Exhibit 99.4
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Net sales $ 530,645 $ 512,574 $ 1,092,019 $ 1,026,760
Cost of sales 270,478 272,115 563,611 552,477
------------ ------------ ------------ ------------
Gross profit 260,167 240,459 528,408 474,283
Marketing expenses 120,029 111,508 248,627 221,247
Selling, general, and administrative expenses 68,860 61,995 140,401 122,954
------------ ------------ ------------ ------------
Income from operations 71,278 66,956 139,380 130,082
------------ ------------ ------------ ------------
Interest expense 24,266 24,609 49,340 50,360
Other (income) expense, net 315 (423) 559 (598)
Gain on sale of business -- -- -- (15,779)
------------ ------------ ------------ ------------
Income before provision for income taxes 46,697 42,770 89,481 96,099
Provision for income taxes 17,745 16,681 34,003 37,479
------------ ------------ ------------ ------------
Net income $ 28,952 $ 26,089 $ 55,478 $ 58,620
============ ============ ============ ============
Basic earnings per share:
Net income $ 0.39 $ 0.36 $ 0.75 $ 0.80
------------ ------------ ------------ ------------
Shares used in computing basic earnings
per share 74,081,914 73,427,938 74,000,144 73,365,602
------------ ------------ ------------ ------------
Diluted earnings per share:
Net income $ 0.38 $ 0.34 $ 0.73 $ 0.77
------------ ------------ ------------ ------------
Shares used in computing diluted earnings
per share 76,170,434 75,781,554 76,099,571 75,792,114
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<S> <C> <C>
June 30, December 31,
ASSETS 2000 1999
----------- -----------
Current Assets:
Cash and cash equivalents $ 15,394 $ 14,310
Accounts receivable, net of allowances 173,803 180,671
Inventories 275,319 282,911
Prepaid expenses and other current assets 34,983 34,345
Deferred income taxes 17,154 16,113
----------- -----------
Total current assets 516,653 528,350
Property, plant and equipment, net 315,988 306,042
Intangible assets, net 430,996 432,732
Deferred income taxes 245,673 262,563
Other assets 18,052 19,686
----------- -----------
Total assets $ 1,527,362 $ 1,549,373
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 83,249 $ 73,084
Revolving credit facility 85,176 78,536
Accounts payable 51,970 69,669
Book overdrafts 18,659 22,457
Accrued compensation and benefits 23,235 22,288
Accrued advertising and promotion 38,938 39,550
Accrued interest 7,113 10,278
Other accrued liabilities 27,612 38,967
----------- -----------
Total current liabilities 335,952 354,829
Long-term debt 962,671 1,024,378
Post-retirement benefits obligation 28,610 27,216
Other non-current liabilities 176 898
----------- -----------
Total liabilities 1,327,409 1,407,321
----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock - par value $0.01 per share; authorized,
100,000,000 shares; no shares issued or outstanding $ -- $ --
Common stock - par value $0.01 per share; authorized,
300,000,000 shares; issued 78,624,484 and
78,218,034 shares 786 782
Additional paid-in capital 66,396 62,475
Treasury stock, at cost 4,400,000 shares (57,200) (57,200)
Retained earnings 193,405 137,927
Accumulated other comprehensive loss (3,434) (1,932)
----------- -----------
Total stockholders' equity 199,953 142,052
----------- -----------
Total liabilities and stockholders' equity $ 1,527,362 $ 1,549,373
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INTERNATIONAL HOME FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C> <C>
Six Months Ended
June 30,
2000 1999
--------- ---------
OPERATING ACTIVITIES:
Net income $ 55,478 $ 58,620
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 20,857 21,099
Deferred income taxes 15,849 21,705
Stock option compensation -- 85
Gain on sale of business -- (15,779)
Changes in assets and liabilities, net of acquisitions and divestiture:
Decrease (increase) in accounts receivable 6,868 (19,267)
Decrease (increase) in inventories 7,431 (11,664)
Increase in other current assets (638) (14,357)
(Decrease) increase in accounts payable (17,699) 13,809
Decrease in accrued liabilities (14,185) (4,464)
Increase in non-current assets (1,937) (1,527)
Increase in non-current liabilities 672 2,134
--------- ---------
Net cash provided by operating activities 72,696 50,394
--------- ---------
INVESTING ACTIVITIES:
Purchases of plant and equipment, net (23,086) (23,354)
Payments for acquired businesses, net of cash
acquired (4,067) (38,103)
Proceeds from sale of business -- 30,000
--------- ---------
Net cash used in investing activities (27,153) (31,457)
--------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in book overdrafts (3,798) 7,922
Repayment of long-term debt (51,542) (40,889)
Borrowings from revolving credit facility 133,100 45,024
Repayment of borrowings from revolving credit facility (125,505) (31,322)
Proceeds from exercise of stock options 3,925 2,078
--------- ---------
Net cash used in financing activities (43,820) (17,187)
--------- ---------
Effect of changes in the exchange rate on cash (639) 1,062
--------- ---------
Increase in cash and cash equivalents 1,084 2,812
Cash and cash equivalents at beginning of period 14,310 17,201
--------- ---------
Cash and cash equivalents at end of period $ 15,394 $ 20,013
========= =========
Cash paid during the period for:
Interest $ 50,861 $ 56,459
Income taxes $ 18,377 $ 16,880
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. ACCOUNTING POLICIES
Interim Financial Statements
In the opinion of International Home Foods, Inc. ("the Company"), the
accompanying consolidated financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present
fairly the Company's financial position as of June 30, 2000 and the
results of operations for the three and six months ended June 30, 2000 and
1999 and cash flows for the six months ended June 30, 2000 and 1999. The
results of operations for the three and six month periods are not
necessarily indicative of the results to be expected for the full year.
The December 31, 1999 consolidated balance sheet was derived from the
Company's audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1999 Annual Report on Form 10-K. Use of
Estimates
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles and necessarily include
amounts based on judgments and estimates made by management. Actual
results could differ from these estimates. Estimates are used when
accounting for potential bad debts, inventory obsolescence and spoilage,
trade and promotion allowances, coupon redemptions, depreciation and
amortization, stock option compensation, deferred income taxes and tax
valuation allowances, pension and post-retirement benefits, restructuring
charges and contingencies, among other items.
Reclassifications
Certain 1999 amounts have been reclassified to conform with the 2000
presentation.
2. INVENTORIES
Inventories consist of:
<TABLE>
<S> <C> <C>
June 30, December 31,
2000 1999
------------ ------------
Raw materials $ 67,259 $ 65,483
Work in progress 10,253 8,841
Finished goods 197,807 208,587
------------ ------------
Total $ 275,319 $ 282,911
============ ============
</TABLE>
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. COMPREHENSIVE INCOME
Comprehensive income is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
Net income $ 28,952 $ 26,089 $ 55,478 $ 58,620
Foreign currency translation
Amount before taxes $ (3,275) $ 565 $ (1,809) $ 476
Income tax (expense) benefit 926 (63) 307 197
-------- -------- -------- --------
Other comprehensive income $ (2,349) $ 502 $ (1,502) $ 673
-------- -------- -------- --------
Total comprehensive income $ 26,603 $ 26,591 $ 53,976 $ 59,293
======== ======== ======== ========
</TABLE>
The following amounts are included in Accumulated other comprehensive loss
at June 30, 2000 and December 31, 1999:
June 30, December 31,
2000 1999
-------- ------------
Minimum pension liability $ (29) $ (29)
Foreign currency translation (3,405) (1,903)
------- -------
Accumulated other comprehensive loss $(3,434) $(1,932)
======= =======
4. BUSINESS SEGMENT INFORMATION
The Company manufactures and markets a diversified portfolio of
shelf-stable food products including entrees, side dishes, snacks, canned
fish, canned meats as well as refrigerated surimi. The Company sells its
products primarily in the United States, Canada and Mexico, and is not
dependent on any single or major group of customers for its sales. The
Company has three reportable business segments - Branded Products, Seafood
and Private Label and Foodservice. Branded Products is defined as U.S.
grocery sales for the following products: Chef Boyardee(R), Canned Meats
(Libby's(R) and Dennison's(R)), Southwest brands (Ro*Tel(R), Luck's(R) and
Ranch Style(R)), Specialty and Snack brands (PAM(R), Gulden's(R),
Maypo(R), Wheatena(R), Maltex(R), G. Washington's(R), Crunch 'n Munch(R),
Jiffy pop(R) and Campfire(R)). Seafood includes all sales for the Bumble
Bee(R), Orleans(R), Libby's, Clover Leaf(R), Paramount(R) and Louis
Kemp(R) brands of seafood products as well as private label and
foodservice seafood sales. Private Label and Foodservice includes all
private label canned pasta, cooking spray, fruit snacks, ready-to-eat
cereals, wholesome snack bars, pie crust and personal care products and
the sales to foodservice distributors. The All Other category is comprised
of sales to the military, contract sales to Nestle, sales of Polaner(R)
products and international sales which includes branded, private label and
foodservice sales in Canada, Mexico, Puerto Rico, and other export sales.
The Company sold its Polaner fruit spreads and spices business on February
5, 1999 (Note 6).
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Business Segment Information, (Continued)
The Company sells the products in each of its segments primarily to
grocery wholesalers and distributors, grocery stores and supermarkets,
convenience stores, drug and mass merchants and warehouse clubs. The
Company evaluates segment performance based upon segment operating income
(earnings before interest expense, net other [income] expense, and income
taxes excluding unusual or infrequently occurring items, restructuring
charge and stock compensation expense [income]). Certain centrally
incurred costs (Corporate), are not allocated to the operating segments.
The Company allocates certain charges, including depreciation,
amortization, agent and broker commissions, storage, packing and shipping
charges, and administrative costs for salaries, insurance and employee
benefits, to its Branded Products segment, and to its Private Label and
Foodservice segment based on a percentage of net sales.
<TABLE>
<S> <C> <C> <C> <C>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net Sales:
Branded Products $ 213,993 $ 209,726 $ 434,607 $ 415,755
Seafood 169,869 153,843 357,296 313,808
Private Label and Foodservice 75,747 71,034 155,037 149,596
---------- ---------- ---------- ----------
Subtotal - Reportable Segments 459,609 434,603 946,940 879,159
All Other 71,036 77,971 145,079 147,601
---------- ---------- ---------- ----------
Total $ 530,645 $ 512,574 $1,092,019 $1,026,760
========== ========== ========== ==========
2000 1999 2000 1999
---------- ---------- ---------- ----------
Segment Operating Income:
Branded Products $ 41,249 $ 38,672 $ 82,588 $ 78,473
Seafood 10,731 9,571 23,764 19,405
Private Label and Foodservice 14,323 9,822 28,162 20,215
---------- ---------- ---------- ----------
Subtotal - Reportable Segments 66,303 58,065 134,514 118,093
All Other 7,605 8,008 13,127 13,758
---------- ---------- ---------- ----------
Total $ 73,908 $ 66,073 $ 147,641 $ 131,851
========== ========== ========== ==========
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Reconciliation to Consolidated Results
Segment Operating Income $ 73,908 $ 66,073 $147,641 $131,851
Less:
Stock compensation expense -- 59 -- 85
Unallocated (income) expense 2,630 (942) 8,261 1,684
-------- -------- -------- --------
Total consolidated income from
operations $ 71,278 $ 66,956 $139,380 $130,082
======== ======== ======== ========
</TABLE>
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. ACQUISITIONS
On July 19, 1999, the Company, through its subsidiary Bumble Bee Seafoods,
Inc., acquired the manufacturing, sales distribution and marketing
operations of Louis Kemp from Tyson Foods, Inc. for $68,792, including
transaction fees. The Company financed this acquisition with borrowings
under its Senior Bank Facilities. Louis Kemp manufactures and sells
refrigerated and frozen surimi products. Surimi-based products are made
from North Pacific ocean pollack and whiting fish meats. These products are
primarily sold under the tradename Louis Kemp and other tradenames such as
Captain Jac(R), SeaFest(R) and Pacific Mate(R).
On January 19, 1999, the Company, through its subsidiary Bumble Bee
Seafoods, Inc., acquired the Clover Leaf and Paramount canned seafood
brands and business of British Columbia Packers ("Clover Leaf/Paramount
brands") from George Weston Ltd. of Canada for a total purchase price of
$40,394, including transaction fees. The acquisition was funded with
borrowings under the Company's Senior Bank Facilities and cash on hand. The
excess of cost over fair value of net assets acquired for the above
acquisitions is amortized over 40 years for identifiable intangibles and
for goodwill. These acquisitions have been accounted for using the purchase
method of accounting, and the operating results of the acquired companies
have been included in the consolidated financial statements from the dates
of acquisition. The information below includes non-cash investing and
financing activities supplemental to the consolidated statements of cash
flows. A summary of the excess of cost over fair value of net assets
acquired resulting from purchase price allocations for the 1999
acquisitions is as follows:
CLOVER LEAF/
LOUIS PARAMOUNT
KEMP BRANDS
------------ ------------
Cost of acquisition, including
transaction fees $ 68,792 $ 40,394
Less acquired assets:
Current assets 10,094 38,962
Property, plant and equipment 18,111 1,180
Other assets -- --
Add: liabilities assumed 1,016 9,411
------------ ------------
Excess of cost over net assets
acquired, including identifiable
intangibles $ 41,603 $ 9,663
============ ============
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Acquisitions, (Continued)
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisitions of Clover Leaf/Paramount and Louis
Kemp and divestiture of Polaner had occurred as of the beginning of 1999
and reflect proforma adjustments for goodwill, interest expense and tax
expense:
<TABLE>
<S> <C> <C> <C>
For the Six Months Ended
June 30, 1999
---------------------------------------------
IHF(1) Acquisitions(2) Total
---------- --------------- ----------
Net sales $1,021,768 $ 63,276 $1,085,044
Operating income $ 129,792 $ 369 $ 130,161
Net income $ 48,706 $ (1,175) $ 47,531
Earnings per share:
Basic $ 0.66 $ (0.01) $ 0.65
Diluted $ 0.64 $ (0.01) $ 0.63
</TABLE>
(1) Excludes operations of and gain on sale of Polaner (See Note 6).
(2) Amounts include Louis Kemp and Clover Leaf/Paramount brands. The
unaudited pro forma consolidated results do not purport to be indicative
of results that would have occurred had the acquisitions been in effect
for the period presented, nor do they purport to be indicative of the
results that will be obtained in the future.
6. SALE OF BUSINESS
On February 5, 1999 the Company sold its Polaner fruit spreads and spices
business to B&G Foods, Inc. for approximately $30.0 million in cash,
resulting in a gain of $15.8 million ($9.6 million, net of tax or $0.13
per diluted share).
7. RELATED PARTY TRANSACTIONS
Effective November 1, 1996, the Company entered into a 10-year monitoring
and oversight agreement with an affiliate of its largest stockholder. The
agreement provides for an annual fee of the greater of $1,000 or 0.1% of
the budgeted consolidated net sales of the Company for the current year.
In addition, effective November 1, 1996, the Company entered into a
financial advisory agreement with the affiliate under which the affiliate
will be entitled to a fee of 1.5% of the transaction value, as defined,
for each add-on transaction, as defined. The Company incurred monitoring
and oversight fees of $579 and $487 for the three months ended June 30,
2000 and 1999 and $1,158 and $974 for the six months ended June 30, 2000
and 1999, respectively. In addition, the Company incurred financial
advisory fees of $0 for the three and six months ended June 30, 2000. The
Company incurred financial advisory fees of $0 and $546 for the three and
six months ended June 30, 1999, respectively.
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. GUARANTOR FINANCIAL DATA
The Company's Senior Subordinated Notes are fully and unconditionally
guaranteed by each of the Company's subsidiary guarantors on a joint and
several basis. The Company has not presented separate financial statements
and other disclosures concerning each of the subsidiary guarantors because
management has determined that such information is not material to the
holders of the Senior Subordinated Notes. The financial information for
2000 reflects the corporate re-organization, resulting from the Company's
tax restructuring, effective January 1, 2000. Certain intercompany sales
transactions between the parent and guarantor subsidiaries have been
eliminated. Presented below is consolidating financial information
including summarized combined financial information of the subsidiary
guarantors:
<TABLE>
<S> <C> <C> <C> <C> <C>
JUNE 30, 2000 Non-
(unaudited) Guaranteeing Guaranteeing
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Current assets $ 31,593 $ 401,388 $ 83,672 $ -- $ 516,653
Non-current assets 1,107,843 693,981 10,329 (801,444) 1,010,709
Current liabilities 169,222 153,085 13,645 -- 335,952
Non-current liabilities 986,656 45,071 28,727 (68,997) 991,457
DECEMBER 31, 1999
(unaudited)
Current assets $ 132,979 $ 304,110 $ 91,261 $ -- $ 528,350
Non-current assets 1,091,493 670,803 808 (742,081) 1,021,023
Current liabilities 200,671 132,201 21,957 -- 354,829
Non-current liabilities 1,041,449 5,195 33,109 (27,261) 1,052,492
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
JUNE 30, 2000 Non-
(unaudited) Guaranteeing Guaranteeing
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ 249,277 $ 477,961 $ 52,875 $ (249,468) $ 530,645
Gross profit 147,254 249,926 27,004 (164,017) 260,167
Net income (loss) 9,620 20,020 (688) -- 28,952
FOR THE THREE MONTHS ENDED
JUNE 30, 1999
(unaudited)
Net sales $ 218,861 $ 236,982 $ 56,731 $ -- $ 512,574
Gross profit 131,288 90,033 19,138 -- 240,459
Net income (loss) (1,879) 25,381 2,587 -- 26,089
</TABLE>
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Guarantor Financial Data, (Continued)
<TABLE>
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 Non-
(unaudited) Guaranteeing Guaranteeing
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ 514,927 $ 992,202 $ 100,008 $ (515,118) $ 1,092,019
Gross profit 302,246 518,737 44,306 (336,881) 528,408
Net income 24,247 31,069 162 -- 55,478
Net cash provided by (used)
in operating activities 12,816 59,985 (105) -- 72,696
Net cash provided by (used)
in investing activities 157 (26,573) (737) -- (27,153)
Net cash provided by (used)
in financing activities 28,326 (67,896) (4,250) -- (43,820)
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
(unaudited)
Net sales $ 439,532 $ 488,236 $ 98,992 $ -- $ 1,026,760
Gross profit 260,141 182,249 31,893 -- 474,283
Net income (loss) 12,869 41,754(1) 3,997 -- 58,620(1)
Net cash provided by (used)
in operating activities 44,955 15,623 (10,184) -- 50,394
Net cash provided by (used)
in investing activities (2,735) 6,476 (35,198) -- (31,457)
Net cash provided by (used)
in financing activities (47,876) (15,365) 46,054 -- (17,187)
</TABLE>
The 1999 amounts have been restated from amounts previously reported. Amounts
are not intended to report results as if the subsidiaries were separate
stand-alone entities.
(1) Includes an after-tax gain of $9.6 million ($15.8 million pre-tax) from
sale of the Polaner fruit spread and spice business.
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. IMPACT OF RECENT ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition", which provides
guidelines in applying generally accepted accounting principles to selected
revenue recognition issues. The SAB is effective in the fourth fiscal
quarter of fiscal years beginning after December 15, 1999, or as of October
1, 2000 in the Company's case. The Company does not expect this statement
to have a material impact on its financial statements.
In May 2000 and July 2000, the Emerging Issues Task Force ("EITF") issued
guidance on how to classify certain revenues and costs in a company's
financial statements. EITF No. 00-10 "Accounting for Shipping and Handling
Revenues and Costs" requires that companies classify all amounts billed to
customers related to shipping and handling cost as revenue. This statement
will be effective in the fourth quarter of 2000 and is not expected to have
any effect on the financial statements. EITF No. 00-14 "Accounting for
Coupons, Rebates and Discounts" requires that manufacturing companies
classify these costs as a reduction in net sales rather than as a marketing
expense. This statement will also be effective in the fourth quarter of
2000 and is not expected to have a material effect on the financial
statements. It will result in a reduction of marketing expense and net
sales but will be neutral to overall net income.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued to establish standards for accounting for
derivatives and hedging activities and supersedes and amends a number of
existing standards. This statement requires all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS 133. SFAS 133, as amended by SFAS 137, "Deferral of the
effective date of SFAS 133", is effective for fiscal years beginning after
June 15, 2000. The Company is currently evaluating the effect this
statement will have on its financial statements.
10. EARNINGS PER SHARE
The table below summarizes the numerator and denominator for the basic and
diluted earnings per share calculations (in thousands, except per share
amounts).
<TABLE>
<S> <C> <C> <C> <C>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Numerator:
Net income available to common
shares $ 28,952 $ 26,089 $ 55,478 $ 58,620
Denominator:
Average number of shares outstanding 74,082 73,428 74,000 73,366
Effect of dilutive stock options 2,088 2,354 2,100 2,426
---------- ---------- ---------- ----------
Total number of shares outstanding 76,170 75,782 76,100 75,792
Basic earnings per share $ 0.39 $ 0.36 $ 0.75 $ 0.80
Diluted earnings per share $ 0.38 $ 0.34 $ 0.73 $ 0.77
</TABLE>
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. RESTRUCTURING
In September 1998, in conjunction with management's plan to reduce costs
and improve operational efficiencies, the Company recorded a restructuring
charge of $118.1 million ($75.3 million after tax). The principal actions
in the restructuring plan involved the closure of the Vacaville,
California and Clearfield, Utah production facilities and the related
impact of the transfer of production to other facilities, mainly Milton,
Pennsylvania, and the write-down of goodwill associated with the Campfire
crisp rice snack bar brand and the Polaner fruit spreads brand. The
Polaner business was subsequently sold (Note 6).
At June 30, 2000, $2.5 million of restructuring charges remained in other
accrued liabilities. This amount is comprised of multi-employer pension
plan settlements and certain other employee benefit related costs.
Payments totalling $8.6 million have been made to date, including $0.5
million and $0.7 million for the three months and six months ended June
30, 2000, respectively.
12. FINANCIAL INSTRUMENTS
The Company currently does not use derivative financial instruments for
trading or speculative purposes, nor is the Company a party to leveraged
derivatives. In accordance with the Senior Bank Facilities, the Company is
required to enter into interest rate protection agreements to the extent
necessary to provide that, when combined with the Company's Senior
Subordinated Notes, at least 50% of the Company's aggregate indebtedness,
excluding the revolving credit facility, is subject to either fixed
interest rates or interest rate protection. At June 30, 2000, more than
50% of the Company's aggregate indebtedness, excluding the revolving
credit facility, is subject to such protection.
Under these agreements the Company agrees to exchange, at specified
intervals, the difference between fixed and floating interest amounts
based on agreed upon notional principal amounts. The notional amounts of
interest rate agreements are used to measure interest to be paid or
received and do not represent the amount of exposure to credit loss. In
accordance with the interest rate agreements, the measurement of 3 month
LIBOR and 6 month LIBOR, respectively, occurs on the first day of each
calculation period. For interest rate instruments that effectively hedge
interest rate exposures, the net cash amounts paid or received on the
agreements are accrued as incurred and recognized as an adjustment to
interest expense.
The Company is exposed to credit loss in the event of non-performance by
the other parties to the interest rate swap agreements. All counterparties
are at least A rated by Moody's and Standard & Poor's. Accordingly, the
Company does not anticipate non-performance by the counterparties.
<PAGE>
INTERNATIONAL HOME FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Financial Instruments, (Continued)
As of June 30, 2000, the Company had the following interest rate instruments in
effect for which the fair value of these instruments is based on the current
settlement cost (dollar amounts are in millions):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NOTIONAL FAIR
AMOUNT VALUE PERIOD 3 MONTH LIBOR RATES 6 MONTH LIBOR RATE COMPANY PAYS COMPANY RECEIVES
-------- ----- --------------- ------------------- ------------------ ------------------- ----------------
$600 $6.4 5/00-5/04 4.75% or less N/A 5.65% 3 month LIBOR
>4.75% to <5.65% N/A 3 month LIBOR 3 month LIBOR
5.65% to <7.00% N/A 5.65% 3 month LIBOR
7.00% or greater N/A 3 month LIBOR 3 month LIBOR
$200 $(1.4) 8/98-11/01 N/A 5.20% or less 10.23% 10.375%
N/A >5.20% to <6.23% 6 month LIBOR + 4% 10.375%
N/A 6.23% to <6.75% 10.23% 10.375%
N/A 6.75% or greater 6 month LIBOR + 4% 10.375%
$150 $ 0.3 10/98-10/01 <3.76% N/A 3.76% 3 month LIBOR
3.76% to 5.75% N/A 3 month LIBOR 3 month LIBOR
>5.75% N/A 5.75% 3 month LIBOR
$225 - 10/99-10/00 N/A <5.30% 5.30% 6 month LIBOR
N/A 5.30% to 8.00% 6 month LIBOR 6 month LIBOR
N/A >8.00% 8.00% 6 month LIBOR
----
$5.3
====
</TABLE>
13. OTHER EVENTS
On June 23, 2000, ConAgra signed a definitive agreement to acquire
International Home Foods, in a transaction valued at approximately $2.9
billion, including the assumption of $1.3 billion in debt. International
Home Foods shareholders will receive $22 per share, half of which will be
paid in cash and half of which will be paid in ConAgra stock. The stock
portion of the consideration will be determined by dividing $11 by an
average of ConAgra stock price for a fixed period prior to the closing,
but will be no more than .61111 shares nor less than .50 shares for each
International Home Foods share. The sale, which is subject to approval by
International Home Foods shareholders, regulatory approvals, and other
customary closing conditions, is expected to close in the third quarter of
calendar 2000. A special meeting of shareholders is scheduled for August
22, 2000 to vote on the proposed merger.
A Registration Statement on Form S-4 has been filed with the Securities
and Exchange Commission in connection with the proposed merger. It
contains a proxy statement/ prospectus with information about ConAgra,
International Home Foods, the sale, and about persons soliciting proxies
in the sale, including officers and directors of International Home Foods,
and their interest in the sale. C.Dean Metropoulos, International Home
Foods chairman and chief executive officer and certain investment
partnerships controlled by Hicks, Muse, Tate & Furst Incorporated, holders
of an aggregate of approximately 43% of the International Home Foods
shares, have entered into agreements to vote for the merger.
