 0.01
--------- --------- --------- ---------
Net earnings (loss) $ (0.48) $ 0.26 $ (0.39) $ 0.36
========= ========= ========= =========
Weighted average shares outstanding
- - assuming dilution 45,502* 45,945 45,502* 45,831
</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>
January 30, August 1,
2000 1999 *
---- ------
(unaudited) (audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 11,352 $ 11,316
Accounts receivable 94,207 79,746
Inventories 141,384 141,933
Other current assets 8,611 16,246
--------- ---------
Total current assets 255,554 249,241
--------- ---------
Plant assets, net 274,413 281,677
Net assets of discontinued operations 40,715 45,429
Other assets, principally intangible assets, net 85,568 79,582
--------- ---------
Total assets $ 656,250 $ 655,929
========= =========
Current liabilities
Notes payable $ 323,081 $ 146
Payable to suppliers and others 65,826 95,207
Accrued liabilities 59,195 49,280
--------- ---------
Total current liabilities 448,102 144,633
--------- ---------
Long-term debt 197,206 469,054
Deferred income taxes -- 13,429
Other liabilities 49,006 49,214
--------- ---------
Total liabilities 694,314 676,330
--------- ---------
Shareowners' equity (deficit)
Preferred stock, no par value; authorized 4,000 shares;
none issued -- --
Common stock, no par value; authorized 56,000 shares;
issued 45,502 shares at January 30, 2000 and August 1, 1999 137,758 137,758
Accumulated deficit (169,001) (151,446)
Accumulated other comprehensive earnings (loss) (6,821) (6,713)
--------- ---------
Total shareowners' equity (deficit) (38,064) (20,401)
--------- ---------
Total liabilities and shareowners' equity (deficit) $ 656,250 $ 655,929
========= =========
</TABLE>
* Prior year amounts have been reclassified as a result of discontinued
operations.
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 5
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
January 30, January 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Earnings (loss) from continuing operations $ (10,856) $ 16,143
Non-cash charges (credits) to earnings (loss) from continuing operations
Special items 345 (3,200)
Depreciation and amortization 15,680 20,945
Deferred income taxes (5,776) 5,186
Postretirement healthcare benefits 2,105 2,222
Other, net 671 (361)
Changes in working capital
Accounts receivable (14,286) (36,678)
Inventories 1,374 (1,701)
Other current assets and liabilities (26,025) 11,896
--------- ---------
Net cash provided by (used in) operating activities (36,768) 14,452
--------- ---------
Cash flows from investing activities
Purchases of plant assets (8,114) (21,107)
Sales of plant assets 179 5,078
Proceeds from business sold -- 20,675
Other, net (101) 289
--------- ---------
Net cash provided by (used in) investing activities (8,036) 4,935
--------- ---------
Cash flows from financing activities
Long-term borrowings 121,094 120,702
Repayment of long-term borrowings (70,000) (129,000)
Short-term borrowings (repayments), net (65) (2,456)
Issuance of common stock -- 285
--------- ---------
Net cash provided by (used in) financing activities 51,029 (10,469)
--------- ---------
Net cash used in discontinued operations (6,259) (5,287)
Effect of exchange rate changes on cash 70 165
--------- ---------
Net change in cash and cash equivalents 36 3,796
Cash and cash equivalents - beginning of period 11,316 16,064
--------- ---------
Cash and cash equivalents - end of period $ 11,352 $ 19,860
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 6
VLASIC FOODS INTERNATIONAL
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY (DEFICIT) (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Comprehensive Shareowners'
------------------- Accumulated Earnings Equity
Shares Amount Deficit (Loss) (1) (Deficit)
------ ------ ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at August 2, 1998 45,488 $137,473 $ (25,115) $(5,754) $106,604
Net earnings 16,469 16,469
Other comprehensive earnings (loss)
Foreign currency translation adjustments 2,140 2,140
---------
Comprehensive earnings (loss) 18,609
Issuance of shares of common stock
as a result of stock options exercised 14 285 285
------ -------- ---------- -------- ---------
Balance at January 31, 1999 45,502 $137,758 $ (8,646) $(3,614) $125,498
====== ======== ========== ======== =========
Balance at August 1, 1999 45,502 $137,758 $(151,446) $(6,713) $(20,401)
Net loss (17,555) (17,555)
Other comprehensive earnings (loss)
Foreign currency translation adjustments (108) (108)
---------
Comprehensive earnings (loss) (17,663)
------ -------- ---------- -------- ---------
Balance at January 30, 2000 45,502 $137,758 $(169,001) $(6,821) $(38,064)
====== ======== ========== ======== =========
</TABLE>
(1) Accumulated other comprehensive earnings (loss) consists solely of foreign
currency translation adjustments.
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements for the three
and six months ended January 30, 2000 and January 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 13 and our Annual Report
and Form 10-K for the fiscal year ended August 1, 1999.
2. SUBSEQUENT EVENTS
On January 31, 2000, we completed the sale of Vlasic Farms, Inc., our fresh
mushroom business (see Note 4). Effective February 29, 2000, we received a
waiver of certain covenants from the senior credit facility bank syndicate (see
Note 8).
3. SIGNIFICANT ESTIMATES
Generally accepted accounting principles require management to make
estimates and assumptions that affect assets and liabilities, contingent assets
and liabilities, and revenues and expenses. The second quarter fiscal 2000
results were impacted by charges from changes in estimates of trade marketing
and customer deductions primarily for fiscal 1999 and earlier of approximately
$14.5 million pre-tax, or $0.20 per share. These charges resulted primarily from
revised estimates based on new information that provided better estimates and
insight following our conversion to new billing and trade marketing systems and
processes after the conclusion of Vlasic's transition service agreement with
Campbell Soup Company. We are conducting a review of these systems and are
continuing to implement processes and procedures to properly capture and analyze
trade marketing spending and customer deductions. These estimates are based on
the expected impact of customer marketing programs as well as historical
experience trends. We continue to believe our estimates are reasonable, but
because there is an inherent uncertainty in the use of estimates, actual results
could differ from those estimates.
4. DISCONTINUED OPERATIONS
In an effort to focus on our core "Vlasic" and "Swanson" businesses and to
pay down debt, we entered into an agreement with Money's Mushrooms Ltd. in
December 1999 to sell Vlasic Farms, Inc., our fresh mushroom business. The sale
was completed on January 31, 2000 - in our third quarter fiscal 2000. The sale
price was $50 million, subject to certain post-closing purchase price
adjustments. The 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 held on deposit are for anticipated purchase price adjustments,
environmental compliance costs, severance payments and certain other costs. Any
funds held on deposit remaining after payment of these specified items will be
used to repay a portion of the indebtedness outstanding under our senior credit
facility.
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 all periods presented. The loss from
discontinued operations for the three and six months ended January 30, 2000
included the results of our mushroom business through December 17, 1999, the
measurement date. The loss from discontinued operations subsequent to the
measurement date through January 30, 2000 (the phase-out period) of $0.8 million
was deferred as we expect to realize a net gain on disposal in the third quarter
fiscal 2000. Net sales, earnings (loss) before taxes and net earnings (loss)
applicable to discontinued operations were as follows:
6
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
4. DISCONTINUED OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
January 30, January 31, January 30, January 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 31,248 $ 32,232 $ 60,717 $ 63,789
Earnings (loss) before taxes $ (8,951) $ (97) $(10,973) $ 524
Taxes on earnings 3,499 37 4,274 (198)
-------- -------- -------- --------
Earnings (loss) from discontinued
operations, net of tax $ (5,452) $ (60) $ (6,699) $ 326
======== ======== ======== ========
</TABLE>
The components of net assets of discontinued operations included in the
Consolidated Balance Sheets were:
<TABLE>
<CAPTION>
January 30, August 1,
2000 1999
---- ----
<S> <C> <C>
Accounts receivable $ 10,160 $ 11,947
Inventories 6,371 6,698
Plant assets, net 34,116 35,974
Payable to suppliers and other current liabilities (9,932) (9,190)
======== ========
Net assets of discontinued operations $ 40,715 $ 45,429
======== ========
</TABLE>
Liabilities retained by us included certain environmental compliance costs,
property taxes and medical claims, as well as pensions and other postretirement
benefits. Such amounts were recorded in Accrued Liabilities on the Consolidated
Balance Sheet at January 30, 2000.
5. RESTRUCTURING CHARGES
<TABLE>
<CAPTION>
Severance
and Benefits Other Total
------------ ----- -----
<S> <C> <C> <C>
Balance at August 1, 1999 $ 1,149 $ 200 $ 1,349
Restructuring accrual 1,500 -- 1,500
Fiscal 2000 spending (490) (22) (512)
======= ======= =======
Balance at January 30, 2000 $ 2,159 $ 178 $ 2,337
======= ======= =======
</TABLE>
A special charge of $1.5 million was recorded in the second quarter of
fiscal 2000 associated with reductions in the United States workforce. This
restructuring program was designed to streamline the organization and reflects
the need for a smaller infrastructure. Approximately 35 positions will be
eliminated as part of this program. The $1.5 million charge represents severance
and employee benefit costs that will be paid in cash. As of January 30, 2000,
three individuals had been severed. This restructuring program is expected to be
completed by the second quarter of fiscal 2001.
A special charge of $1 million was recorded in the fourth quarter of fiscal
1999 associated with administrative staff reductions in the United Kingdom. This
restructuring program was designed to align fixed employee costs with the needs
of the SonA and Freshbake businesses. Approximately 40 positions will be
eliminated as part of this program. There were 34 individuals severed as of
January 30, 2000. The $1 million charge represents severance and employee
benefit costs that will be paid in cash. This restructuring program is expected
to be completed by the third quarter of fiscal 2000.
The restructuring accruals were included in Accrued liabilities on the
Consolidated Balance Sheets.
7
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
6. SEGMENT AND GEOGRAPHIC AREA INFORMATION
We have restated our segment reporting structure as a result of the
divestiture of three businesses and to align with changes to our internal
structure. We have four 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. Results for the Freshbake frozen foods and SonA and Rowats
businesses had previously been in the Frozen Foods and Grocery Products
segments. The DIVESTED BUSINESSES segment includes the aggregated results from
the Kattus gourmet foods distribution business in Germany (which was sold in
January 1999) and the Swift-Armour Argentine beef business (which was sold in
July 1999), which were previously in the Grocery Products and Agricultural
Products segments. With the divestitures of Swift-Armour and Vlasic Farms, we
eliminated the Agricultural Products segment and reclassified contract
manufacturing of frozen foodservice products into the Frozen Foods segment. The
Vlasic Farms mushroom business has been 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. The corresponding items of segment
information for all periods presented have been restated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
January 30, January 31, January 30, January 31,
SEGMENT INFORMATION 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
Frozen Foods $ 131,016 $131,107 $ 270,945 $ 268,229
Grocery Products 67,992 72,312 126,936 124,338
United Kingdom Operations 39,640 46,092 75,702 86,218
Divested Businesses - 74,882 - 141,101
---------- --------- ---------- ----------
Total $ 238,648 $324,393 $ 473,583 $ 619,886
========== ========= ========== ==========
Earnings (Loss) Before Interest and Taxes
from Continuing Operations
Frozen Foods $ (6,036) $ 12,570 $ 9,207 $ 25,902
Grocery Products (6,374) 10,185 1,195 17,129
United Kingdom Operations (531) 1,509 (936) 3,214
Divested Businesses 1,155 6,472 1,155 3,535
Unallocated Corporate Expenses (2,310) (3,039) (4,412) (4,825)
---------- --------- ---------- ----------
Total $ (14,096) $ 27,697 $ 6,209 $ 44,955
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
January 30, August 1,
2000 1999
---- ----
<S> <C> <C>
Total Assets
Frozen Foods $ 265,994 $ 251,180
Grocery Products 198,113 203,636
United Kingdom Operations 151,428 155,684
Divested Businesses - -
Discontinued Operations 40,715 45,429
---------- ----------
Total $ 656,250 $ 655,929
========== ==========
</TABLE>
8
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
6. SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- -------------------------
January 30, January 31, January 30, January 31,
GEOGRAPHIC INFORMATION 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
United States $ 192,345 $196,135 $385,101 $375,706
Europe and Canada 46,303 77,980 88,482 143,242
South America - 50,278 - 100,938
---------- -------- -------- --------
Total $ 238,648 $324,393 $473,583 $619,886
========== ======== ======== ========
Earnings (Loss) Before Interest and Taxes
from Continuing Operations
United States $ (15,294) $ 18,818 $ 4,305 $ 36,501
Europe and Canada 1,198 5,607 1,904 8,119
South America - 3,272 - 335
---------- -------- -------- --------
Total $ (14,096) $ 27,697 $ 6,209 $ 44,955
========== ======== ======== ========
</TABLE>
7. INVENTORIES
<TABLE>
<CAPTION>
January 30, August 1,
2000 1999
---- ----
<S> <C> <C>
Raw materials, containers and supplies $ 36,187 $ 36,427
Finished product 117,404 118,848
--------- ---------
153,591 155,275
Less: Adjustment to LIFO basis (12,207) (13,342)
--------- ---------
Total $141,384 $141,933
========= =========
</TABLE>
Inventories for which the last in, first out (LIFO) method of determining
cost is used represented approximately 75% of inventories at January 30, 2000
and August 1, 1999.
8. DEBT
<TABLE>
<CAPTION>
January 30, August 1,
2000 1999
---- ----
<S> <C> <C>
Notes payable
Senior credit facility $323,000 $ --
Other 81 146
-------- --------
Total notes payable $323,081 $ 146
======== ========
Long-term debt
Senior credit facility $ -- $271,900
$200 million 10 1/4% Senior subordinated notes due 2009,
less unamortized discount 197,051 196,962
Capital lease obligations and other 155 192
-------- --------
Total long-term debt $197,206 $469,054
======== ========
</TABLE>
9
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
8. DEBT (CONTINUED)
The 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, initially in the aggregate amount of
up to $550 million. 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
include property insurance proceeds and condemnation awards. At our option,
subject to certain requirements, loans may be prepaid in whole or in part. As a
result of the application of the net proceeds from the sale of our senior
subordinated notes in fiscal 1999 and the divestiture of our Swift-Armour
Argentine beef business in fiscal 1999, the amount available to be borrowed
under the revolving credit commitments was permanently reduced to $279 million.
Loans under the revolving credit commitments will be available at any time
through the final maturity date on February 20, 2003 and the term loan matures
on February 20, 2003. 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
January 30, 2000 was 8%. We are obligated to pay a facility fee ranging from
0.15% to 0.5% on the credit exposure of the banks.
In conjunction with the sale of our Vlasic Farms mushroom business in the
third quarter fiscal 2000 (see Note 4), a portion of the net proceeds received
was used to reduce amounts outstanding under our revolving credit facility and
the revolving credit commitment was permanently reduced by $37.8 million. In
February 2000 we also made an additional voluntary reduction to the revolving
credit commitment of $16.2 million, as we do not anticipate requiring the
additional liquidity. As a result, the amount available to be borrowed under the
revolving credit commitments has been permanently reduced to $225 million. Under
the revolving credit facility, the maximum amount of borrowings available is
equal to the revolving credit commitment less any outstanding revolving loans.
At January 30, 2000 (balance sheet date), had we been in compliance with the
specified financial ratio covenants of the senior credit facility, $56.0 million
would have been available under the revolving credit commitments. Since January
30, 2000, we have not increased our borrowings under the senior credit facility.
At March 1, 2000, after our voluntary reduction to the revolving credit
commitment and subject to the discussion below regarding the waiver, the maximum
amount potentially available under the revolving credit commitment was $39.8
million.
The senior credit facility and our senior subordinated debt described
below, 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
and a limitation on capital expenditures. A breach of any of these covenants
could result in a default under our debt agreements.
On January 18, 2000, we received a waiver from the senior credit facility
bank syndicate for the debt/EBITDA ratio and the fixed charge coverage ratio
through February 29, 2000. Effective February 29, 2000, we received a further
waiver from the senior credit facility bank syndicate covering the debt/EBITDA
ratio and the fixed charge coverage ratio of the facility through June 20, 2000.
This waiver 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. If the minimum EBITDA test is not met as of the end of the third
quarter fiscal 2000, the waiver period will end on May 31, 2000. Additionally,
if we deviate from the cash budget by more than a specified amount, we will be
unable to borrow from the senior credit facility. We do not anticipate needing
any additional borrowings during the waiver period. 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. We fully expect to be in
compliance with the minimum EBITDA test and the terms and conditions set forth
in the waiver for the third quarter fiscal 2000.
Currently, we are exploring strategic opportunities including, but not
limited to, potential divestitures, joint manufacturing or marketing ventures,
acquisitions, a merger, a recapitalization or other actions. The investment
banking firm of Lazard Freres & Co. has been hired to assist with this strategic
review and to formulate proposed plans and actions for the consideration of our
Board of Directors. Because Lazard Freres & Co. is currently conducting its
review and formulation of proposed plans and actions, no assessment can be made
of the
10
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
8. DEBT (CONTINUED)
likelihood that such plans and actions can be effectively implemented. Moreover,
regardless of the outcome of the strategic review, an extension of the existing
waiver, a new waiver covering certain terms and conditions of the senior credit
facility, an amendment of the senior credit facility, a de novo senior credit
facility or some combination of the above will be required. Without such an
action, we will be in default on June 20, 2000. Although no assurances can be
given, we expect that the plans and actions proposed by the strategic review and
to be acted upon by our Board of Directors will enable us to successfully
fulfill such requirement and that we will be able to effectively implement them.
In particular, we anticipate being able to negotiate with our present senior
credit bank syndicate, as is necessary, for an extension of the existing waiver
or for a new waiver, before the current waiver expires on June 20, 2000, so as
to preclude any acceleration of our indebtedness. Since the waiver to the senior
credit facility expires on June 20, 2000, the indebtedness under the senior
credit facility has been classified as a current liability in the Consolidated
Balance Sheet at January 30, 2000.
A breach of any of the terms and conditions of the waiver, or subsequent
breaches of the financial covenants under the senior credit facility could
result in acceleration of our indebtedness, in which case the debt would become
immediately due and payable. Based upon our current projections, we do not
believe we will comply with the existing financial covenants unless they are
modified, as they have been in the waiver. If there is no modification of the
existing financial covenants, we may not be able to repay our debt or borrow
sufficient funds to refinance it. Even if new financing is available, it may not
be on terms that are acceptable to us. We have, however, received such
modifications in the past in the form of waivers and an amendment to our senior
credit facility.
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. At January 30, 2000 and as of
the current date, we are in compliance with the covenants set forth in the
senior subordinated notes.
9. GOING CONCERN MATTERS
The accompanying interim 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 8, 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 quarter ended January 30, 2000, we were not in compliance with the
financial ratio covenants under our senior credit facility; however, we
requested and received a waiver through February 29, 2000. We have received a
further waiver of these financial ratio covenants from our lenders through June
20, 2000 in consideration for the payment of a fee and an increase in interest
rates. The waiver required delivery of and compliance with a cash budget and
established a minimum EBITDA test to be met as of April 30, 2000. If the minimum
EBITDA test is not met, the waiver will expire on May 31, 2000. Additionally, if
the cash budget is not met, we will be unable to borrow under the senior credit
facility. The waiver also required that the senior credit facility be secured by
liens on substantially all of our real property in the United States on or
before April 30, 2000.
We fully expect to be in compliance with the minimum EBITDA test and the
other terms and conditions of the waiver and we do not anticipate needing any
additional borrowings through June 20, 2000.
Currently, we are exploring strategic opportunities including, but not
limited to, potential divestitures, joint manufacturing or marketing ventures,
acquisitions, a merger, a recapitalization or other actions. The investment
banking firm of Lazard Freres & Co. has been hired to assist with this strategic
review and to formulate proposed plans and actions for the consideration of our
Board of Directors. Because Lazard Freres & Co. is currently conducting its
review and formulation of proposed plans and actions, no assessment can be made
of the likelihood that such plans and actions can be effectively implemented.
Moreover, regardless of the outcome of
11
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
9. GOING CONCERN MATTERS (CONTINUED)
the strategic review, an extension of the existing waiver, a new waiver covering
certain terms and conditions of the senior credit facility, an amendment of the
senior credit facility, a de novo senior credit facility or some combination of
the above will be required. Without such an action, we will be in default on
June 20, 2000. Although no assurances can be given, we expect that the plans and
actions proposed by the strategic review and to be acted upon by our Board of
Directors will enable us to successfully fulfill such requirement and that we
will be able to effectively implement them. In particular, we anticipate being
able to negotiate with our present senior credit bank syndicate, as is
necessary, for an extension of the existing waiver or for a new waiver, before
the current waiver expires on June 20, 2000, so as to preclude any acceleration
of our indebtedness. Our continuation as a going concern is dependent upon our
ability to successfully establish the necessary financing arrangements and to
comply with the terms thereof.
A breach of any of the terms and conditions of the waiver, or subsequent
breaches of the financial covenants under the senior credit facility could
result in acceleration of our indebtedness, in which case the debt would become
immediately due and payable. Based upon our current projections, we do not
believe we will comply with the existing financial covenants unless they are
modified, as they have been in the waiver. If there is no modification of the
existing financial covenants, we may not be able to repay our debt or borrow
sufficient funds to refinance it. Even if new financing is available, it may not
be on terms that are acceptable to us. We have, however, received such
modifications in the past in the form of waivers and an amendment to our senior
credit facility.
Our ability to operate as a going concern is dependent on our ability to
successfully negotiate with our senior credit bank syndicate to preclude
acceleration after June 20, 2000. Under Statement on Auditing Standards No. 59,
because a plan has not yet been formulated to preclude such acceleration,
management has been advised by its independent accountants that generally
accepted auditing standards would require them, if they were to issue an
opinion, to express in that opinion substantial doubt as to our ability to
operate as a going concern due to an inability to assess our plans. However,
although no assurances can be given, we remain confident that we will be able to
continue operating as a going concern.
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
On March 30, 1998, Campbell Soup Company 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 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.
The discussion below summarizes the significant factors affecting our
consolidated operating results, financial condition and liquidity for the three
and six months ended January 30, 2000 and January 31, 1999. The results for the
six months ended January 30, 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 interim 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 8, 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 quarter ended January 30, 2000, we were not in compliance with the
financial ratio covenants under our senior credit facility; however, we
requested and received a waiver through February 29, 2000. We have received a
further waiver of these financial ratio covenants from our lenders through June
20, 2000 in consideration for the payment of a fee and an increase in interest
rates. The waiver required delivery of and compliance with a cash budget and
established a minimum EBITDA test to be met as of April 30, 2000. If the minimum
EBITDA test is not met, the waiver will expire on May 31, 2000. Additionally, if
the cash budget is not met, we will be unable to borrow under the senior credit
facility. The waiver also required that the senior credit facility be secured by
liens on substantially all of our real property in the United States on or
before April 30, 2000.
We fully expect to be in compliance with the minimum EBITDA test and the
other terms and conditions of the waiver and we do not anticipate needing any
additional borrowings through June 20, 2000.
Currently, we are exploring strategic opportunities including, but not
limited to, potential divestitures, joint manufacturing or marketing ventures,
acquisitions, a merger, a recapitalization or other actions. The investment
banking firm of Lazard Freres & Co. has been hired to assist with this strategic
review and to formulate proposed plans and actions for the consideration of our
Board of Directors. Because Lazard Freres & Co. is currently conducting its
review and formulation of proposed plans and actions, no assessment can be made
of the likelihood that such plans and actions can be effectively implemented.
Moreover, regardless of the outcome of the strategic review, an extension of the
existing waiver, a new waiver covering certain terms and conditions of the
senior credit facility, an amendment of the senior credit facility, a de novo
senior credit facility or some combination of the above will be required.
Without such an action, we will be in default on June 20, 2000. Although no
assurances can be given, we expect that the plans and actions proposed by the
strategic review and to be acted upon by our Board of Directors will enable us
to successfully fulfill such requirement and that we will be able to effectively
implement them. In particular, we anticipate being able to negotiate with our
present senior credit bank syndicate, as is necessary, for an extension of the
existing waiver or for a new waiver, before the
13
<PAGE> 15
current waiver expires on June 20, 2000, so as to preclude any acceleration of
our indebtedness. Our continuation as a going concern is dependent upon our
ability to successfully establish the necessary financing arrangements and to
comply with the terms thereof.
A breach of any of the terms and conditions of the waiver, or subsequent
breaches of the financial covenants under the senior credit facility could
result in acceleration of our indebtedness, in which case the debt would become
immediately due and payable. Based upon our current projections, we do not
believe we will comply with the existing financial covenants unless they are
modified, as they have been in the waiver. If there is no modification of the
existing financial covenants, we may not be able to repay our debt or borrow
sufficient funds to refinance it. Even if new financing is available, it may not
be on terms that are acceptable to us. We have, however, received such
modifications in the past in the form of waivers and an amendment to our senior
credit facility.
Our ability to operate as a going concern is dependent on our ability to
successfully negotiate with our senior credit bank syndicate to preclude
acceleration after June 20, 2000. Under Statement on Auditing Standards No. 59,
because a plan has not yet been formulated to preclude such acceleration,
management has been advised by its independent accountants that generally
accepted auditing standards would require them, if they were to issue an
opinion, to express in that opinion substantial doubt as to our ability to
operate as a going concern due to an inability to assess our plans. However,
although no assurances can be given, we remain confident that we will be able to
continue operating as a going concern.
RESULTS OF OPERATIONS
OVERVIEW
Net sales for the first six months of fiscal 2000 were $473.6 million
compared to net sales of $619.9 million for the first six months of fiscal 1999.
Excluding net sales from the Kattus and Swift-Armour businesses (which were
divested in January 1999 and July 1999, respectively), net sales remained
relatively unchanged from the prior year. Sales in both our core Vlasic and
Swanson U.S. businesses, which represent approximately 75% of total net sales,
grew approximately 2.5%, while our international businesses in the United
Kingdom suffered an overall decline in net sales. Although sales in our frozen
foods and pickle businesses were up over the same period of the prior year,
sales for the second quarter of fiscal 2000 were lower than expected.
For the six months ended January 30, 2000 we incurred a net loss from
continuing operations of $10.9 million, or $(0.24) per share, while net earnings
from continuing operations for the six months ended January 31, 1999 were $16.1
million, or $0.35 per share. The fiscal 2000 results were adversely impacted by
charges related to changes in estimates of trade marketing and customer
deductions primarily from fiscal 1999 and earlier of approximately $14.5 million
pre-tax, or $0.20 per share, and charges relating to product manufacturing and
inventory costs of approximately $11.0 million pre-tax, or $0.15 per share. Net
earnings from continuing operations for the six months ended January 31, 1999
included one-time costs of $7.0 million pre-tax, or $0.10 per share, for
duplicative administrative transition costs and costs related to the development
of our information technology infrastructure. The net loss from discontinued
operations for the six months ended January 30, 2000 was $6.7 million, or
$(0.15) per share compared to net earnings of $0.3 million, or $0.01 per share,
for the six months ended January 31, 1999.
14
<PAGE> 16
CONSOLIDATED STATEMENTS OF EARNINGS
The following table sets forth certain items in our consolidated statements
of earnings as percentages of our net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- ----------------------------
January 30, January 31, January 30, January 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost of products sold 67.7% 67.6% 66.9% 68.9%
Marketing and selling expenses 31.1% 18.8% 25.3% 18.2%
Administrative expenses 5.6% 5.5% 5.2% 5.6%
Research and development expenses 0.8% 0.6% 0.8% 0.5%
Other expense 0.5% 0.0% 0.4% 0.1%
Special items 0.2% (1.0)% 0.1% (0.5)%
----- ----- ----- -----
Total costs and expenses 105.9% 91.5% 98.7% 92.8%
----- ----- ----- -----
Earnings (loss) before interest and taxes
from continuing operations (5.9)% 8.5% 1.3% 7.2%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JANUARY 30, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999
NET SALES. Net sales of $238.6 million for the three months ended January
30, 2000 decreased from net sales of $324.4 million for the three months ended
January 31, 1999. However, included in the net sales for the three months ended
January 31, 1999 was $74.9 million from the divested Kattus and Swift-Armour
businesses. Excluding net sales from these divested businesses, net sales
decreased approximately 4.4% in the second quarter of fiscal 2000 compared to
the same period of last year. This decrease was primarily due to declines in our
United Kingdom businesses resulting from intense competitive pressures that
impacted both selling price and volume.
COST OF PRODUCTS SOLD. Cost of products sold as a percentage of net sales
of 67.7% for the three months ended January 30, 2000 was approximately the same
as in the three months ended January 31, 1999. Excluding the divested Kattus and
Swift-Armour businesses, cost of products sold as a percentage of net sales
would have been 64.5% for the three months ended January 31, 1999. The increase
in cost of products sold was attributable to product manufacturing and inventory
costs incurred in the second quarter of fiscal 2000 pertaining to lower
absorption and obsolescence.
MARKETING AND SELLING EXPENSES. Marketing and selling expenses as a
percentage of net sales increased to 31.1% for the three months ended January
30, 2000 compared to 18.8% for the three months ended January 31, 1999.
Excluding the divested Kattus and Swift-Armour businesses, marketing and selling
expenses as a percentage of net sales would have been 19.7% for the three months
ended January 31, 1999. The increase in the second quarter of fiscal 2000 was
predominately caused by the additional charges for trade marketing and customer
deductions resulting from revised estimates principally for fiscal 1999 and
earlier, based on new information following our conversion to new billing and
trade marketing systems and processes. Marketing and selling expenses as a
percentage of net sales excluding the impact of these charges in the second
quarter of fiscal 2000 would have been approximately 25.1%. The remaining
increase as compared to the prior year was driven by trade marketing from new
product introductions and higher advertising for pickles.
ADMINISTRATIVE EXPENSES. Administrative expenses as a percentage of net
sales increased slightly for the three months ended January 30, 2000 to 5.6%
from 5.5% for the three months ended January 31, 1999. However, excluding the
divested Kattus and Swift-Armour businesses, administrative expenses as a
percentage of net sales was 6.2%. The decrease in the second quarter of fiscal
2000 was due to duplicative administrative
15
<PAGE> 17
transition costs and costs related to the development of our information
technology infrastructure incurred in the second quarter of fiscal 1999,
partially offset by comparatively higher staffing levels in the second quarter
of fiscal 2000.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses as a
percentage of net sales increased to 0.8% for the three months ended January 30,
2000 compared to 0.6% for the three months ended January 31, 1999, or 0.7%
excluding the divested Kattus and Swift-Armour businesses.
OTHER EXPENSE. Other expense is principally goodwill amortization of
approximately $0.6 million on a quarterly basis. Included in other expense in
the second quarter of fiscal 2000 were costs incurred associated with a boiler
explosion that damaged a frozen foods manufacturing facility. Costs associated
with this explosion are expected to be covered by our insurance policy and will
have a negligible impact on earnings for the year. For the second quarter of
fiscal 1999, goodwill amortization was largely offset by a gain on the sale of
certain assets.
SPECIAL ITEMS. During the second quarter fiscal 2000, special items of $0.3
million, net, were recorded including a $1.5 million United States restructuring
charge which was partially offset by a $1.2 million benefit resulting from the
resolution of certain contingencies related to the divested Kattus business. A
special benefit of $3.2 million was recorded in the second quarter of fiscal
1999 relating to a gain on the sale of the Kattus business.
EARNINGS (LOSS) BEFORE INTEREST AND TAXES FROM CONTINUING OPERATIONS. The
loss before interest and taxes from continuing operations for the three months
ended January 30, 2000 was $14.1 million compared to earnings of $27.7 million
for the three months ended January 31, 1999. On a comparable basis, excluding
the divested Kattus and Swift-Armour businesses and excluding one-time costs of
$3.5 million relating to duplicative administrative transition costs and costs
related to the development of our information technology infrastructure incurred
in the second quarter of fiscal 1999, earnings before interest and taxes for the
three months ended January 31, 1999 were $24.7 million. The decrease of $38.8
million in the second quarter of fiscal 2000 was largely driven by:
- charges of approximately $14.5 million incurred in the second
quarter of fiscal 2000 for trade marketing and customer
deductions resulting from revised estimates principally for
fiscal 1999 and earlier, based on new information following
our conversion to new billing and trade marketing systems and
processes;
- charges of approximately $11 million incurred in the second
quarter of fiscal 2000 related to product manufacturing and
inventory costs;
- increased marketing and advertising costs in our core Vlasic
and Swanson U.S. businesses in the second quarter of fiscal
2000 compared to last year;
- lower than expected levels of sales in our frozen foods and
pickle businesses in the second quarter of fiscal 2000; and
- the second quarter fiscal 2000 restructuring charge of $1.5
million.
INTEREST EXPENSE, NET. Interest expense, net, for the three months ended
January 30, 2000 was $12.2 million compared to $10.8 million for the three
months ended January 31, 1999. We incurred higher interest expense in the second
quarter of fiscal 2000 primarily as a result of higher interest rates on our
bonds as well as on our bank borrowings.
TAXES ON EARNINGS. The effective tax rate was 36.7% for the three months
ended January 30, 2000 compared to 36.8% for the three months ended January 31,
1999.
EARNINGS (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." The
loss from operations of the discontinued business for the three months ended
January 30, 2000 was $5.5 million compared to a loss of $0.1 million for the
same period of the prior year. The decline in earnings was attributable to poor
yields, higher costs and reduced contract sales at our mushroom farms in the
second quarter of fiscal 2000.
16
<PAGE> 18
SIX MONTHS ENDED JANUARY 30, 2000 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1999
NET SALES. Net sales of $473.6 million for the six months ended January 30,
2000 decreased from net sales of $619.9 million for the six months ended January
31, 1999. However, excluding net sales from the divested Kattus and Swift-Armour
businesses, net sales remained essentially unchanged year on year. Sales in our
core Vlasic and Swanson U.S. businesses, which represent approximately 75% of
total net sales, each grew approximately 2.5%, while our international
businesses in the United Kingdom suffered an overall decline in net sales.
COST OF PRODUCTS SOLD. Cost of products sold as a percentage of net sales
decreased to 66.9% for the six months ended January 30, 2000 compared to 68.9%
for the six months ended January 31, 1999. Excluding the divested Kattus and
Swift-Armour businesses, cost of products sold as a percentage of net sales
would have been 65.3% for the six months ended January 31, 1999. The increase in
cost of products sold was attributable to product manufacturing and inventory
costs incurred in the second quarter of fiscal 2000 relating to lower absorption
and obsolescence. In addition, our United Kingdom frozen foods business
encountered operational difficulties in early fiscal 2000.
MARKETING AND SELLING EXPENSES. Marketing and selling expenses as a
percentage of net sales increased to 25.3% for the six months ended January 30,
2000 compared to 18.2% for the six months ended January 31, 1999. Excluding the
divested Kattus and Swift-Armour businesses, marketing and selling expenses as a
percentage of net sales would have been 20.0% for the six months ended January
31, 1999. The increase in fiscal 2000 was predominately caused by additional
charges for trade marketing and customer deductions resulting from revised
estimates principally for fiscal 1999 and earlier, based on new information
following our conversion to new billing and trade marketing systems and
processes. Marketing and selling expenses as a percentage of net sales excluding
the impact of these charges in the first six months of fiscal 2000 would have
been approximately 22.7%. However excluding these charges, marketing and selling
expenses would have still increased in the first half of fiscal 2000 due to
increased advertising at Vlasic and greater trade and marketing costs related to
new product introductions at Swanson.
ADMINISTRATIVE EXPENSES. Administrative expenses as a percentage of net
sales decreased for the six months ended January 30, 2000 to 5.2% from 5.6% for
the six months ended January 31, 1999, or 6.1% excluding the divested Kattus and
Swift-Armour businesses. This decrease was a result of duplicative
administrative transition costs and costs related to the development of our
information technology infrastructure incurred in the first six months of fiscal
1999, partially offset by comparatively higher staffing levels in the first six
months of fiscal 2000.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses as a
percentage of net sales increased to 0.8% for the six months ended January 30,
2000 compared to 0.5% for the six months ended January 31, 1999, or 0.7%
excluding the divested Kattus and Swift-Armour businesses.
OTHER EXPENSE. Other expense is principally goodwill amortization of
approximately $0.6 million on a quarterly basis. Included in the first six
months of fiscal 2000 were costs associated with a boiler explosion that damaged
a frozen foods manufacturing facility. Costs associated with this explosion are
expected to be covered by our insurance policy and will have a negligible impact
for the year. For the first six months of fiscal 1999, goodwill amortization was
largely offset by a gain on the sale of certain assets.
SPECIAL ITEMS. During the first six months of fiscal 2000, special items of
$0.3 million, net, were recorded including a $1.5 million United States
restructuring charge which was partially offset by a $1.2 million benefit
resulting from the resolution of certain contingencies related to the divested
Kattus business. A special benefit of $3.2 million was recorded in the first six
months of fiscal 1999 relating to a gain on the sale of the Kattus business.
EARNINGS (LOSS) BEFORE INTEREST AND TAXES FROM CONTINUING OPERATIONS.
Earnings before interest and taxes from continuing operations for the six months
ended January 30, 2000 were $6.2 million compared to $45.0 million for the six
months ended January 31, 1999. On a comparable basis, excluding the divested
Kattus and Swift-Armour businesses and excluding one-time costs of $7.0 million
relating to duplicative administrative transition costs and costs related to the
development of our information technology infrastructure incurred in the
17
<PAGE> 19
first six months of fiscal 1999, earnings before interest and taxes for the six
months ended January 31, 1999 were $51.2 million. This decrease of $45.7 million
in the first six months of fiscal 2000 was driven by:
- charges of approximately $14.5 million incurred in the second
quarter of fiscal 2000 for trade marketing and customer
deductions resulting from revised estimates principally for
fiscal 1999 and earlier, based on new information following
our conversion to new billing and trade marketing systems and
processes;
- charges of approximately $11 million incurred in the second
quarter of fiscal 2000 related to product manufacturing and
inventory costs;
- increased marketing and advertising costs in our core Vlasic
and Swanson U.S. businesses in fiscal 2000 compared to last
year;
- the second quarter fiscal 2000 restructuring charge of $1.5
million; and
- operational difficulties encountered in the United Kingdom
frozen foods business.
INTEREST EXPENSE, NET. Interest expense, net, for the six months ended
January 30, 2000 was $23.7 million compared to $21.3 million for the six months
ended January 31, 1999. We incurred higher interest expense in the first six
months of fiscal 2000 primarily as a result of higher interest rates on our
bonds as well as on our bank borrowings.
TAXES ON EARNINGS. The effective tax rate was 35.6% for the six months
ended January 30, 2000 compared to 36.7% for the six months ended January 31,
1999.
EARNINGS (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." The
loss from operations of the discontinued business for the six months ended
January 30, 2000 was $6.6 million compared to earnings of $0.3 million for the
same period of the prior year. The decline in earnings was attributable to poor
yields, higher costs and reduced contract sales at our mushroom farms in fiscal
2000.
RESULTS BY SEGMENT
The following table sets forth certain segment information for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
January 30, January 31, January 30, January 31,
SEGMENT INFORMATION 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
Frozen Foods $ 131,016 $131,107 $ 270,945 $ 268,229
Grocery Products 67,992 72,312 126,936 124,338
United Kingdom Operations 39,640 46,092 75,702 86,218
Divested Businesses - 74,882 - 141,101
---------- --------- ---------- ----------
Total $ 238,648 $324,393 $ 473,583 $ 619,886
========== ========= ========== ==========
Earnings (Loss) Before Interest and Taxes
from Continuing Operations
Frozen Foods $ (6,036) $ 12,570 $ 9,207 $ 25,902
Grocery Products (6,374) 10,185 1,195 17,129
United Kingdom Operations (531) 1,509 (936) 3,214
Divested Businesses 1,155 6,472 1,155 3,535
Unallocated Corporate Expenses (2,310) (3,039) (4,412) (4,825)
---------- --------- ---------- ----------
Total $ (14,096) $ 27,697 $ 6,209 $ 44,955
========== ========= ========== ==========
</TABLE>
18
<PAGE> 20
THREE MONTHS ENDED JANUARY 30, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999
Net sales of the frozen foods segment remained unchanged at approximately
$131.0 million for the three months ended January 30, 2000 compared to the same
period of the prior year. Volumes of our new Swanson pot pies were offset by
weaknesses in our beef dinner products and some of our breakfast products. Total
consumption was even with the same period a year ago. Overall volume declines
were offset by improved mix reflecting the new product introductions at higher
price points. The segment's loss before interest and taxes was $6.0 million for
the three months ended January 30, 2000 compared to earnings of $12.6 million
for the three months ended January 31, 1999. This significant decline was
primarily a result of charges totaling approximately $13.4 million pertaining to
changes in estimates of prior year and earlier trade marketing and customer
deductions, as well as product manufacturing and inventory costs. Additionally,
current year trade marketing costs increased due to new product introductions in
fiscal 2000.
Net sales of the grocery products segment decreased 6.0% to $68.0 million
for the three months ended January 30, 2000 compared to fiscal 1999. This
decrease was due to volume declines in our core Vlasic pickles business as a
result of reduced inventories held by our customers. Consumption increased
approximately 1% in the second quarter of fiscal 2000. The segment's loss before
interest and taxes was $6.4 million for the three months ended January 30, 2000
compared to earnings of $10.2 million for the three months ended January 31,
1999. This significant decline was primarily a result of charges totaling
approximately $13.0 million pertaining to changes in estimates of fiscal 1999
and earlier trade marketing and customer deductions, as well as product
manufacturing and inventory costs. Advertising costs in our Vlasic business also
increased from the same period of the prior year.
Net sales of the United Kingdom operations segment decreased 14.0% to $39.6
million for the three months ended January 30, 2000 compared to the same period
of the prior year. The decline is net sales was attributable to increased
competition that impacted both selling price and volume. The segment's loss
before interest and taxes was $0.5 million for the three months ended January
30, 2000 compared to earnings of $1.5 million for the three months ended January
31, 1999 primarily due to lower sales and inventory write-offs.
The divested businesses segment included net sales in fiscal 1999 from the
Kattus and Argentine beef businesses which were sold in January 1999 and July
1999, respectively. During the second quarter of fiscal 2000 we resolved certain
contingencies relating to the divested Kattus business and reversed an accrual
of $1.2 million which was included in earnings (loss) from continuing operations
as a Special Item.
SIX MONTHS ENDED JANUARY 30, 2000 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1999
Net sales of the frozen foods segment increased slightly (approximately
1.0%) to $270.9 million for the six months ended January 30, 2000 compared to
the same period of the prior year. Volume declines at our Swanson U.S. business
were partially offset by improved mix reflecting new product introductions at
higher price points. The segment's earnings before interest and taxes were $9.2
million for the six months ended January 30, 2000 compared to $25.9 million for
the six months ended January 31, 1999. This significant decline was primarily a
result of charges totaling approximately $13.4 million pertaining to prior year
trade marketing and customer deductions, as well as product manufacturing and
inventory costs. Additionally, current year trade marketing costs increased due
to new product introductions in fiscal 2000.
Net sales of the grocery products segment increased 2.1% to $126.9 million
for the six months ended January 30, 2000 compared to fiscal 1999. This increase
was primarily driven by increased sales in our core Vlasic pickles business as a
result of higher volumes. Consumption for the six months ended fiscal 2000 was
up approximately 2.5% from the same period of the prior year. The segment's
earnings before interest and taxes were $1.2 million for the six months ended
January 30, 2000 compared to $17.1 million for the six months ended January 31,
1999. This significant decline was primarily a result of charges totaling
approximately $13.0 million pertaining to prior year trade marketing and
customer deductions, as well as product manufacturing and inventory costs.
Advertising costs in our Vlasic business also increased from the same period of
the prior year.
Net sales of the United Kingdom operations segment decreased 12.2% to $75.7
million for the six months ended January 30, 2000 compared to the same period of
the prior year. The segment's loss before interest and taxes was $0.9 million
for the three months ended January 30, 2000 compared to earnings of $3.2 million
for the
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<PAGE> 21
three months ended January 31, 1999. This decline was attributable to lower
sales and charges pertaining to inventory write-offs and operating
inefficiencies incurred in the first six months of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The 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, initially in the aggregate amount of
up to $550 million. 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
include property insurance proceeds and condemnation awards. At our option,
subject to certain requirements, loans may be prepaid in whole or in part. As a
result of the application of the net proceeds from the sale of our senior
subordinated notes in fiscal 1999 and the divestiture of our Swift-Armour
Argentine beef business in fiscal 1999, the amount available to be borrowed
under the revolving credit commitments was permanently reduced to $279 million.
Loans under the revolving credit commitments will be available at any time
through the final maturity date on February 20, 2003 and the term loan matures
on February 20, 2003. 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
January 30, 2000 was 8%. We are obligated to pay a facility fee ranging from
0.15% to 0.5% on the credit exposure of the banks.
In conjunction with the sale of our Vlasic Farms mushroom business in the
third quarter fiscal 2000 (see Note 4), a portion of the net proceeds received
was used to reduce amounts outstanding under our revolving credit facility and
the revolving credit commitment was permanently reduced by $37.8 million. In
February 2000 we also made an additional voluntary reduction to the revolving
credit commitment of $16.2 million, as we do not anticipate requiring the
additional liquidity. As a result, the amount available to be borrowed under the
revolving credit commitments has been permanently reduced to $225 million. Under
the revolving credit facility, the maximum amount of borrowings available is
equal to the revolving credit commitment less any outstanding revolving loans.
At January 30, 2000 (balance sheet date), had we been in compliance with the
specified financial ratio covenants of the senior credit facility, $56.0 million
would have been available under the revolving credit commitments. Since January
30, 2000, we have not increased our borrowings under the senior credit facility.
At March 1, 2000, after our voluntary reduction to the revolving credit
commitment and subject to the discussion below regarding the waiver, the maximum
amount potentially available under the revolving credit commitment was $39.8
million.
The senior credit facility and our senior subordinated debt described
below, 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
and a limitation on capital expenditures. A breach of any of these covenants
could result in a default under our debt agreements.
On January 18, 2000, we received a waiver from the senior credit facility
bank syndicate for the debt/EBITDA ratio and the fixed charge coverage ratio
through February 29, 2000. Effective February 29, 2000, we received a further
waiver from the senior credit facility bank syndicate covering the debt/EBITDA
ratio and the fixed charge coverage ratio of the facility through June 20, 2000.
This waiver 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. If the minimum EBITDA test is not met as of the end of the third
quarter fiscal 2000, the waiver period will end on May 31, 2000. Additionally,
if we deviate from the cash budget by more than a specified amount, we will be
unable to borrow from the senior credit facility. We do not anticipate needing
any additional borrowings during the waiver period. 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. We fully expect to be in
compliance with the minimum EBITDA test and the terms and conditions set forth
in the waiver for the third quarter fiscal 2000.
Currently, we are exploring strategic opportunities including, but not
limited to, potential divestitures, joint manufacturing or marketing ventures,
acquisitions, a merger, a recapitalization or other actions. The investment
banking firm of Lazard Freres & Co. has been hired to assist with this strategic
review and to formulate proposed
20
<PAGE> 22
plans and actions for the consideration of our Board of Directors. Because
Lazard Freres & Co. is currently conducting its review and formulation of
proposed plans and actions, no assessment can be made of the likelihood that
such plans and actions can be effectively implemented. Moreover, regardless of
the outcome of the strategic review, an extension of the existing waiver, a new
waiver covering certain terms and conditions of the senior credit facility, an
amendment of the senior credit facility, a de novo senior credit facility or
some combination of the above will be required. Without such an action, we will
be in default on June 20, 2000. Although no assurances can be given, we expect
that the plans and actions proposed by the strategic review and to be acted upon
by our Board of Directors will enable us to successfully fulfill such
requirement and that we will be able to effectively implement them. In
particular, we anticipate being able to negotiate with our present senior credit
bank syndicate, as is necessary, for an extension of the existing waiver or for
a new waiver, before the current waiver expires on June 20, 2000, so as to
preclude any acceleration of our indebtedness. Since the waiver to the senior
credit facility expires on June 20, 2000, the indebtedness under the senior
credit facility has been classified as a current liability in the Consolidated
Balance Sheet at January 30, 2000.
A breach of any of the terms and conditions of the waiver, or subsequent
breaches of the financial covenants under the senior credit facility could
result in acceleration of our indebtedness, in which case the debt would become
immediately due and payable. Based upon our current projections, we do not
believe we will comply with the existing financial covenants unless they are
modified, as they have been in the waiver. If there is no modification of the
existing financial covenants, we may not be able to repay our debt or borrow
sufficient funds to refinance it. Even if new financing is available, it may not
be on terms that are acceptable to us. We have, however, received such
modifications in the past in the form of waivers and an amendment to our senior
credit facility.
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. At January 30, 2000 and as of
the current date, we are in compliance with the covenants set forth in the
senior subordinated notes.
Our liquidity needs will be primarily for capital expenditures, working
capital and interest service requirements on our debt obligations. Capital
expenditures for fiscal year 2000 are expected to approximate $25 million. We
believe that our capital expenditures for the foreseeable future will be focused
on preventive maintenance and equipment replacement, projects intended to result
in cost savings and projects related to new product introductions. The senior
credit facility imposes annual limits on capital expenditures as follows: $41
million in fiscal 2000; $41 million in fiscal 2001; $42 million in fiscal 2002;
and $42 million in fiscal 2003.
We anticipate that our operating cash flows will be sufficient to meet our
working capital requirements, capital expenditure requirements and interest
service requirements on our debt obligations for the remainder of fiscal 2000.
Interest and principal payments on the indebtedness outstanding under our
senior credit facility and senior subordinated debt represent significant cash
requirements. Our ability to raise funds to service our debt may be restricted
by our debt agreements and our ability to effect equity financing is dependent
on our results of operations and market conditions. In the event that we are
unable to refinance such indebtedness or raise funds through asset sales, sales
of equity or otherwise, our ability to pay principal of, and interest on, our
debt would be adversely affected.
CASH FLOWS FOR THE SIX MONTHS ENDED JANUARY 30, 2000 COMPARED TO SIX MONTHS
ENDED JANUARY 31, 1999
Net cash used in operating activities was $36.8 million for the six months
ended January 30, 2000 compared to net cash provided of $14.5 million for the
six months ended January 31, 1999. The change in cash flows from operations was
principally driven by significantly lower net earnings and decreased
depreciation and amortization in the first six months of fiscal 2000, as well as
a larger increase in working capital of $38.9 million for the six months of
fiscal 2000 compared to $26.5 million for the first six months of fiscal 1999.
The increase in working capital for the first six months of fiscal 2000 was
primarily attributable to a decline in payables.
21
<PAGE> 23
Net cash used in investing activities was $8.0 million for the six months
ended January 30, 2000 compared to net cash provided of $4.9 million for the six
months ended January 31, 1999. Capital expenditures were $8.1 million for the
six months ended January 30, 2000 compared to $21.1 million for the six months
ended January 31, 1999. Capital expenditures were greater in the first six
months of the prior year as we built our information technology infrastructure,
and also due to the inclusion of Kattus and Swift-Armour. The prior year
included the disposition of the Peterlee frozen food facility in the United
Kingdom in September 1998 and the proceeds from the sale of our Kattus business
in January 1999 of $20.7 million. Capital expenditures for fiscal year 2000 are
expected to approximate $25 million.
Net cash provided by financing activities was $51.0 million for the six
months ended January 30, 2000 compared to net cash used of $10.5 million for the
six months ended January 31, 1999 principally due to an increase 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,
requiring us to draw more heavily on the revolving credit commitments under our
senior credit facility.
YEAR 2000
The Year 2000 issue was the result of date-sensitive computer programs
using two digits rather than four to define the applicable year. If not
corrected, this could have resulted in system failures or miscalculations
leading to significant disruptions in a company's operations. Prior to our
spin-off from Campbell, a worldwide information technology project was initiated
to identify areas impacted by Year 2000 issues. The purpose of this
high-priority project was to identify and remediate non-ready systems and
devices before business processes were affected. We completed a global business
impact assessment and formulated plans for timely correction, retirement,
replacement or updating of non-ready systems. We completed the work on our
identified critical systems and our other systems and partnered with experienced
systems integration and Year 2000 vendors in the execution of our Year 2000
master plan.
We did not experience any significant problems or issues with the Year 2000
rollover and began the year with fully operational systems and infrastructure.
Our systems remained available throughout the course of the Year 2000 rollover
and, to date, continue to be available within historical operating parameters.
We believe that any future Year 2000 related problems are unlikely and would not
be significant to our business, financial condition and results of operations.
Our Year 2000 costs remained in-line with our projections and no incremental
funding was required to successfully complete the effort.
RECENT DEVELOPMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FAS Statement 133," which postponed the adoption date of SFAS No. 133. We
must adopt the statement beginning fiscal 2001. We are currently evaluating the
effect that implementation of the new standard will have on our results of
operations and financial position.
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<PAGE> 24
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 establish necessary financing
arrangements;
- our ability to continue to comply with covenants and the terms
of the senior credit facility and the senior subordinated
notes;
- 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 implement corrective measures and
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;
- Campbell Soup Company's future requirements for foodservice
products;
- 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.
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 January 30, 2000, the interest
rate swap contract provided that we pay an average interest rate of 5.9% and
receive an average interest rate of 6.0%. We would have received approximately
$1.7 million to settle the interest rate swap contract as of January 30, 2000.
There have been no other material changes in our market risk during the
three months or six months ended January 30, 2000. For additional information,
refer to page 20 of our Annual Report for the fiscal year ended August 1, 1999.
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<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in our Form 10-K, dated October 15, 1999, we are not
aware of any pending claims or litigation the outcome of which would have a
material adverse effect on our business, financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. Our Annual Meeting of Shareowners was held on December 7, 1999.
c. The matters voted upon and the results of the vote were as follows:
Election of Directors
<TABLE>
<CAPTION>
Number of Shares
-------------------------
Name For Withheld
---- --- --------
<S> <C> <C>
Robert F. Bernstock 39,630,180 334,769
Robert T. Blakely 39,635,638 329,311
Morris A. Cohen 39,635,114 329,835
Tristram C. Colket, Jr. 39,637,829 327,120
Lawrence C. Karlson 39,637,736 327,213
Donald J. Keller 39,634,963 329,986
Shaun F. O'Malley 39,628,472 336,477
</TABLE>
Approval of 1998 Long-Term Incentive Plan - Votes totaled 32,519,062
for; 2,225,282 against; and 96,032 abstentions.
Approval of Annual Incentive Plan - Votes totaled 39,264,572 for;
602,898 against; and 97,539 abstentions.
Ratification of Appointment of Independent Accountants -
PricewaterhouseCoopers LLP for the fiscal year ending July 30, 2000.
Votes totaled 39,856,086 for; 68,607 against; and 40,256 abstentions.
24
<PAGE> 26
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 23 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 August 1, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
(10.1) Waiver under Amended and Restated Credit Agreement dated as
of February 29, 2000
(27) Financial Data Schedule
B. Reports on Form 8-K
We filed a Current Report on Form 8-K, dated December 17, 1999 with the
Securities and Exchange Commission, on January 4, 2000, regarding the
pending divestiture of our Vlasic Farms, fresh mushroom business.
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: March 15, 2000 By: /s/ Joseph Adler
------------------------------------------
Joseph Adler
Vice President and Controller
(Principal Financial and Accounting Officer)
25
<PAGE> 1
Exhibit 10.1
EXECUTION COPY
WAIVER NO. 3 UNDER
AMENDED AND RESTATED CREDIT AGREEMENT
WAIVER dated as of February 29, 2000 under the Amended and Restated
Credit Agreement dated as of September 30, 1998 (the "Credit Agreement") among
VLASIC FOODS INTERNATIONAL INC. (the "Company"), the BANKS party thereto, THE
CHASE MANHATTAN BANK, as Syndication Agent, and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Administrative Agent (in such capacity, the "Administrative Agent")
and Collateral Agent.
W I T N E S S E T H :
WHEREAS, the Company has advised the Banks that at the end of the second
Fiscal Quarter of Fiscal 2000 its Debt/EBITDA Ratio and its Fixed Charge
Coverage Ratio (each as defined in the Credit Agreement) did not meet the
requirements of Sections 5.13 and 5.14, respectively, of the Credit Agreement,
and it has further advised the Banks that it believes it will be unable to be in
compliance with such provisions at additional times after such point;
WHEREAS, the Company has requested the Banks to grant an extension of
interim waivers under the Credit Agreement granted in Waiver No. 2 dated as of
January 18, 2000; and
WHEREAS, the Banks party hereto are willing to extend such interim
waivers under the Credit Agreement, on the terms and conditions set forth
herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. Unless otherwise specifically defined herein,
each term used herein that is defined in the Credit Agreement shall have the
meaning assigned to such term in the Credit Agreement. As used herein, the
following additional terms have the following meanings:
"Cash Plan" means the consolidated cash forecast for the domestic
operations of the Company and its Domestic Subsidiaries for the period from no
later than the second week of February 2000 through the last week (whether
partial or full) of June 2000, showing cash receipts and disbursements weekly,
the net difference (whether positive or negative, referred to herein as "cash
flow")
<PAGE> 2
and cumulative net cash flow from the beginning of such period through each
succeeding week (and which specifies for each week the "permitted variance"
contemplated by clause (ii) of Section 3(a)), including a summary of the
significant assumptions upon which such forecast was based, a copy of which is
identified as an attachment to the Company's letter to the Administrative Agent
dated February 17, 2000.
"February 10 Call Materials" means the written materials prepared by the
Company and distributed to the Banks in connection with the lender conference
call held by the Company on February 10, 2000, as identified as attachments to
the Company's letter to the Administrative Agent dated February 17, 2000.
"Waiver Effective Date" has the meaning specified in Section 11(a).
"Waiver Expiry Time" and "Waiver Period" have the meanings specified in
Section 2(c).
"Weekly Cash Flow Report" has the meaning specified in clause (i) of
Section 4(a).
"Weekly Period" has the meaning specified in clause (i) of Section 4(a).
SECTION 2. Certain Waivers. (a) The Banks party hereto waive (including
for purposes of clause (c) of Section 3.03 of the Credit Agreement) any Default
occurring on account of the Company's failure to be in compliance with Section
5.13 or Section 5.14 of the Credit Agreement as at the end of the second Fiscal
Quarter and third Fiscal Quarter of Fiscal 2000, provided that this waiver shall
be effective only if:
(i) the Debt/EBITDA Ratio is not higher than 6.65 to 1 as at the end of
the second Fiscal Quarter; and
(ii) the Fixed Charge Coverage Ratio is not lower than 1.70 to 1 as at the
end of the second Fiscal Quarter.
(b) The Banks party hereto hereby waive any Default that may have occurred
as a result of the Company at any time prior to the date hereof having made or
been deemed to have made the representation and warranty set forth in Section
4.05(c) of the Credit Agreement without qualification by reference to the
circumstances described in the February 10 Call Materials.
(c) The foregoing waivers shall be effective solely for the period (the
"Waiver Period") beginning on February 29, 2000 and ending at 5:00 P.M. (New
2
<PAGE> 3
York City time) on June 20, 2000 or such earlier time as is determined pursuant
to Section 2(d) (the "Waiver Expiry Time").
(d) As soon as practicable after the end of the third Fiscal Quarter of
Fiscal Year 2000, the Company will deliver a certificate to each Bank setting
forth Consolidated EBITDA for such period and showing the calculation thereof in
reasonable detail. If Consolidated EBITDA for such period is less than
$7,000,000, then the Waiver Period will end at 5:00 P.M. (New York City time) on
May 31, 2000.
(e) The Company understands and accepts:
(i) the interim nature of the waiver provided hereby, and that
the Banks have given no assurances that they will extend the waiver
provided hereby or provide other waivers under or amendments to the
Credit Agreement or any other Financing Document;
(ii) that except as expressly set forth herein, the waiver
contained herein shall not constitute a waiver or amendment of any term
or condition of the Credit Agreement or any other Financing Document and
all such terms and conditions shall remain in full force and effect and
are hereby ratified and confirmed in all respects, and that no failure or
delay by the Banks or any of them in exercising any right, power or
privilege under any Financing Document, or any other action taken or not
taken or statement made, during the period prior to the date hereof or
during the period this Waiver is in effect shall operate as a waiver
thereof or obligate any Bank to agree to an extension of the waiver
provided hereby or any other waiver under or amendment to any Financing
Document;
(iii) that the Banks are under no obligation to extend, and in
their sole and absolute discretion may refuse to extend, this Waiver
beyond the Waiver Expiry Time; and
(iv) that since the Company failed (other than by reason of this
Waiver) to be in compliance with Sections 5.13 and 5.14 of the Credit
Agreement as at the end of the second Fiscal Quarter of Fiscal 2000, if
the Banks do not extend the waiver provided hereby or take other action
in respect of any such failure, an Event of Default will automatically
exist immediately following the Waiver Expiry Time, without the
requirement of any further action by the Banks or the Administrative
Agent.
SECTION 3. Borrowings; Commitments. (a) The Company agrees that
during the period from the date hereof until 5:30 P.M. (New York City time) on
3
<PAGE> 4
June 20, 2000 it will not give any Notice of Borrowing for Revolving Loans in an
amount in excess of its actual cash funding needs for ordinary course of
business expenditures (net of other sources of funds available or expected to be
available to it, including previous Borrowings) during the seven-day period
beginning with the related date of Borrowing, determined consistent with the
Company's historical cash management practices, as certified in reasonable
detail by the Company's Chief Financial Officer, Vice President and Controller
or Treasurer in a certificate accompanying such Notice of Borrowing, provided
that:
(i) if the amount so determined is less than $5,000,000, such Borrowing
may be in the amount of $5,000,000; and
(ii) if the Company delivers a Weekly Cash Flow Report in which the
cumulative net cash flow for the Weekly Period covered thereby varies adversely
from the amount of the corresponding cumulative net cash flow set forth in the
Cash Plan for such Weekly Period by an amount exceeding the "permitted variance"
for such Weekly Period as is set forth in the Cash Plan, then during the period
beginning on the date the Company delivered such Weekly Cash Flow Report the
Company will not give any Notice of Borrowing for Revolving Loans, and during
such period the Banks shall have no obligation to fund any Borrowing of
Revolving Loans, whether or not the related Notice of Borrowing was given before
or during such period, provided further that any particular instance of such a
restriction shall cease to apply upon the subsequent date, if ever, on which the
Company delivers a Weekly Cash Flow Report in which the cumulative net cash flow
for the Weekly Period covered thereby does not vary adversely from the amount of
the corresponding cumulative net cash flow set forth in the Cash Plan for such
Weekly Period by an amount exceeding the applicable "permitted variance" as is
set forth in the Cash Plan.
(b) On the Waiver Effective Date, the Revolving Credit Commitments shall
be reduced, automatically and without the requirement of any further action on
the part of the Company or the Administrative Agent, to the aggregate amount of
$225,000,000 (the amount of the reduction to be applied among the Banks in
proportion to their Revolving Credit Commitments). This reduction is intended to
be an absolute reduction from the amount of the Revolving Credit Commitments on
the date hereof that is in addition to any other reduction in the amount of the
Revolving Credit Commitments that may be required pursuant to Section 2.12 on or
prior to the Waiver Effective Date, and the level to which the Revolving Credit
Commitments are reduced pursuant to this Section shall, if necessary, be
appropriately reduced if any such other reduction is made.
(c) The requirements of clause (d) of Section 3.03 of the Credit Agreement
are hereby waived during the Waiver Period to the limited extent that the
4
<PAGE> 5
representation and warranty set forth in Section 4.05(c) is not true solely on
account of the circumstances described in the February 10 Call Materials, and
any representation and warranty made or deemed made by the Company on or after
the date hereof during the Waiver Period pursuant to Section 3.03 of the Credit
Agreement shall be deemed qualified to such extent.
SECTION 4. Additional Covenants. The Company agrees that so long as
any Bank has any Loans outstanding under the Credit Agreement or any interest or
fee accrued thereunder remains unpaid:
(a) The Company shall deliver the following information to the
Administrative Agent and each Bank:
(i) by facsimile no later than 5:00 P.M. (New York City time) on each
Tuesday (or, if such day or the immediately preceding Monday is not a Domestic
Business Day, the next succeeding Domestic Business Day), a report with respect
to its domestic operations (in a form and level of detail consistent with the
Cash Plan, referred to herein as a "Weekly Cash Flow Report") setting forth cash
receipts and disbursements, cash flow and cumulative net cash flow for the
Company and its Domestic Subsidiaries for the week ending on the most recent
Friday (a "Weekly Period"), and if the cumulative net cash flow for such Weekly
Period varies adversely by more than $6,000,000 from the cumulative net cash
flow for such Weekly Period set forth in the Cash Plan, the Company shall also
deliver with such Weekly Cash Flow Report a reconciliation to the forecast for
that week included in the Cash Plan and an explanation of the causes of any
variances.
(ii) by facsimile no later than 5:00 P.M. (New York City time) on each
Tuesday (or, if such day or the immediately preceding Monday is not a Domestic
Business Day, the next succeeding Domestic Business Day), a report (in a form
and level of detail satisfactory to the Administrative Agent) for the most
recent Weekly Period, setting forth for such Weekly Period (a) gross sales and
(b) shipment volumes, in each case for each major domestic product line (all
such calculations to be made in a manner consistent with the Company's
historical practices in compiling and reporting such data); and
(iii) no later than 15 Domestic Business Days after the end of each month,
a copy of the Company's monthly management operating report for such month,
including financial statements and a calculation of EBIT (earnings before
interest and taxes) for such month.
(b) The Company will as soon as practicable after the execution of this
Waiver retain an investment bank of recognized national standing as financial
5
<PAGE> 6
adviser, which will be engaged to assist the Company in a strategic review of
its business and finances and analysis of the information obtained. The Company
will furnish to each Bank a copy of the final written report prepared by such
investment bank and presented to the Board of Directors of the Company, promptly
after it is so presented.
(c) The Company agrees that it will have a meeting to which all of the
Banks are invited no later than March 31, 2000 on a date and in a location to be
mutually agreed with the Administrative Agent, at which its senior management
will make a detailed presentation of its recent results of operations and
current financial condition and the current status of its business and affairs,
and the status of the strategic review referred to in Section 4(b). At this
meeting, it will also present in reasonable detail its business plan, budget and
financial projections for the balance of Fiscal Year 2000, describing in
reasonable detail the basis for such projections (including any assumptions)
and, in the case of such financial projections, explaining in reasonable detail
the variances from the projections for the same period furnished to the Banks in
October, 1999. A written report setting forth the details of such presentation
will be delivered to each Bank no later than five Domestic Business Days prior
to the date of such meeting.
The Company agrees that it will also have an additional meeting to which
all of the Banks are invited no later than May 31, 2000 on a date and in a
location to be mutually agreed with the Administrative Agent, at which its
senior management will make a detailed presentation of the results of the
Company's strategic review referred to in Section 4(b) and what decisions have
been taken by the Board of Directors as part of that process. At this meeting,
the Company will also present in reasonable detail an at least preliminary
version of its business plan, budget and financial projections for Fiscal Year
2001 (it being understood that such information will not necessarily, by that
time, have been presented to and approved by the Board of Directors of the
Company and that such information is subject to change, which may be
significant, based on the actions of the Board of Directors), describing in
reasonable detail the basis for such projections (including any assumptions). A
written report setting forth the details of such presentation (and accompanied
by a copy of the investment bank report referred to in Section 4(b) if not
previously delivered to the Banks) will be delivered to each Bank no later than
five Domestic Business Days prior to the date of such meeting.
SECTION 5. Miscellaneous Further Provisions. The Company, on or before
April 30, 2000, shall further secure, and cause each Domestic Vlasic Company to
further secure, its Secured Obligations by Liens on each significant parcel of
owned real property (including improvements), and agrees that it will comply,
and cause each Domestic Vlasic Company to comply, with Sections
6
<PAGE> 7
5.08(a)(iv) and 5.08(b) as if such Sections were applicable (other than not
needing to provide any leasehold mortgages, surveys or title insurance).
SECTION 6. Lapse of Waiver. The Company agrees that its failure to comply
with any provision of this Waiver No. 3 shall cause the waivers granted hereby
to cease to be in effect (i) in the case of clauses (i) and (ii) of Section
4(a), if such failure continues for two Domestic Business Days (without the
requirement of any notice from the Administrative Agent) and (ii) in the case of
clause (iii) of Section 4(a) and Sections 4(b), 4(c) and 5, if such failure
continues for more than five days after notice from the Administrative Agent
given at the direction of the Required Banks. The Company also agrees that this
Waiver shall be considered a "Financial Document" for all purposes of the Credit
Agreement, including without limitation clause (d) of Section 6.01.
SECTION 7. Interest. The Company agrees that (i) during the Waiver Period
and (ii) if immediately after the Waiver Period ends any Event of Defaults have
occurred and are continuing, during any period that any such Event of Default
continues to exist, the Facility Fee Rate, Euro-Dollar Margin, CD Margin and
Base Rate Margin shall be as set forth in the table below, regardless of the
actual Debt/EBITDA Ratio.
<TABLE>
<S> <C>
Facility Fee Rate 0.50%
Euro-Dollar Margin 2.50%
CD Margin 2.625%
Base Rate Margin 1.50%
</TABLE>
SECTION 8. Representations of the Company. The Company represents and
warrants that, except as expressly waived hereby, (i) the representations and
warranties of the Company set forth in Article 4 of the Credit Agreement will be
true on and as of the Waiver Effective Date and (ii) no Default will have
occurred and be continuing on such date. The Company further represents and
warrants that:
(a) all information (other than projections) heretofore furnished by the
Company to the Administrative Agent or any Bank for purposes of or in connection
with this Waiver does not, and all such information hereafter furnished by the
Company to the Administrative Agent or any Bank will not, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make statements therein, in light of the circumstances under which they
were or will be made, not misleading; and
(b) the projections upon which the Cash Plan was based and the information
in the written reports of the Company referred to in Section 4(c) will
7
<PAGE> 8
in each case be based upon good faith estimates and assumptions believed by the
Company's senior management to be reasonable at the time delivered and at the
time prepared and delivered represent senior management's reasonable best
estimate of the future performance of, in the case of the Cash Plan, the
domestic operations of the Company and its Domestic Subsidiaries and, in the
case of such reports, the Company and its Subsidiaries.
SECTION 9. Governing Law. This Waiver shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 10. Counterparts. This Waiver may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 11. Effectiveness. (a) This Waiver shall become effective as of
the date hereof on the date (the "Waiver Effective Date") when the
Administrative Agent shall have received:
(i) from each of the Company, each Domestic Subsidiary and the Required
Banks a counterpart hereof signed by such party or facsimile or other written
confirmation (in form satisfactory to the Administrative Agent) that such party
has signed a counterpart hereof; and
(ii) confirmation that the Company has paid all statements of Davis Polk &
Wardwell, special counsel for the Administrative Agent, that have been rendered
to the Company at least two Domestic Business Days prior to the Waiver Effective
Date in respect of this Waiver or other Credit Agreement matters.
(b) No later than the first Domestic Business Day after the Waiver
Effective Date, the Borrower shall pay the Administrative Agent, in immediately
available funds, (1) for the account of each Bank that has evidenced its
agreement hereto as provided in clause (i) of Section 11(a) by 5:00 P.M. (New
York City time) on the later of (i) February 28, 2000 and (ii) the date the
Administrative Agent issues a notice to the Banks saying this Waiver has become
effective, a waiver fee in an amount equal to 0.175% of the sum (as of the
opening of business on the date hereof) of (A) the Revolving Credit Commitment
of such Bank and (B) the outstanding principal amount of such Bank's Term Loans
and (2) an arrangement fee solely for the account of the Administrative Agent
(or its affiliate) in the amount separately agreed between the Administrative
Agent and the Company.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly
executed as of the date first above written.
VLASIC FOODS INTERNATIONAL INC.
By: /s/ Robert F. Bernstock
----------------------------
Name: Robert F. Bernstock
Title: President and Chief
Executive Officer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ John Kowalczuk
----------------------------
Name: John Kowalczuk
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Susan E. Atkins
----------------------------
Name: Susan E. Atkins
Title: Managing Director
BANK OF AMERICA NT&SA
By: /s/ Casey Cosgrove
----------------------------
Name: Casey Cosgrove
Title: Vice President
BANK OF MONTREAL
By: /s/ Heather L. Turf
----------------------------
Name: Heather L. Turf
Title: Director
9
<PAGE> 10
BARCLAYS BANK PLC
By: /s/ Paul Kavanagh
----------------------------
Name: Paul Kavanagh
Title: Director
CITIBANK, N.A.
By: /s/ Robert M. Spence
----------------------------
Name: Robert M. Spence
Title: Managing Director
DEUTSCHE BANK AG NEW YORK
and/or CAYMAN ISLANDS
BRANCHES
By: /s/ Robert C. Wheeler
----------------------------
Name: Robert C. Wheeler
Title: Director
By: /s/ Margaret S. Cheever
----------------------------
Name: Margaret S. Cheever
Title: Managing Director
BANK ONE, NA (Main office, Chicago)
By: /s/ Stephen E. McDonald
----------------------------
Name: Stephen E. McDonald
Title: Senior Vice President
FLEET NATIONAL BANK
By: /s/ Steve Kalin
----------------------------
Name: Steve Kalin
Title: Vice President
10
<PAGE> 11
MELLON BANK, N.A.
By: /s/ Donald G. Cassidy, Jr.
----------------------------
Name: Donald G. Cassidy, Jr.
Title: First Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Daniel K. Fitzpatrick
----------------------------
Name: Daniel K. Fitzpatrick
Title: Vice President and Senior
Relationship Manager
WACHOVIA BANK, N.A.
By: /s/ James Barwis
----------------------------
Name: James Barwis
Title: Vice President
11
<PAGE> 12
THE BANK OF NEW YORK
By: /s/ Walter C. Parelli
----------------------------
Name: Walter C. Parelli
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Brian S. Allen
----------------------------
Name: Brian S. Allen
Title: Managing Director
FIRST UNION NATIONAL BANK
By: /s/ Stuart Kratter
----------------------------
Name: Stuart Kratter
Title: Senior Vice President
SUNTRUST BANK
By: /s/ Laura G. Harrison
----------------------------
Name: Laura G. Harrison
Title: Vice President
12
<PAGE> 13
WESTDEUTSCHE LANDESBANK
GIROZENTRALE NEW YORK
BRANCH
By: /s/ Andreas Schroeter
----------------------------
Name: Andreas Schroeter
Title: Director
By: /s/ Walter T. Duffy, III
----------------------------
Name: Walter T. Duffy, III
Title: Vice President
BANCA NAZIONALE DEL LAVORO
S.p.A.-NEW YORK BRANCH
By: /s/ Giulio Giovine
----------------------------
Name: Giulio Giovine
Title: Vice President
By: /s/ Leonardo Valentini
----------------------------
Name: Leonardo Valentini
Title: First Vice President
13
<PAGE> 14
CONFIRMED AND AGREED TO:
ALIGAR, INC.
CARGAL, INC.
VLASIC FOODS DISTRIBUTION COMPANY
VF BRANDS, INC.
VLASIC INTERNATIONAL BRANDS INC.
VLASIC STANDARDS, INC.
VLASIC INTERNATIONAL SALES INC.
By: /s/ Joseph Adler
----------------------------
Name: Joseph Adler
Title: Vice President and
Controller
By: /s/ Thomas Considine
----------------------------
Name: Thomas Considine
Title: Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED JANUARY 30, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-30-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-30-2000
<CASH> 11,352
<SECURITIES> 0
<RECEIVABLES> 95,931
<ALLOWANCES> 1,724
<INVENTORY> 141,384
<CURRENT-ASSETS> 255,554
<PP&E> 513,189
<DEPRECIATION> (238,776)
<TOTAL-ASSETS> 656,250
<CURRENT-LIABILITIES> 448,102
<BONDS> 520,287
0
0
<COMMON> 137,758
<OTHER-SE> (175,822)
<TOTAL-LIABILITY-AND-EQUITY> 656,250
<SALES> 473,583
<TOTAL-REVENUES> 473,583
<CGS> 316,872
<TOTAL-COSTS> 467,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,875
<INCOME-PRETAX> (17,501)
<INCOME-TAX> (6,645)
<INCOME-CONTINUING> (10,856)
<DISCONTINUED> (6,699)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,555)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-01-1999
<PERIOD-START> NOV-02-1998
<PERIOD-END> JAN-31-1999
<CASH> 19,860
<SECURITIES> 0
<RECEIVABLES> 132,046
<ALLOWANCES> 3,377
<INVENTORY> 168,333
<CURRENT-ASSETS> 335,264
<PP&E> 751,436
<DEPRECIATION> 283,539
<TOTAL-ASSETS> 947,856
<CURRENT-LIABILITIES> 205,452
<BONDS> 558,806
0
0
<COMMON> 137,758
<OTHER-SE> (12,260)
<TOTAL-LIABILITY-AND-EQUITY> 947,856
<SALES> 619,886
<TOTAL-REVENUES> 619,886
<CGS> 426,669
<TOTAL-COSTS> 574,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,740
<INCOME-PRETAX> 23,645
<INCOME-TAX> 7,502
<INCOME-CONTINUING> 16,143
<DISCONTINUED> 326
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,469
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-01-1999
<PERIOD-START> AUG-03-1998
<PERIOD-END> AUG-01-1999
<CASH> 11,316
<SECURITIES> 0
<RECEIVABLES> 83,213
<ALLOWANCES> 3,467
<INVENTORY> 141,933
<CURRENT-ASSETS> 249,241
<PP&E> 506,233
<DEPRECIATION> 224,556
<TOTAL-ASSETS> 655,929
<CURRENT-LIABILITIES> 144,633
<BONDS> 469,200
0
0
<COMMON> 137,758
<OTHER-SE> (158,159)
<TOTAL-LIABILITY-AND-EQUITY> 655,929
<SALES> 1,188,271
<TOTAL-REVENUES> 1,188,271
<CGS> 805,547
<TOTAL-COSTS> 1,244,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,521
<INCOME-PRETAX> (100,051)
<INCOME-TAX> 19,772
<INCOME-CONTINUING> (119,823)
<DISCONTINUED> (6,508)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126,331)
<EPS-BASIC> (2.78)
<EPS-DILUTED> (2.78)
</TABLE>
