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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 16, 2000
or
[_] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ___ to ___
Commission file number: 333-76569
Luigino's, Inc.
(Exact name of registrant as specified in its charter)
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Minnesota 2038 59-3015985
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code) Identification No.)
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525 Lake Avenue South
Duluth, MN 55802
(218) 723-5555
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices.)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No ___
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common 1,000
------------------------------------ --------------------------------------
(Class) (Outstanding at August 21, 2000)
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LUIGINO'S, INC.
INDEX
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PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements (Unaudited)
Balance Sheets as of July 16, 2000 (Unaudited) and January 2, 2000............ 3
Statements of Operations for the second fiscal quarter ended and year to
date ended July 16, 2000 (Unaudited) and July 18 1999.................... 4
Statements of Cash Flows for year to date ended July 16, 2000 (Unaudited)
and July 18, 1999 ......................................................... 5
Notes to Financial Statements (Unaudited)..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................... 13
Item 5. Other Information................................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................................. 13
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2
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Part 1 - Financial Information
Item 1. Financial Statements
LUIGINO'S, INC.
Balance Sheets
(In Thousands, Except Share and Per Share Data)
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July 16, January 2,
2000 2000
-------------- -----------
(Unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents.............................................................. $ 200 $ 105
Receivables, net of allowance for doubtful accounts
of $146 and $145, respectively....................................................... 21,012 22,059
Inventories............................................................................ 19,713 22,420
Notes receivable from principal stockholder............................................ 5,472 250
Prepaid expenses....................................................................... 1,890 1,547
----------- ---------
Total current assets............................................................... 48,287 46,381
----------- ---------
Property, Plant and Equipment:
Land................................................................................... 22 22
Buildings and improvements............................................................. 16,813 16,783
Machinery and equipment................................................................ 109,555 98,159
Office equipment and leasehold improvements............................................ 5,411 5,022
Construction in progress............................................................... 1,337 8,835
Less - - Accumulated depreciation...................................................... (40,459) (34,211)
---------- ---------
Net property, plant and equipment.................................................. 92,679 94,610
---------- ---------
Other Assets:
Restricted cash........................................................................ 709 747
Notes receivable from principal stockholder............................................ - 5,472
Other.................................................................................. 5,069 5,398
---------- ---------
Total other assets................................................................. 5,778 11,617
---------- ---------
Total Assets................................................................................ $ 146,744 $ 152,608
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt................................................... $ 2,517 $ 2,729
Accounts payable....................................................................... 12,271 25,422
Accrued expenses - -
Accrued interest................................................................... 4,844 4,430
Accrued payroll and benefits....................................................... 2,351 4,817
Accrued promotions and other....................................................... 4,800 4,915
---------- ---------
Total current liabilities.......................................................... 26,783 42,313
Long-Term Debt, less current maturities..................................................... 127,436 117,698
---------- ---------
Total liabilities.................................................................. 154,219 160,011
---------- ---------
Commitments and Contingencies
Stockholders' Deficit:
Common stocks - -
Voting, $1 stated par value, 600 shares authorized;
100 shares issued and outstanding................................................ - -
Nonvoting, $1 stated par value, 900 shares authorized;
900 shares issued and outstanding................................................ 1 1
Additional paid-in capital............................................................. 655 655
Accumulated deficit..................................................................... (8,131) (8,059)
--------- ---------
Total stockholders' deficit........................................................ (7,475) (7,403)
--------- ---------
Total Liabilities and Stockholders' Deficit................................................. $ 146,744 $ 152,608
========= =========
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The accompanying notes are an integral part of these financial statements.
3
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LUIGINO'S, INC.
Statements of Operations
(In Thousands)
(Unaudited)
Second Fiscal Fiscal Year to
Quarter Ended Date Ended
------------------ --------------------
July 16, July 18, July 16, July 18,
2000 1999 2000 1999
-------- -------- --------- --------
Net Sales ......................... $58,670 $59,237 $140,362 $134,883
Cost of Goods Sold ................ 33,435 33,379 82,586 77,970
------- ------- -------- --------
Gross profit ................ 25,235 25,858 57,776 56,913
------- ------- -------- --------
Operating (Income) Expenses:
Selling and promotional ..... 16,734 20,426 38,232 46,004
General and administrative .. 5,224 5,400 12,600 12,493
Hibbing Settlement (Note 6) . -- (776) -- (776)
------- ------- -------- --------
Total operating expenses .... 21,958 25,050 50,832 57,721
------- ------- -------- --------
Operating income (loss) ..... 3,277 808 6,944 (808)
Other Income (Expense):
Interest expense ............ (3,179) (2,958) (7,348) (6,428)
Interest income ............. 85 76 204 231
Other, net .................. 210 22 128 159
------- ------- -------- --------
Total other expense ......... (2,884) (2,860) (7,016) (6,038)
------- ------- -------- --------
Net Income (Loss) ................. $ 393 $(2,052) $ (72) $ (6,846)
======= ======= ======== ========
The accompanying notes are an integral part of these financial statements
4
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LUIGINO'S, INC.
Statements of Cash Flows
(In Thousands)
(Unaudited)
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Fiscal Year to Date Ended
--------------------------------------
July 16, 2000 July 18, 1999
---------------- ----------------
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Operating Activities:
Net loss............................................................................ $ (72) $ (6,846)
Adjustments to net loss used in operating activities -
Depreciation and amortization................................................... 6,747 6,092
Changes in operating assets and liabilities:
Receivables................................................................ 1,047 1,581
Inventories................................................................ 2,707 (3,906)
Prepaid expenses and other................................................. (343) (551)
Accounts payable and accrued expenses...................................... (15,318) (1,597)
---------------- ----------------
Net cash used in operating activities................................... (5,232) (5,227)
---------------- ----------------
Investing Activities:
Purchases of property, plant and equipment.......................................... (4,317) (14,491)
Purchases of other assets........................................................... (519) (396)
---------------- ----------------
Net cash used in investing activities................................... (4,836) (14,887)
---------------- ----------------
Financing Activities:
Borrowings on revolving credit agreement............................................ 42,100 30,600
Payments on revolving credit agreement.............................................. (31,000) (41,800)
Proceeds from debt.................................................................. - 100,000
Repayments of debt.................................................................. (1,574) (53,762)
Decrease (increase) in deferred financing costs..................................... 349 (3,580)
Decrease in restricted cash......................................................... 38 28
Decrease of notes receivable........................................................ 250 3,338
Distributions to stockholders....................................................... - (15,000)
---------------- ----------------
Net cash provided by financing activities............................... 10,163 19,824
---------------- ----------------
Increase (decrease) in cash and cash equivalents......................................... 95 (290)
Cash and cash equivalents, beginning of period........................................... 105 1,193
---------------- ----------------
Cash and cash equivalents, end of period................................................. $ 200 $ 903
================ ================
Supplemental Information:
Interest paid.............................................................. $ 6,588 $ 2,006
================ ================
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The accompanying notes are an integral part of these financial statements
5
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LUIGINO'S, INC.
Notes to Financial Statements
(Unaudited)
1. Operations
Luigino's, Inc. (the "Company" or "Luiginos"), a Minnesota corporation,
manufactures food products primarily under the Michelina's label at production
facilities located in Minnesota and Ohio. Its products, distributed
predominately in the North American market, are sold through independent and
chain store retail grocery outlets.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting solely of normal
recurring items considered necessary for a fair presentation have been included.
Operating results for the year to date period ended July 16, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. Certain amounts in the financial statements for the
prior quarter have been reclassified to conform with the current period's
presentation. Those reclassifications had no effect on stockholders' deficit or
net income or loss.
For further information, refer to the audited financial statements and footnotes
thereto included in the Company's Form 10-K, filed on March 28, 2000 with the
Securities and Exchange Commission.
3. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133, as
amended by SFAS No. 137, is effective for fiscal years beginning after June 15,
2000. SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Company utilizes an interest rate
swap intended to hedge its interest rate risk associated with long-term debt.
The Company has not completed its analysis of the effect of SFAS 133, but
management does not expect adoption of the new standard on January 1, 2001 to
materially affect its financial statements.
4. Fiscal Year
The Company has elected a 52/53 week fiscal year which ends on the Sunday
closest to December 31 and a 16-week first fiscal quarter, 12-week second and
third fiscal quarters and a 12 or 13 week fourth fiscal quarter.
5. Inventories
Inventories are stated at the lower of first-in, first-out cost or market and
consisted of the following:
July 16, January 2,
2000 2000
--------- ----------
(Dollars in thousands)
Finished Goods..................... $ 8,449 $ 9,226
Raw Materials...................... 8,604 9,804
Packaging Supplies................. 2,660 3,390
-------- --------
$ 19,713 $ 22,420
======== ========
6
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6. Hibbing Settlement
During 1996, the Company entered into an agreement with the Office of the
Commissioner of the Iron Range Resources Rehabilitation Board (IRRRB) for the
construction of a manufacturing facility in Hibbing, Minnesota. In the third
quarter of 1998, the Company recorded a $5.2 million charge for the impairment
of assets incurred in connection with the potential plant facility. The total
reserve of $5.2 million represented a non-cash charge of $4.7 million for asset
impairment and $0.5 million for potential future liquidated damages and other
costs. On April 27, 1999 the IRRRB and Luigino's entered into a settlement
agreement under which Luigino's agreed to convey the property to the IRRRB, and
the IRRRB agreed to pay Luigino's $0.5 million and release the claims against
Luigino's for payment of liquidated damages of $0.4 million. This income was
partially offset by additional expenses of $0.1 million required to settle the
claim.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of the financial condition and results of
operations of Luigino's, Inc. (the "Company" or "Luigino's") should be read in
conjunction with the Company's Financial Statements and Notes thereto.
Results of Operations
The following table sets forth, for the periods indicated, the major
components of Luigino's statements of operations expressed as a percentage of
net sales:
Second Fiscal Fiscal Year to
Quarter Ended Date Ended
------------- ---------------
July 16, July 18, July 16, July 18,
2000 1999 2000 1999
-------- -------- -------- --------
Net Sales............................. 100.0 % 100.0 % 100.0 % 100.0 %
Cost of Goods Sold.................... 57.0 56.3 58.8 57.8
----- ----- ----- -----
Gross profit.................... 43.0 43.7 41.2 42.2
Operating (Income) Expenses:
Selling and promotional......... 28.5 34.5 27.3 34.1
General and administrative...... 8.9 9.1 9.0 9.3
Reserve for Plant Impairment ... 0.0 (1.3) 0.0 (0.6)
----- ----- ----- -----
Total operating expenses........ 37.4 42.3 36.3 42.8
Operating income (loss)......... 5.6 1.4 4.9 (0.6)
Other Income (Expense):
Interest expense................ (5.4) (5.0) (5.2) (4.8)
Interest income................. 0.1 0.1 0.1 0.2
Other, net...................... 0.4 0.0 0.1 0.1
----- ----- ----- -----
Total other expense........ (4.9) (4.9) (5.0) (4.5)
----- ----- ----- -----
Net Income (Loss)..................... 0.7 % (3.5)% (0.1)% (5.1)%
===== ===== ===== =====
Second fiscal quarter 2000 compared to second fiscal quarter 1999
Net Sales. The following table sets forth Luigino's net sales by product
line and the percentage change from the prior period:
Second Fiscal Quarter Ended
--------------------------------- Percentage
July 16, 2000 July 18, 1999 Change
------------- ------------- -----------
(Dollars in thousands)
Green Label.......... $ 31,597 $ 31,386 0.7%
Red Label............ 7,629 7,787 (2.0)
Signature............ 7,192 9,444 (23.8)
Black Label.......... 7,056 6,926 1.9
Snacks............... 3,131 3,694 (15.2)
Kids................. 2,065 - 100.0
------------- ------------- -----------
$ 58,670 $ 59,237 (1.0)%
============= ============= ===========
8
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Total net sales for the second quarter of 2000 decreased 1.0% or $0.6
million, to $58.7 million from $59.2 million in the second quarter of 1999. The
Kids product line was launched in the first quarter of 2000 resulting in an
increase of sales of $2.1 million in the second quarter of 2000. Green Label
net sales increased $0.2 million and Black Label net sales increased $0.1
million related to the positive effect of competitors' loss in distribution.
Red Label net sales decreased $0.2 million due to a change in promotion strategy
to everyday low price. Signature net sales decreased $2.3 million and Snack net
sales decreased $0.6 million due to decreased distribution.
Canadian net sales contributed 8.5%, or $5.0 million, to net sales for the
second quarter of 2000 compared to 8.8%, or $5.2 million, for the second quarter
of 1999. Canadian sales have decreased due to increased purchases by our joint
venture partner in the first quarter of 2000 to stock its new Canadian
warehouse.
Volume decreases in Signature and Snacks were primarily a result of
decreased distribution. Volume decreases were partially offset by a volume
increase due to the introduction of the Kids product line. Price decreases were
the result of the introduction of new products in Canada, which have lower
margins than U.S. products and a decrease in overall selling price.
Gross Profit. Gross profit in the second quarter of 2000 decreased 2.4%,
or $0.6 million, to $25.2 million from $25.9 million in the second quarter of
1999. The gross margin in the second quarter of 2000 decreased to 43.0% of net
sales from 43.7% in the second quarter of 1999. The decrease in gross profit
and gross margin is a result of increased overhead costs.
Selling and Promotional Expenses. Selling and promotional expenses for the
second quarter of 2000 decreased 18.1%, or $3.7 million, to $16.7 million from
$20.4 million in the second quarter of 1999. The decrease resulted primarily
from a $3.4 million decrease in advertising expense, a $0.7 million decrease in
slotting expense and a $0.2 million decrease in promotional expense, partially
offset by a $0.6 million increase in variable selling expenses, including
spoilage and brokerage expenses.
General and Administrative Expenses. General and administrative expenses
for the second quarter of 2000 decreased 3.3%, or $0.2 million, to $5.2 million
from $5.4 million in the second quarter of 1999. The decrease was due to a
decrease in compensation and related costs.
Hibbing Settlement. During the second quarter of 1999, the Company
reversed charges of $0.8 million recorded in fiscal year 1998 related to the
November 1998 claim made by the Iron Range Resources and Rehabilitation Board
(IRRRB). On April 27, 1999 the IRRRB and Luigino's entered into a settlement
agreement under which Luigino's agreed to convey the property to the IRRRB and
the IRRRB agreed to pay Luigino's $0.5 million and release the claims against
Luigino's for payment of liquidated damages of $0.4 million. This was partially
offset by additional expenses of $0.1 million required to settle the claim.
Operating Income. Operating income for the second quarter of 2000
increased 305.6%, or $2.5 million, to $3.3 million from $0.8 million in the
second quarter of 1999. As a percentage of net sales, operating income
increased to 5.6% of net sales in the second quarter of 2000 from 1.4% in the
second quarter of 1999. The increase resulted from the $0.6 million decrease in
gross profit, the $3.7 million decrease in selling and promotional expenses, the
$0.2 million decrease in general and administrative expenses and the decrease of
$0.8 million related to the Hibbing settlement.
Interest Expense. Interest expense for the second quarter of 2000 increased
7.5%, or $0.2 million, to $3.2 million from $3.0 million in the second quarter
of 1999. The increase was a result of the increased borrowing under the
Company's revolving credit facility.
Interest Income. Interest income was $0.1 million for the second quarter
of 2000 and the second quarter of 1999.
Other Income. Other income was $0.2 million for the second quarter of 2000.
Other income resulted from cash discounts earned from vendors and other
miscellaneous income and expense amounts.
Net Income. For the reasons stated above, net income for the second
quarter of 2000 increased 119.2%, or $2.5 million, to $0.4 million as compared
to a net loss of $2.1 million in the second quarter of
9
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1999. As a percentage of net sales, net income increased to 0.7% of net sales in
the second quarter of 2000 compared to a net loss of (3.5%) in the second
quarter of 1999.
Twenty-eight weeks ended July 16, 2000 compared to the twenty-eight weeks ended
July 18, 1999
Net Sales. The following table sets forth Luigino's net sales by product
line and the percentage change from the prior period:
Fiscal Year to
Date Ended
----------------------
July 16, July 18, Percentage
2000 1999 Change
-------- -------- ----------
(Dollars in thousands)
Green Label .............. $ 77,896 $ 74,932 4.0 %
Red Label ................ 17,190 19,169 (10.3)
Signature ................ 18,319 17,592 4.1
Black Label .............. 16,255 15,495 4.9
Snacks ................... 8,218 7,695 6.8
Kids ..................... 2,484 -- 100.0
-------- -------- -----
$140,362 $134,883 4.1 %
======== ======== =====
Total net sales for the twenty-eight weeks ended July 16, 2000 increased
4.1%, or $5.5 million, to $140.4 million from $134.9 million for the twenty-
eight weeks ended July 18, 1999. The Signature product line was launched in
December 1998 resulting in an increase in net sales of $0.8 for the twenty-eight
weeks ended July 16, 2000. The Kids product line was launched in the first
quarter of 2000 resulting in an increase in net sales of $2.5 million. Green
Label net sales increased $3.0 million and Black Label net sales increased $0.8
million due to continued growth in both Canada and the U.S. Snack net sales
increased $0.5 million as a result of new product introductions. The increase
was partially offset by a decrease in Red Label net sales of $2.0 million due to
a change in promotion strategy to everyday low pricing.
Canadian net sales contributed 13.9%, or $19.5 million, to our net sales
for the twenty-eight weeks ended July 16, 2000 compared to 11.1%, or $15.0
million, for the twenty-eight weeks ended July 18, 1999. Canadian sales have
benefited from overall growth in the frozen entree market, new product
introduction and stock required for a new Canadian warehouse.
Volume increases were recorded in Green Label, Kids, Black Label and Snacks
and through introduction of the Signature line. These increases were partially
offset by a volume decrease in Red Label. Price decreases in Red Label, Black
Label and Snacks were partially offset by a price increase in Green Label.
Gross Profit. Gross profit for the twenty-eight weeks ended July 16, 2000
increased 1.5%, or $0.9 million, to $57.8 million, from $56.9 million for the
twenty-eight weeks ended July 18, 1999. The increase in gross profit is a result
of the increase in overall sales levels. The gross margin in the twenty- eight
weeks ended July 16, 2000 decreased to 41.2% of net sales from 42.2% for the
twenty-eight weeks ended July 18, 1999. The decrease in gross margin was
primarily due to an increase in Canadian sales which have lower margins and
increased overhead costs.
Selling and Promotional Expenses. Selling and promotional expenses for the
twenty-eight weeks ended July 16, 2000 decreased 16.9%, or $7.8 million, to
$38.2 million from $46.0 million for the twenty-eight weeks ended July 18, 1999.
The decrease resulted primarily from a $7.0 million decrease in slotting
10
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expense, a $3.2 million decrease in advertising expense partially offset by a
$1.7 million increase in promotional expense.
General and Administrative Expenses. General and administrative expenses
for the twenty-eight weeks ended July 16, 2000 increased 0.9%, or $0.1 million,
to $12.6 million from $12.5 million for the twenty-eight weeks ended July 18,
1999.
Hibbing Settlement. During the second quarter of 1999, the Company
reversed charges of $0.8 million recorded in fiscal year 1998 related to the
November 1998 claim made by the IRRRB. On April 27, 1999 the IRRRB and
Luigino's entered into a settlement agreement under which Luigino's agreed to
convey the property to the IRRRB and the IRRRB agreed to pay Luigino's $0.5
million and release the claims against Luigino's for payment of liquidated
damages of $0.4 million. This income was partially offset by additional
expenses of $0.1 million required to settle the claim.
Operating Income (Loss). Operating income for the twenty-eight weeks ended
July 16, 2000 increased 959.4%, or $7.8 million, to 6.9 million as compared to
operating loss of $(0.8) million for the twenty-eight weeks ended July 18, 1999.
As a percentage of net sales, operating income (loss) increased to 4.9% of net
sales for the twenty-eight weeks ended July 16, 2000 compared to (0.6)% for the
twenty-eight weeks ended July 18, 1999. The increase resulted from the $7.8
million decrease in selling and promotional expenses, and the $0.9 million
increase in gross profit, partially offset by the $0.1 million increase in
general and administrative expenses and the decrease of $0.8 million income from
the Hibbing Settlement.
Interest Expense. Interest expense for the twenty-eight weeks ended July
16, 2000 increased 14.3%, or $0.9 million, to $7.3 million from $6.4 million for
the twenty-eight weeks ended July 18, 1999. The increase was a result of the
increase in senior debt offering interest and interest related to increased
borrowing under the Company's revolving credit facility.
Interest Income. Interest income was $0.2 million for the twenty-eight
weeks ended July 16, 2000 and for the twenty-eight weeks ended July 18, 1999.
Other Income. Other income was $0.1 million for the twenty-eight weeks
ended July 16, 2000 and $0.2 million for the twenty-eight weeks ended July 18,
1999.
Net Loss. For the reasons stated above, net loss for the twenty-eight
weeks ended July 16, 2000 decreased 99.0%, or $6.7 million, to $(0.1) million
from a net loss of $(6.8) million for the twenty-eight weeks ended July 18,
1999. As a percentage of net sales, net loss decreased to (0.1)% of net sales
for the twenty-eight weeks ended July 16, 2000 from (5.1)% for the twenty-eight
weeks ended July 18, 1999.
Liquidity and Capital Resources
Operating activities used $5.2 million of cash for the twenty-eight weeks
ended July 16, 2000 and the twenty-eight weeks ended July 18, 1999.
Investing activities used $4.8 million of cash for the twenty-eight weeks
ended July 16, 2000 and $14.9 million for the twenty-eight weeks ended July 18,
1999. The twenty-eight weeks ended July 16, 2000 included the purchase of $4.3
in machinery and equipment compared to $5.9 million of purchases of equipment
under operating leases and $8.6 million in machinery and equipment purchases in
the twenty-eight weeks ended July 18, 1999.
Financing activities generated $10.2 million of cash for the twenty-eight
weeks ended July 16, 2000 compared to $19.8 million for the twenty-eight weeks
ended July 18, 1999. The twenty-eight weeks ended July 16, 2000 includes a $9.5
million increase in debt, a $0.3 million decrease in deferred financing costs
and a $0.3 million shareholder notes receivable collection.
2000 Planned Expenditures. As a part of the Company's strategic growth
plan, the Company incurred $7.8 million for slotting expenses for the twenty-
eight weeks ended July 16, 2000. The Company plans to incur approximately $2.2
million in additional slotting expenses in 2000 to introduce new products and
increase product penetration. The Company intends to finance these expenditures
through internally generated funds and borrowings under its revolving credit
facility.
11
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The Company anticipates continuing to elect Subchapter S treatment under
the U.S. Internal Revenue Code. Consequently, the Company will continue to make
quarterly distributions to the shareholders based upon their estimated tax
liabilities.
Luigino's ability to make scheduled payments of principal, or to pay the
interest or premiums, if any, on, or to refinance, its indebtedness or to fund
planned capital expenditures will depend on future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond the Company's control.
Based upon the current level of operations, the Company believes that cash flow
from operations and available cash, together with available borrowings under the
credit agreement, will be adequate to meet the future liquidity needs for at
least the next several years. The Company may, however, need to refinance all or
a portion of the principal of the senior subordinated notes on or before
maturity. There can be no assurance that the business will generate sufficient
cash flow from operations, or that future borrowings will be available under the
revolving credit facility in an amount sufficient to enable the Company to
service indebtedness or to fund other liquidity needs. In addition, there can be
no assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all.
Cautionary Statement
This Form 10-Q contains forward-looking statements within the meaning of
federal securities laws. These statements include statements regarding intent,
belief or current expectations of the Company and its management. These
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties that may cause the Company's actual results
to differ materially from the results discussed in these statements. The
Company's forward-looking statements are subject to risks, uncertainties and
assumptions including, among other things: general economic and business
conditions; the Company's expectations and estimates concerning future financial
performance, financing plans and the impact of competition; anticipated trends
in the Company's industry; and other risks and uncertainties detailed from time
to time in the Company's filings with the Securities and Exchange Commission,
including Exhibit 99 to this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Factors. The Company is exposed to market risks from adverse
changes in interest rates, commodity prices and foreign exchange rates. The
Company enters into hedging transactions to mitigate these risks as deemed
appropriate. The Company does not use financial instruments for trading or
speculative purposes.
Interest Rate Sensitivity. The Company manages its exposure to interest
rate risk through the proportion of fixed rate debt and variable rate debt in
its total debt portfolio. To manage this mix, the Company may enter into
interest rate swap agreements, in which it exchanges periodic payments based on
a notional amount, and agreed upon fixed and variable interest rates. The
Company's percentage of fixed rate debt to total debt was 96.2% at July 16, 2000
and 100% at January 2, 2000. The Company had an interest rate swap agreement
that effectively converted $25.0 million of variable rate debt to fixed rate
debt for both periods.
Commodity Price Sensitivity. The Company is exposed to price risk related
to purchases of certain commodities used as raw materials in the Company's
products. The Company manages this risk primarily through annual purchase
agreements with vendors.
Foreign Exchange Rates. The Company has some exposure to foreign exchange
rate fluctuations in Canada, Australia and the United Kingdom. This risk is
mitigated by the fact that the Company sells its products to its Canadian and
Australian joint marketing arrangement partners in U.S. dollars. The Company's
exchange rate risk is then limited to the profit sharing portion of the joint
marketing arrangements. The foreign exchange rate risk on United Kingdom net
sales was not significant for fiscal year 2000 or 1999.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
In connection with the "safe harbor" provisions of the Private Securities
Litigation and Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in forward-looking statements of the
Company made by, or on behalf of the Company. See Exhibit 99 to this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
------ -----------
27.1 Financial Data Schedule
99.1 Cautionary Statements for Purposes of the "Safe Harbor"
provisions of the Private Securities Litigation Reform Act
of 1995
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the fiscal quarter ended July
16, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUIGINO'S, INC.
Date: By: /s/ Danette Bucsko
------------------------
Danette R. Bucsko
Chief Financial Officer (principal financial
and accounting officer)
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