<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DEL MONTE FOODS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 6719 13-3542950
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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ONE MARKET
SAN FRANCISCO, CALIFORNIA 94105
TELEPHONE: (415) 247-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM R. SAWYERS, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
DEL MONTE FOODS COMPANY
ONE MARKET
SAN FRANCISCO, CALIFORNIA 94105
TELEPHONE: (415) 247-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JANET L. FISHER, ESQ. PAUL C. PRINGLE, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON BROWN & WOOD LLP
ONE LIBERTY PLAZA 555 CALIFORNIA STREET
NEW YORK, NEW YORK 10006 SAN FRANCISCO, CALIFORNIA 94104
TELEPHONE: (212) 225-2000 TELEPHONE: (415) 772-1200
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------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value (2) (2) $250,000,000 $73,750
===========================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Not applicable pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
DEL MONTE FOODS COMPANY
REGISTRATION STATEMENT ON FORM S-1
(Cross Reference Sheet Furnished Pursuant to Item 501(b) of Regulation S-K)
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ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
----------------------------------- ----------------------
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1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Outside Front Cover Page of Prospectus
2. Inside Front Cover Page of Prospectus.... Inside Front Cover Page of Prospectus;
Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Outside Front Cover Page of Prospectus;
Underwriters
6. Dilution................................. Risk Factors; Dilution
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Outside Front Cover Page of Prospectus;
Underwriters
9. Description of Securities to be
Registered................................. Description of Capital Stock
10. Interest of Named Experts and Counsel.... Legal Matters; Experts
11. Information with Respect to the
Registrant................................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Capitalization;
Dilution; Unaudited Pro Forma Financial Data;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Corporate History;
Management; Principal Stockholders; Certain
Relationships and Related Transactions;
Description of Capital Stock; Description of
Certain Indebtedness; Shares Eligible for
Future Sale; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
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EXPLANATORY NOTE
This Registration Statement contains two separate prospectuses, one to be
used in connection with an offering of Common Stock in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent offering of
Common Stock outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus will be
identical in all respects except for the front cover page.
The form of the U.S. Prospectus is included herein and the form of the
front cover page of the International Prospectus follows the back cover page of
the U.S. Prospectus.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued March 19, 1998
Shares
DEL MONTE FOODS COMPANY
COMMON STOCK
[DEL MONTE LOGO]
------------------------
OF THE SHARES OF COMMON STOCK OFFERED HEREBY, SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA
BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THIS OFFERING,
THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES OF COMMON STOCK OF THE COMPANY.
IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL
BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A DISCUSSION OF THE
FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "DLM."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR
RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share.............................................. $ $ $
Total(3)............................................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses of the offering payable by the Company
estimated at $ .
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, solely for the purpose of
covering overallotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to the approval of
certain legal matters by Brown & Wood LLP, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1998 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y. against payment therefor in immediately available funds.
MORGAN STANLEY DEAN WITTER
BANCAMERICA ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
BT ALEXS BROWN
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
, 1998
<PAGE> 4
[PHOTOGRAPHS TO BE INSERTED]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE SHARES OF
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE SHARES OF COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE
TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY ANY UNDERWRITER THAT WOULD PERMIT
A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER
THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES
ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND
TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE COMMON STOCK AND THE
DISTRIBUTION OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
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PAGE
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Available Information................. ii
Forward-Looking Statements............ ii
Prospectus Summary.................... 1
Risk Factors.......................... 9
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Unaudited Pro Forma Financial Data.... 17
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 36
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Corporate History..................... 51
Management............................ 53
Principal Stockholders................ 62
Certain Relationships and Related
Transactions........................ 64
Description of Capital Stock.......... 65
Description of Certain Indebtedness... 68
Certain U.S. Tax Consequences to
Non-U.S. Holders.................... 71
Shares Eligible for Future Sale....... 72
Underwriters.......................... 73
Legal Matters......................... 76
Experts............................... 76
Index to Financial Statements......... F-1
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------------------------
Del Monte(R) and Contadina(R) are the principal registered trademarks of
the Company. The Company's other trademarks include Fruit Cup(R), FreshCut(TM),
Snack Cups(R), Fruit Naturals(R), Orchard Select(R), Fruit Smoothie Blenders(TM)
and Del Monte Lite(R).
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AVAILABLE INFORMATION
Del Monte is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Del Monte has filed with
the Commission a Registration Statement on Form S-1 (the "Registration
Statement," which term shall encompass all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder,
covering the shares of Common Stock being offered hereby (the "Offering"). This
Prospectus does not contain all the information set forth in the Registration
Statement. For further information with respect to Del Monte and the Offering,
reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement, including the exhibits
thereto, and the reports, proxy statements and other information filed by Del
Monte with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Regional Offices of the Commission at 7 World
Trade Center, 14th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
Del Monte will furnish its stockholders with annual reports that include a
description of operations and annual audited consolidated financial statements
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"). The financial statements included in the annual reports will be
examined and reported upon, with an opinion expressed, by Del Monte's
independent auditors. Del Monte will also furnish quarterly reports for the
first three quarters of each fiscal year containing unaudited consolidated
financial statements prepared in accordance with GAAP.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Unaudited Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performances or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions; weather
conditions; crop yields; industry trends; competition; raw material costs and
availability; the loss of significant customers; changes in business strategy or
development plans; availability, terms and deployment of capital; Year 2000
compliance; changes in, or the failure or inability to comply with, governmental
regulations, including, without limitation, environmental regulations; industry
trends and capacity and other factors referenced in this Prospectus. See "Risk
Factors." These forward-looking statements speak only as of the date of this
Prospectus. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
ii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless the context otherwise
requires, "Del Monte" means Del Monte Foods Company, a Maryland corporation, and
the "Company" means Del Monte and its consolidated subsidiaries. References
herein to fiscal years and quarters are to the Company's fiscal year (which ends
on June 30) and related fiscal quarters (which end on the last Sunday of
September, December and March). Unless otherwise indicated, references herein to
U.S. market share data are to case volume sold through retail grocery stores
with at least $2 million in sales and are based upon data provided to the
Company by A.C. Nielsen Company ("ACNielsen"), an independent market research
firm. Market share data for canned vegetables and solid tomato products include
only those categories in which the Company competes. Such data for canned fruit
include those categories in which the Company competes other than the
"specialty" category, which has been an insignificant portion of the Company's
operations. References to the "Contadina Acquisition" are to the Company's
acquisition of certain assets comprising Nestle USA, Inc.'s ("Nestle") U.S.
business of manufacturing and marketing certain canned tomato products
("Contadina"). Share data for canned solid tomato products is pro forma for both
Del Monte and Contadina sales. Unless otherwise indicated, all information in
this Prospectus assumes no exercise of the U.S. Underwriters' overallotment
option.
THE COMPANY
GENERAL
The Company, a branded marketer of premium quality, nutritious food
products, is the largest producer and distributor of canned vegetables and
canned fruit in the United States, with pro forma net sales of $1.4 billion in
fiscal 1997. Management believes that the Company's principal brand, Del Monte,
which has been in existence since 1892, has the highest unaided brand awareness
of any canned food brand in the United States. Del Monte brand products are
found in substantially all national grocery chains and independent grocery
stores throughout the United States. As the brand leader in three major
processed food categories (canned vegetables, fruit and solid tomato products),
the Company has a full-line, multi-category presence that management believes
provides it with a substantial competitive advantage in selling to the retail
grocery industry. The Contadina Acquisition contributes another established
brand and positions the Company as the branded market leader in the high margin
canned solid tomato products category and establishes a strong presence for the
Company in the branded paste-based tomato products category.
The Company sells its products to national grocery chains and wholesalers
through a nationwide sales network consisting primarily of independent food
brokers. The Company's direct sales force also sells to warehouse club stores,
selected mass merchandisers, such as Wal-Mart and Kmart, and larger mass
merchandising outlets that include full grocery sections, such as Wal-Mart
Supercenters and Kmart's SuperKs. In addition, the Company sells its products to
the foodservice industry, food processors and the military through different
independent food brokers. The Company also exports a small percentage of its
products to certain foreign countries directly and through independent exporters
based in the United States.
The Company operates 15 production facilities in California, the Midwest,
Washington and Texas, as well as six strategically located distribution centers.
The Company has over 2,500 contracts to purchase vegetables and fruit from
individual growers and cooperatives located in various geographic regions of the
United States, principally California, the Midwest, the Northwest and Texas.
This diversity of sourcing helps insulate the Company from localized disruptions
during the growing season, such as weather conditions, that can affect the price
and supply of vegetables and fruit.
In April 1997, the Company completed a recapitalization (the
"Recapitalization") as a result of which Texas Pacific Group, a private
investment group, obtained a controlling interest in the Company. Under a new
senior management team introduced in connection with the Recapitalization, the
Company began implementing a new business strategy designed to increase sales
and improve operating margins by: (i) increasing market share and distribution
of high margin value-added products; (ii) introducing product and packaging
innovations; (iii) increasing penetration of high growth distribution channels,
such as supercenters and club
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stores; (iv) achieving cost savings through investments in new and upgraded
production equipment and plant consolidations; and (v) completing strategic
acquisitions.
COMPETITIVE STRENGTHS
Management believes that the following elements contribute to the Company's
position as a leading branded producer, marketer and distributor of canned
vegetables, fruit and tomato products in the United States and provide a solid
foundation for the Company's business strategy.
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte brand
name, which has been in existence since 1892, is one of the leading brand
names in the food industry. Management believes that the Del Monte brand has
the highest unaided brand awareness of any canned food brand in the United
States. The Company recently acquired the Contadina brand, an established
national brand with a strong reputation for quality. The Company's 1997 19.7%
market share of canned vegetables is larger than the combined market shares of
the Company's two largest branded competitors, and its 41.0% market share of
canned fruit is larger than the combined market shares of all other branded
competitors. The Company, including its Contadina business, had a pro forma
16.2% market share in the high margin solid segment of the canned tomato
market for 1997.
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MARKET SHARE FOR THE 52 WEEKS ENDED
DECEMBER 27, 1997
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MARKET NEXT LEADING BRANDED
CATEGORY POSITION(a) PERCENTAGE COMPETITOR'S PERCENTAGE(a)
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Canned vegetables......................... #1 19.7% 13.6% (Green Giant)
Canned fruit.............................. #1 41.0% 11.7% (Libby's)
Canned solid tomato products(b)........... #1 16.2% 11.2% (Hunt's)
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(a) Excludes private label.
(b) Pro forma to include Contadina sales.
- - TECHNICAL EXPERTISE AND LOW COST PRODUCTION ADVANTAGES -- The Company has
significant experience in developing new products and packaging alternatives
and in engineering efficient food processing operations. These capabilities
are leveragable across many food categories. The Company has developed
proprietary vegetable seed varieties, which increase harvest and cannery
recoveries and improve flavor and quality. The Company benefits from many
long-term relationships with experienced, geographically diverse growers who
work with the Company to maximize yields of raw product. These relationships
also help to ensure a consistent supply of raw product. As a result of its
technical expertise, proprietary seed varieties and raw product sourcing
diversity, as well as its modern processing equipment and labeling, packaging,
warehousing and distribution efficiencies, management believes that the
Company is one of the lowest cost producers of canned vegetables, fruit and
tomatoes in the United States.
- - PREFERRED SUPPLIER STATUS -- Competitive pressures in the retail food industry
are causing many retailers to prefer large suppliers such as the Company that
are able to provide consumer-favored brands, full product lines and
sophisticated inventory and category management programs. Del Monte
anticipated this trend and has developed proprietary software tools to assist
its customers and promote sales of its products. Del Monte's proprietary
category management system is designed to address retailers' efforts to
maximize profitability of shelf space dedicated to canned food categories. A
substantial majority of the Company's customers that have employed Del Monte's
category management system have increased the relative amount of shelf space
dedicated to the Company's products as compared to competing products. The
Company's proprietary vendor-managed inventory software allows Del Monte to
manage directly its customers' inventories of the Company's products. This
inventory management software is designed to reduce customers' overhead costs
and to enable them to achieve lower average inventory levels while enhancing
the Company's opportunities to sell its products. Retailers also rely on Del
Monte's in-depth knowledge as the leading branded marketer in the canned
fruit, vegetable and tomato categories, and they seek the Company's advice on
marketing and promoting these categories. Finally, Del Monte has strong,
well-developed relationships with all major participants in the retail grocery
trade. The Company believes
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<PAGE> 9
that these relationships will become increasingly important as consolidation
among grocery retailers continues. The Company is seeking to use its category
knowledge, customer relationships and software tools, along with its
multi-category product line that can readily be ordered and shipped on a full
truck-load basis, in order to become the preferred supplier in its product
categories.
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company's extensive
sales and distribution network is responsible for the distribution of finished
goods to over 2,400 customer destinations nationwide. This network enables the
Company to compete with other national brands and regional competitors, and to
introduce new products on a regional or national basis. The Company operates
six strategically located distribution centers offering customers a variety of
services, including electronic data interchange and direct store shipments.
Management believes that the Company's distribution system makes an important
contribution to the Company's success and provides the Company with a
competitive advantage over regional and private label competitors.
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, the
Company's Chief Executive Officer and Chief Operating Officer, respectively,
are veteran senior managers with extensive food industry experience. Mr.
Wolford has 30 years of experience in the food industry, 20 of which were with
Dole. He was president of Dole Packaged Foods from 1982 to 1987, and during
Mr. Wolford's tenure at Dole, Dole experienced increased profitability, sales
volume and market share. Mr. Wolford played a key role in redefining the Dole
brand and expanding the range of products sold under the brand. From 1988 to
1996, he was Chief Executive Officer of HK Acquisition Corp. where he
developed food industry investments with venture capital investors and managed
the investor-owned companies. Mr. Smith has 25 years of experience in the food
industry, 23 of which were at Dole, where he oversaw the building of Dole's
domestic fresh pineapple business and the restructuring of Dole's sizable
Hawaiian operations. In addition, Mr. Smith was responsible for establishing
Dole's juice business with minimal capital investment.
BUSINESS STRATEGY
Following the consummation of the Recapitalization in 1997, the Company
implemented a new business strategy designed to increase sales and improve
operating margins. The key elements of this new business strategy are discussed
below.
- - LEVERAGE BRAND EQUITY TO INCREASE SALES AND MARKET SHARE OF HIGH MARGIN
PRODUCTS -- The Company plans to leverage the Del Monte and Contadina brand
names and its strong relationships with customers to increase sales of its
existing product lines, focusing specifically on high margin products, such as
its specialty fruits and vegetables, diced tomatoes and its Fruit Cup line,
where the Company has historically had either low market share or low
household penetration relative to its overall category position.
- - FOCUS ON CONSUMPTION-DRIVEN MARKETING STRATEGY -- To enhance its ability to
leverage its brand equity, the Company has refocused its marketing efforts and
promotional strategy. To leverage its brand strength, the Company has
increased consumer-targeted marketing programs, primarily through the
distribution of free-standing coupon inserts, and has established clearly
differentiated product positioning that emphasizes the Company's premium
quality. The Company increased spending on consumer promotions from $12
million in fiscal 1996 to $46 million in fiscal 1997 and anticipates that its
consumer spending in fiscal 1998 and 1999 will be generally consistent with
levels of consumer spending in fiscal 1997. To improve the effectiveness of
its trade promotion strategy, the Company implemented performance-based
programs under which trade spending is based on retailers' sales of the
Company's products to consumers rather than on purchases from the Company. The
Company believes that this performance-based strategy, coupled with the
Company's category management capabilities, will continue to increase sales
and reduce costs.
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
developing new high margin products and line extensions designed to leverage
the Company's presence in its current product categories and to capitalize on
its food technology expertise. The Company has successfully introduced
flavored diced tomatoes, two lines of flavored canned fruit, Orchard Select, a
premium fruit product packaged in glass, and Fruit Smoothie Blenders, a
flavored fruit drink. These products extend the Company's traditional product
lines and appeal to consumers' demands for high quality, convenient and
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<PAGE> 10
nutritious food products. The Company is evaluating introductions of other new
products packaged in glass and plastic to further expand its presence in the
market beyond the canned food aisle.
- - INCREASE PENETRATION OF HIGH-GROWTH DISTRIBUTION CHANNELS -- Changes in the
retail grocery environment have resulted in substantial growth of alternative
retailers such as warehouse clubs, mass merchandisers and supercenters. The
Company believes it is well-positioned to benefit from these changes because
these vendors generally seek leading brand name products that generate high
inventory turnover. In addition, vendors in this category generally are
attracted to large, technologically sophisticated suppliers such as the
Company that have the ability to meet their stringent inventory and shelf
management requirements. The Company believes it is currently the leading
supplier of canned vegetables and fruit to Wal-Mart's Sam's Club, and is a
major supplier to PriceCostco. The Company also believes it is the leading
supplier of canned vegetables, fruit and solid tomato products as a group to
Wal-Mart Supercenters.
- - IMPLEMENT FURTHER COST SAVINGS -- The Company is aggressively pursuing cost
reduction opportunities, which have already contributed to an increase in
EBITDA margins (excluding the results of Divested Operations (as defined
below)) from 6.9% in 1995 to 10.4% in 1997. Management's strategy is to
improve profitability through the implementation of capital projects that
offer rapid returns on investment, and through plant consolidations and
increased operating efficiencies. The Company has announced plans to
consolidate, over the next three fiscal years, six existing fruit and tomato
operations in California into four facilities, including one large
state-of-the-art facility acquired as part of the Contadina Acquisition. The
Company continually evaluates its production facilities and believes that
further consolidations may be warranted in the future. In addition, the
Company plans to invest in new, state-of-the-art production equipment to
increase production efficiencies and strengthen its position as a low cost
producer.
- - COMPLETE STRATEGIC ACQUISITIONS -- The Company will pursue strategic
acquisitions when there are opportunities to leverage the Company's key
strengths in product development, food processing, marketing, sales and
distribution. In evaluating potential acquisition candidates, the Company
seeks, among other things: (i) leading brands that can be expanded by
leveraging the Company's technical and manufacturing expertise and/or its
sales and distribution systems, (ii) new products that can achieve growth
through re-branding and (iii) economies of scale in manufacturing,
distribution and capacity utilization. The Contadina Acquisition, for example,
adds a leading national brand which strengthens the Company's market share in
key tomato segments and allows the Company to realize cost savings through
plant consolidations. The Contadina Acquisition also allows the Company to
introduce new branded retail products and to increase sales to the branded
foodservice market.
------------------------
Del Monte was incorporated under the laws of the State of Maryland in 1989
and prior to the consummation of the Offering plans, subject to receipt of the
appropriate stockholder approval, to reincorporate under the laws of the State
of Delaware. Following the Offering, TPG Partners, L.P. ("TPG Partners") and
certain of its affiliates (with TPG Partners, "TPG") will own
approximately % of the Common Stock ( % if the U.S. Underwriters'
overallotment option is exercised in full) and will continue to have the power
to direct the management and policies of the Company. TPG is part of Texas
Pacific Group, which was founded by David Bonderman, James G. Coulter and
William S. Price, III in 1992 to pursue public and private investment
opportunities. Texas Pacific Group's other investments include such branded
consumer products companies as Beringer Wine Estates, Ducati Motors S.p.A.,
Favorite Brands International and J. Crew Group, Inc.
Del Monte maintains its principal executive office at One Market, San
Francisco, California 94105, and its telephone number is (415) 247-3000.
4
<PAGE> 11
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
United States offering................................... shares
International offering................................... shares
Total................................................. shares(1)
Common Stock to be outstanding after the Offering.......... shares(1)
Use of proceeds............................................ Del Monte intends to use the net
proceeds from the Offering to repay or
redeem certain outstanding
indebtedness and preferred stock.
See "Use of Proceeds."
NYSE symbol................................................ DLM
Risk factors............................................... For a discussion of certain risks that
should be considered by prospective
investors, see "Risk Factors."
</TABLE>
- ---------------
(1) Assumes the U.S. Underwriters' overallotment option is not exercised.
5
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents summary historical and pro forma financial
data of the Company. The summary historical consolidated financial data
presented below as of December 31, 1996 and 1997 and for the six months then
ended was derived from unaudited interim consolidated financial statements of
the Company as of such dates and for the periods then ended. The summary
historical consolidated financial data presented below as of June 30, 1995, 1996
and 1997 and for the years then ended were derived from the audited consolidated
financial statements of the Company. Such historical financial information
should be read in conjunction with the consolidated financial statements of the
Company and the related notes thereto included elsewhere in this Prospectus. The
unaudited pro forma statements of operations information was prepared by the
Company as if the Contadina Acquisition, the Recapitalization and related
financings had occurred as of July 1, 1996 and should be read in conjunction
with the pro forma financial information set forth under "Unaudited Pro Forma
Financial Data." The unaudited pro forma statements of operations information
does not purport to represent what the Company's results of operations actually
would have been if the Contadina Acquisition and the Recapitalization had
occurred as of the date indicated or what such results will be for any future
periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
----------------------------------------- ----------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
----------------------------- --------- ------------------ -------------
1995 1996 1997 1997 1996 1997 1997
-------- ------- -------- --------- -------- ------- -------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales(a)..................... $ 1,527 $ 1,305 $ 1,217 $ 1,373 $ 628 $ 620 $ 712
Cost of sales(a)................. 1,183 984 817 962(b) 430 413 488
-------- ------- -------- -------- -------- ------- -------
Gross profit..................... 344 321 400 411 198 207 224
Selling, advertising,
administrative and general
expenses(a).................... 264 239 327(c) 336 156 162 187
-------- ------- -------- -------- -------- ------- -------
Operating income................. 80 82 73 75 42 45 37
Interest expense................. 76 67 52 93 26 36 49
Loss (gain) on sale of
assets(d)...................... -- (107) 5 5 5 -- --
Other (income) expense(e)........ (11) 3 30 8 -- 6 (1)
-------- ------- -------- -------- -------- ------- -------
Income (loss) before income
taxes, minority interest,
extraordinary item and
cumulative effect of accounting
change......................... 15 119 (14) (31) 11 3 (11)
Provision for income taxes....... 2 11 -- -- 2 -- --
Minority interest in earnings of
subsidiary..................... 1 3 -- -- -- -- --
-------- ------- -------- -------- -------- ------- -------
Income (loss) before
extraordinary item and
cumulative effect of accounting
change......................... 12 105 (14) (31) 9 3 (11)
Extraordinary loss(f)............ 7 10 42 -- 4 -- --
Cumulative effect of accounting
change(g)...................... -- 7 -- -- -- -- --
-------- ------- -------- -------- -------- ------- -------
Net income (loss)................ $ 5 $ 88 $ (56) $ (31) $ 5 $ 3 $ (11)
======== ======= ======== ======== ======== ======= =======
Income (loss) per common
share(h)....................... $ $ $ $ $ $ $
======== ======= ======== ======== ======== ======= =======
Weighted average number of shares
outstanding....................
======== ======= ======== ======== ======== ======= =======
CERTAIN DATA AS ADJUSTED FOR THE
OFFERING:(I)
Interest expense................. $ 74 $ 39
Net loss......................... (12) (1)
Loss per common share(h)......... $ $
======== =======
Weighted average number of shares
outstanding....................
======== =======
OTHER DATA:
EBITDA(j)........................ $ 76 $ 92 $ 121 $ 119 $ 54 $ 59 $ 56
EBITDA margin(j)................. 6.9% 8.6% 10.4% 9.0% 9.1% 9.5% 7.9%
Depreciation and
amortization(k)................ 35 26 24 36 12 13 18
Capital expenditures............. 24 16 20 30 5 6 11
</TABLE>
6
<PAGE> 13
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------ -------------------------------
ACTUAL ACTUAL AS ADJUSTED(i)
------------------------ -------------- --------------
1995 1996 1997 1996 1997 1997
------ ------ ------ ----- ------ --------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 99 $ 207 $ 116 $ 173 $ 224 $ 225
Total assets.............................................. 960 736 667 848 1,053 1,048
Total debt, including current maturities.................. 576 373 610 388 856 680
Redeemable preferred stock................................ 215 213 32 213 32 --
Stockholders' deficit..................................... (393) (304) (412) (273) (368) (164)
</TABLE>
- ---------------
(a) In fiscal 1997, certain merchandising allowances, which previously were
included as a cost of sales, have been reclassified to selling expense. Such
merchandising allowances totaled $106 million, $100 million, $143 million
and $68 million in the fiscal years ended June 30, 1995, 1996 and 1997 and
the six months ended December 31, 1996, respectively. In addition, certain
military distributor allowances, which previously were treated as a
reduction in net sales, have been reclassified to selling expense. Such
military distributor allowances amounted to $1 million, $1 million, $2
million and $1 million in fiscal years ended June 30, 1995, 1996 and 1997
and the six months ended December 31, 1996, respectively. All financial
information has been restated to conform to this presentation.
(b) Includes $9 million of inventory step-up as part of the preliminary purchase
price allocation relating to the Contadina Acquisition.
(c) In connection with the Recapitalization, which was consummated on April 18,
1997, expenses of approximately $25 million were incurred primarily for
management incentive payments and, in part, for severance payments. Such
amount has been excluded from the pro forma fiscal 1997 results.
(d) In November 1995, the Company sold its pudding business for $89 million, net
of $4 million of related transaction fees. The sale resulted in a gain of
$71 million. In March 1996, the Company sold its 50.1% ownership interest in
Del Monte Philippines for $100 million, net of $2 million of related
transaction fees. The sale resulted in a gain of $52 million of which $16
million was deferred and $36 million was recognized in fiscal 1996. The
purchase price included a premium paid to the Company as consideration for
an eight-year supply agreement. The gain associated with the value of the
premium was deferred and is being amortized over the term of the agreement.
In the fiscal quarter ended December 1996, the Company sold Del Monte Latin
America. The combined sales price of $50 million, reduced by $2 million of
related transaction expenses, resulted in a loss of $5 million.
(e) In fiscal 1995, other income includes the Company's receipt of proceeds of a
$30 million letter of credit, reduced by $4 million of related transaction
expenses, as a result of the termination of a merger agreement with Grupo
Empacador de Mexico, S.A. de C.V. In fiscal 1997, $22 million of expenses
were incurred in conjunction with the Recapitalization, primarily for legal,
investment advisory and management fees. Such amount has been excluded from
the pro forma fiscal 1997 results.
(f) In June 1995, the Company refinanced its then-outstanding revolving credit
facility, term loan and senior secured floating rate notes. In conjunction
with this debt retirement, capitalized debt issue costs of $7 million were
written off and accounted for as an extraordinary loss. In December 1995 and
April 1996, the Company prepaid part of its term loan and senior secured
notes. In conjunction with the early debt retirement, the Company recorded
an extraordinary loss of $10 million for the early retirement of debt. The
extraordinary loss consisted of a $5 million prepayment premium and a $5
million write-off of capitalized debt issue costs related to the early
retirement of debt. In fiscal 1997, $42 million of expenses related to the
early retirement of debt and to the Recapitalization was charged to net
income. In September 1996, the Company repurchased outstanding debt, in
conjunction with which capitalized debt issue costs of $4 million, net of a
discount on such debt, were written off and accounted for as an
extraordinary loss. In conjunction with the refinancing of debt that
occurred at the time of the Recapitalization, the Company recorded a $38
million extraordinary loss related to the early retirement of debt. The $38
million extraordinary loss consisted of previously capitalized debt issue
costs of approximately $19 million and a premium payment and a term loan
make-whole payment aggregating to $19 million.
(g) Effective July 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
cumulative effect of adopting SFAS No. 121 resulted in a charge to fiscal
1996 net earnings of $7 million.
(h) Net income (loss) attributed to the shares of Common Stock is computed as
net income (loss) reduced by the cash and in-kind dividends for the period
on redeemable preferred stock.
(i) Adjusted to give effect to the issuance of shares offered hereby and
the use of net proceeds therefrom to fund the repayment of $176 million of
long-term debt and the redemption of preferred stock and a corresponding
reduction in fixed charges at the beginning of the respective periods.
(j) EBITDA represents income (loss) before provision for income taxes, minority
interest, extraordinary item, and cumulative effect of accounting change,
plus interest expense and special charges, depreciation and amortization
expense and other one-time and non-cash charges, less gains (losses) on
sales of assets and the results of the Divested Operations. EBITDA should
not be considered in isolation from and is not presented as an alternative
measure of operating income or cash flow from operations (both as determined
in accordance with GAAP). For fiscal 1995, EBITDA excludes $26 million
received in connection with a terminated transaction, $4 million paid by the
Company to terminate its alliance with Pacific Coast Producers ("PCP") and
$7 million related to the termination of a management equity plan. For
fiscal 1996, other one-time charges included $3 million for relocation costs
and $6 million of costs associated with a significant headcount reduction.
For fiscal 1997, EBITDA excludes $47 million of expenses incurred in
connection with the Recapitalization and $7 million related to the write-off
of a long-term asset. Pro forma one-time charges for the year ended June 30,
1997 include $7 million related to the write-off of a long-term asset and $9
million related to the application of purchase accounting in connection with
the Contadina Acquisition. For the six months ended December 31, 1997, one-
time charges consisted of $7 million of certain indirect expenses incurred
in connection with the Contadina Acquisition (such amount has been excluded
from the pro forma results of that period). EBITDA margin is calculated as
EBITDA as a percentage of net sales (excluding net sales of Divested
Operations of $417 million, $233 million and $48 million for the years ended
June 30, 1995, 1996 and 1997, respectively, and $35 million for the six
months ended December 31, 1996).
(k) Depreciation and amortization exclude amortization of $5 million, $5 million
and $5 million of deferred debt issuance costs for fiscal 1995, 1996 and
1997, respectively. Depreciation and amortization exclude amortization of $3
million and $2 million of deferred debt issuance costs in the six-month
periods ended December 31, 1996 and 1997, respectively. Pro forma
depreciation and amortization exclude amortization of $5 million and $2
million of pro forma deferred debt issuance costs for fiscal 1997 and for
the six-month period ended December 31, 1997, respectively.
7
<PAGE> 14
SUMMARY HISTORICAL FINANCIAL DATA OF CONTADINA
The following table presents summary historical financial data of Contadina
for purchased product lines for the year ended December 31, 1996, the period
from January 1, 1997 through December 18, 1997 derived from the audited
financial statements for those periods, and summary financial data for the nine
months ended September 30, 1996 and 1997.
Contadina was not operated as a separate business unit and, as such, it did
not have regularly prepared financial statements. The Company has obtained and
prepared financial information of Contadina for the year ended December 31,
1996, the period ended December 18, 1997, and the nine-month periods ended
September 30, 1996 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JANUARY 1, 1997 SEPTEMBER 30,
YEAR ENDED THROUGH --------------
DECEMBER 31, 1996 DECEMBER 18, 1997 1996 1997
----------------- ----------------- ----- -----
<S> <C> <C> <C> <C>
Net sales.................................. $160 $162 $112 $108
Cost of sales(a)........................... 151 163 108 112
---- ---- ---- ----
Gross margin.......................... 9 (1) 4 (4)
Selling, advertising, administrative
and general expenses(b).................. 20 26 19 19
---- ---- ---- ----
Operating loss............................. (11) (27) (15) (23)
Interest expense(c)........................ 6 6 4 4
---- ---- ---- ----
Net loss before taxes................. $(17) $(33) $(19) $(27)
==== ==== ==== ====
OTHER DATA:
Depreciation and amortization.............. $ 12 $ 13 $ 8 $ 8
Capital expenditures....................... 10 8 7 7
</TABLE>
(a) Cost of sales included royalty expense of $5 million for both the year
ended December 31, 1996 and the period ended December 18, 1997 and $3
million for each of the nine-month periods ended September 30, 1996 and
1997. Under a royalty agreement with Nestle S.A., royalties were charged
for the license of the Contadina trademarks. This expense will not be
incurred as part of the on-going operations of Contadina subsequent to the
date of the Contadina Acquisition. Cost of sales also included an
allocation from Nestle for certain fixed distribution costs which included,
without limitation, costs of utilizing outside storage facilities and costs
for utilizing centralized distribution and storage facilities of $5
million, $7 million, $5 million and $5 million for the year ended December
31, 1996, the period ended December 18, 1997, and the nine-month periods
ended September 30, 1996 and 1997, respectively. The Company believes that,
as part of on-going operations of Contadina subsequent to the acquisition,
it will experience distribution costs of a similar nature to those
allocated by Nestle in its cost allocation but at a significantly reduced
level; however, no assurances can be given in this regard.
(b) Selling, advertising, administrative and general expenses included an
allocation from Nestle for marketing and other general expenses which
included, without limitation, all selling costs, including direct sales
force and brokerage expenses; and general and administrative costs
associated with support services such as finance, legal, human resources
and information systems. For the year ended December 31, 1996, the period
ended December 18, 1997, and the nine-month periods ended September 30,
1996 and 1997, allocated marketing expense was $8 million, $10 million, $7
million and $8 million, respectively. The Company believes that it will
experience operating costs of a similar nature to those charged by Nestle
in its cost allocations, but at a significantly reduced level; however, no
assurances can be given in this regard. Other general expenses allocated by
Nestle were $4 million, $10 million, $7 million and $8 million for the year
ended December 31, 1996, the period ended December 18, 1997, and the
nine-month periods ended September 30, 1996 and 1997, respectively.
(c) Interest expense represents an allocation charged to Contadina by Nestle
based on the end-of-month working capital balance at an intercompany rate
equal to 7% for all periods.
8
<PAGE> 15
RISK FACTORS
Before purchasing the shares of Common Stock offered hereby, a prospective
investor should carefully consider all of the information in this Prospectus,
including the principal risk factors set forth below.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. On a pro forma basis, as of December 31,
1997, after giving effect to the application of the net proceeds of the
Offering, the Company had approximately $1.2 billion of indebtedness (including
trade payables), and its stockholders' deficit was $164 million. In addition,
subject to the restrictions contained in the Company's indebtedness, the Company
and its subsidiaries may incur additional senior or other indebtedness from time
to time to finance acquisitions or capital expenditures or for other general
corporate purposes. As a result of seasonal working capital requirements, the
Company's borrowings fluctuate significantly during the year, generally peaking
in September and October. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to the holders of the Common Stock, including, but not limited to,
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be impaired; (ii) a significant portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Company for its operations; (iii) significant amounts of the Company's
borrowings will be at variable rates of interest, which could result in higher
interest expense; (iv) the terms of the Company's indebtedness contain financial
and/or restrictive covenants, the failure to comply with which may result in an
event of default which, if not cured or waived, could have a material adverse
effect on the Company; (v) the Company may be substantially more leveraged than
certain of its competitors, which may place the Company at a competitive
disadvantage; and (vi) the Company's substantial degree of leverage may limit
its flexibility to adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a downturn in
general economic conditions or its business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financing
Activities -- The Recapitalization" and "Description of Certain Indebtedness."
The Company's ability to make scheduled payments or to refinance its debt
obligations will depend upon its future financial and operating performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, certain of which are beyond its control. There can be no
assurance that the Company's operating results, cash flow and capital resources
will be sufficient for payment of its indebtedness in the future. In the absence
of such operating results and resources, the Company could face substantial
liquidity problems and might be required to dispose of material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that the Company could
realize therefrom. In addition, because the Company pays interest on certain of
its indebtedness at floating rates, an increase in interest rates could
adversely affect, among other things, the Company's ability to meet its debt
service obligations. If the Company is unable to service its indebtedness, it
will be forced to adopt an alternative strategy that may include actions such as
reducing or delaying planned expansion and capital expenditures, selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all.
COMPETITION
While many companies compete in the domestic canned vegetable, fruit and
tomato product categories, only a small number of well-established companies
operate on both a national and a regional basis with single or multiple branded
product lines. The Company faces substantial competition throughout its product
lines from these and other companies. Certain of these competitors have greater
financial resources and flexibility than the Company. Several of the Company's
product lines are sensitive to competition from regional brands
9
<PAGE> 16
and many of the Company's product lines compete with imports, private label
products and fresh alternatives. While no single private label competitor has
greater market share than the Company in its principal product categories, for
the 52 weeks ended December 27, 1997, private label competition as a group
represented 42.7%, 40.5% and 30.0% of canned vegetable, fruit and solid tomato
product sales, respectively. Furthermore, the Company cannot predict the pricing
or promotional actions by its competitors or their effects on the Company's
ability to market and sell its products. There can be no assurance that the
Company's sales volume or market shares would not be adversely affected by
negative consumer reaction to its higher prices. The categories of the canned
food industry in which the Company competes have in the past been affected by
processing over-capacity. Although the Company believes that recent
consolidation among certain participants in those categories may result in
capacity rationalization, there can be no assurance that the Company's results
will not be adversely affected by industry over-capacity in the future or that
crop supply levels will not change so as to create an imbalance of supply and
demand in future periods.
RISKS RELATING TO IMPLEMENTATION OF BUSINESS STRATEGY
The Company's ability to implement its business strategy and improve its
operating results will depend in part on its ability to realize substantial cost
savings through operating efficiencies and to achieve additional penetration and
market share for its high margin products. No assurance can be given that the
Company will be able to achieve such goals or that, in implementing cost saving
measures, it will not impair its ability to respond rapidly or efficiently to
changes in the competitive environment.
RISKS RELATING TO CONTADINA
Contadina was not operated as a separate business unit and, as such, it did
not have regularly prepared financial statements. Contadina's books and records
have been audited only for the fiscal year ended December 31, 1996 and the
period ended December 18, 1997. Financial information presented herein
concerning Contadina's other periods has of necessity required estimation by the
Company and must therefore not be relied upon to a material extent.
The Contadina Acquisition has been accounted for using the purchase method.
This accounting treatment requires all purchased assets to be recorded on the
Company's books based upon their fair value. Accordingly, the inventory of
Contadina acquired in the Contadina Acquisition was recorded on the Company's
books at fair value (generally higher than the recorded cost). The Company
expects to report a lower gross margin upon future sales of the revalued
inventory.
The full benefits of the acquisition of Contadina's assets will require
coordination of operations, the implementation of appropriate operational,
financial and management systems and controls in order to operate effectively
and efficiently, and the integration of the Contadina business into the
Company's administrative, finance and marketing organizations. This will require
substantial attention from the Company's management team. The diversion of
management attention, as well as any other difficulties which may be encountered
in the transition and integration process, could have an adverse impact on the
revenue and operating results of the Company. In addition, there can be no
assurance that the Company will be successful in integrating the operations of
Contadina, or that any planned benefits will be realized.
SEVERE WEATHER CONDITIONS AND NATURAL DISASTERS
Severe weather conditions and natural disasters, such as floods, droughts,
frosts or earthquakes, may affect the supply of one or more of the Company's
products. For example, the Company's peach and pear growing regions experienced
a compressed summer 1997 harvesting season due to adverse weather. This
shortened time frame for harvesting caused an increase in the use of cold
storage for peaches and pears until processing capacity became available. In
addition, smaller fruit size lowered raw product recoveries and cooler weather
than normal resulted in late plantings for some vegetables, lower field yields
and lower recoveries. Furthermore, competing manufacturers of canned vegetable,
fruit or tomato products may be affected differently depending on the location
of their principal sources of supply. If the supply of any of the Company's
products is adversely affected by weather conditions, there can be no assurance
that the Company will be able
10
<PAGE> 17
to obtain sufficient supplies from other sources. In particular, the Company's
tomato and fruit production is concentrated in the San Joaquin Valley of
California. In the winter of 1997-98, certain areas in California, including
some of the Company's growing regions, have experienced substantial rainfall as
a result of the "El Nino" phenomenon. The Company does not believe at this time
that such weather conditions will have a material adverse effect on the 1998
harvesting season or on the Company's results of operations. Historically,
significant weather-related shortages in fruit, vegetable and tomato harvests
have resulted in price increases that have offset increases in raw product costs
and reductions in sales volumes. Nevertheless, no assurance can be given that,
if such adverse weather conditions persist, the harvesting season will not be
delayed or otherwise adversely affected with consequent adverse effects on the
Company's cost of goods sold, inventory and sales.
GOVERNMENTAL REGULATION; ENVIRONMENTAL COMPLIANCE
As a result of its agricultural, food processing and canning activities,
the Company is subject to numerous foreign and domestic environmental laws and
regulations. Many of these laws and regulations, both foreign and domestic, are
becoming increasingly stringent and compliance with them is becoming
increasingly expensive. The Company has been named as a potentially responsible
party ("PRP") and may be liable for environmental investigation and remediation
costs at certain designated "Superfund Sites" under the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), or under similar state laws. Based on available information, the
Company is defending itself in these actions as appropriate, and believes that
none of the matters will have a material adverse impact on the Company's
financial position or results of operations. There can be no assurance that the
Company's defenses will prevail in any litigation with respect to the foregoing,
that the Company's financial condition will not be adversely affected by the
imposition of liability for Superfund or other contaminated sites for which the
Company has been named as a PRP or that the Company will not be identified as a
PRP at additional sites in the future or that additional remediation
requirements will not be imposed on properties currently or previously owned or
operated by the Company. In addition, there can be no assurance that other sites
to which the Company has sent waste will not be identified for investigation or
proposed for listing under CERCLA or similar state laws. In addition, under the
Federal Food, Drug and Cosmetic Act and the Food Quality Protection Act of 1996,
the U.S. Environmental Protection Agency (the "EPA") is involved in a series of
regulatory actions relating to the evaluation and use of pesticides in the food
industry, and there can be no assurance that the effect of such actions and any
future actions on the availability and use of pesticides would not have a
material adverse impact on the Company's financial position or results of
operations. See "Business -- Governmental Regulation" and "-- Environmental
Compliance."
CONTROL BY TPG
After giving effect to the sale of the Common Stock offered hereby, TPG
will beneficially own % (or % if the U.S. Underwriters' overallotment
option is exercised in full) of the outstanding Common Stock. Following the
Offering, it is expected that TPG will continue to use its majority interest in
the Common Stock to direct the Company's management and to control the election
of the entire Board of Directors of Del Monte. In addition, TPG's majority
interest in the Common Stock will give it the power to determine substantially
all other matters requiring stockholder approval and effectively to control the
Company. See "Certain Relationships and Related Transactions" and "Description
of Capital Stock." The concentration of beneficial ownership of Del Monte may
also have the effect of delaying, deterring or preventing a change in control of
Del Monte, may discourage bids for the Common Stock at a premium over the market
price of the Common Stock and may otherwise adversely affect the market price of
the Common Stock. See "-- Anti-Takeover Provisions."
The Company currently has, and will continue to have, contractual
relationships with TPG, including a Transaction Advisory Agreement and a
Management Advisory Agreement, each relating to certain services to be provided
by TPG to the Company. See "Certain Relationships and Related Transactions."
11
<PAGE> 18
RESTRICTIVE DEBT COVENANTS
The Company is subject to a number of significant covenants under its
indebtedness that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
repay other indebtedness or amend other debt instruments, pay dividends, create
liens on assets, enter into capital leases, make investments, loans or advances,
make acquisitions, engage in mergers or consolidations, make capital
expenditures, engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. In addition, under the Bank
Financing, the Company is required to comply with specified financial ratios and
tests, including minimum EBITDA, minimum net worth, minimum fixed charge
coverage and maximum leverage ratios. Substantially all of the assets of the
Company have been pledged to secure the indebtedness of the Company. See
"Description of Certain Indebtedness."
Compliance with such restrictions could impair the Company's ability to
fund its capital expenditures on a timely basis. Moreover, the Company's ability
to comply with such covenants may be affected by events beyond its control,
including prevailing economic, financial and industry conditions. The breach of
any of such covenants could result in a default, which would permit the
acceleration of such indebtedness and the termination of the commitments of the
Company's senior lenders to make further extensions of credit. Such senior
lenders could also foreclose against collateral securing indebtedness owed them.
BRAND RISK
The Company has licensed the Del Monte brand name to various unaffiliated
companies internationally and, for certain products, within the United States.
The common stock of one licensee, Fresh Del Monte Produce N.V., is traded on the
New York Stock Exchange. Acts or omissions by these unaffiliated companies may
adversely affect the value of the Del Monte brand name or the trading prices for
the Common Stock. In addition, press and other third party announcements or
rumors relating to any of these licensees may affect the market prices for the
Common Stock even though the events announced or rumored may not relate to the
Company.
LACK OF DIVIDENDS
Del Monte has not declared or paid any cash or other dividends on its
shares of Common Stock and does not expect to pay dividends for the foreseeable
future. Del Monte is a holding company with no substantial business operations
or assets of its own. The terms of the Company's indebtedness limit the ability
of the Company's subsidiaries to distribute to the Company any cash or other
assets, which could limit the ability of Del Monte to pay dividends to holders
of Company Stock. In addition, future borrowings by the Company's subsidiaries
can be expected to contain further restrictions or prohibitions on the payment
of dividends by such subsidiaries to Del Monte. See "Dividend Policy" and
"Description of Certain Indebtedness."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and although application has been made to list the Common Stock on the
New York Stock Exchange, there can be no assurance that an active trading market
for the Common Stock will develop or be sustained if it develops or that the
market price for the Common Stock will not decline below the public offering
price set forth on the cover page of this Prospectus. The initial public
offering price of the Common Stock will be determined by negotiation between the
Company and the Underwriters and may not be indicative of the market price of
the Common Stock following the Offering. See "Underwriters." The market price of
the Common Stock could be subject to significant fluctuations in response to
various factors and events, including the liquidity of the market for the Common
Stock, differences between the Company's actual financial or operating results
and those expected by investors and analysts, changes in analysts'
recommendations or projections, pricing and competition in the canned fruit and
vegetable industry, new statutes or regulations or changes in interpretations of
existing statutes and regulations affecting the Company's business, changes in
general market conditions and broad market fluctuations.
12
<PAGE> 19
DILUTION; BENEFIT TO EXISTING STOCKHOLDERS
The initial public offering per share price of the Common Stock of
$ is $ higher than the deficit in net tangible book value per
share of Common Stock, which will upon consummation of the Offering result in a
benefit to the current stockholders of Del Monte, including TPG. Purchasers of
Common Stock in the Offering will experience immediate and substantial dilution
of $ per share of Common Stock (assuming an initial public offering
price of $ per share) from the initial public offering price, and the
deficit in net tangible book value per share of Common Stock after the Offering
will be $ per share. In addition, the shares of Common Stock
issued and owned by TPG and other existing stockholders prior to the Offering
were originally acquired in connection with the Recapitalization and the
Contadina Acquisition for total consideration of approximately $182 million,
$1,000 per share, as compared with new investors who will pay $ million, or
$ per share, for the shares of Common Stock offered by Del
Monte hereby (assuming an initial public offering price of $ per
share). Accordingly, TPG and other existing stockholders will benefit from an
unrealized appreciation of $ per share of Common Stock ($
million in the aggregate) in the value of their shares of Common Stock as a
result of the Offering.
POTENTIAL ADVERSE IMPACT ON STOCK PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Following the Offering, Del Monte will have shares of Common
Stock (assuming no exercise of the U.S. Underwriters' overallotment option)
outstanding. Of these, the shares offered hereby will be freely
transferable by persons other than "affiliates" of the Company without
restriction or further registration under the Securities Act. The remaining
outstanding shares of Common Stock will be owned by TPG and the other
current stockholders of Del Monte and will be "restricted securities." These
"restricted" shares of Common Stock will be eligible for sale in the public
market without registration under the Securities Act, subject to compliance with
the resale volume limitations and other restrictions of Rule 144 under the
Securities Act, or in the private institutional market, subject to compliance
with the requirements of Rule 144A under the Securities Act. Future sales of
shares of Common Stock by TPG or such other stockholders or the perception that
such sales could occur, could adversely affect prevailing market prices for the
shares of Common Stock. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS
Following the anticipated reincorporation of Del Monte under Delaware law,
subject to receipt of the appropriate stockholder approval, certain provisions
of Del Monte's Certificate of Incorporation (the "Certificate of Incorporation")
and bylaws, including the provisions in the Certificate of Incorporation
providing for (i) the issuance of blank check preferred stock by the Board of
Directors without stockholder approval, (ii) classification of the Board of
Directors, (iii) a requirement that general meetings of stockholders be called
only by a majority of the Board of Directors or by the Chairman of the Board,
(iv) a prohibition on stockholder action through written consents and (v)
advance notice requirements for stockholder proposals and nominations, may have
the effect of delaying, deferring or preventing a change of control of Del Monte
without further action by the stockholders, may discourage bids for the Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of, and the voting and other rights of the holders of,
the Common Stock. See "Description of Capital Stock -- Certain Certificate of
Incorporation and Bylaw Provisions."
In addition, the indentures relating to certain indebtedness of the Company
provide that upon the occurrence of a change of control (in each case, as
defined therein), each holder of such notes will, under certain circumstances,
have the right to require that the Company repurchase all of such holder's notes
in cash at a premium to the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of such repurchase. In addition, a change
of control would constitute an event of default under the Company's bank
financing, which could have a material adverse effect on the Company. These
provisions could delay, deter or prevent a takeover attempt. See "Description of
Certain Indebtedness."
13
<PAGE> 20
USE OF PROCEEDS
The net proceeds to Del Monte from the Offering, assuming an initial public
offering price of $ per share (after deducting applicable underwriting
discounts and commissions and estimated offering expenses payable by Del Monte)
are estimated to be approximately $227 million (approximately $ million if
the U.S. Underwriters' overallotment option is exercised in full). Del Monte
intends to use approximately (i) $94 million of the net proceeds of the Offering
to repay indebtedness under its senior secured term loan facility (the "Term
Loan Facility"); (ii) $44 million to redeem its senior discount notes (the "Del
Monte Notes"); (iii) $39 million to redeem its senior subordinated notes (the
"DMC Notes"), including $1 million of accrued interest; (iv) $40 million to
redeem its Series C Redeemable Preferred Stock (the "Series C Preferred Stock"),
including $3 million of unamortized discount, $4 million of accreted dividends
and $1 million of redemption premium; and (v) $10 million to pay certain
repayment and redemption premiums in connection with the redemption of the Del
Monte Notes and the DMC Notes. The Term Loan Facility, the Del Monte Notes and
the DMC Notes mature and bear interest at the rates specified under the heading
"Description of Certain Indebtedness." The net proceeds from the issuance of the
Del Monte Notes were used by the Company to finance a portion of the Contadina
Acquisition.
DIVIDEND POLICY
Holders of the Common Stock are entitled to receive dividends pro rata on a
per share basis when, as and if declared by the Board of Directors of Del Monte
out of funds legally available therefor. Del Monte has not declared or paid any
cash or other dividends on its shares of Common Stock and does not expect to pay
dividends for the foreseeable future. Future dividend policy will be determined
periodically by the Board of Directors based upon conditions then existing,
including the Company's earnings and financial condition, capital requirements,
including debt service obligations, and other relevant factors.
As a holding company, the ability of Del Monte to pay dividends in the
future is dependent upon the receipt of dividends or other payments from its
subsidiaries. In addition, the terms of the Company's indebtedness limit the
ability of Del Monte's subsidiaries to pay dividends to Del Monte. See "Risk
Factors -- Lack of Dividends" and "Description of Certain Indebtedness."
14
<PAGE> 21
CAPITALIZATION
The following table sets forth the actual unaudited capitalization of the
Company at December 31, 1997 and as adjusted to give effect to the sale of
shares of Common Stock, assuming an initial public offering price of $
per share, and the application of the net proceeds received by the Company. The
following table should be read in conjunction with "Use of Proceeds," "Unaudited
Pro Forma Financial Data," "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes thereto of the Company
included herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED
------ --------------
(IN MILLIONS)
<S> <C> <C>
Total debt:
Revolving Credit Facility(1).............................. $153 $153
Term Loan Facility........................................ 430 336
12 1/4% Senior Subordinated Notes of DMC(2)............... 147 109
12 1/2% Senior Discount Notes of Del Monte................ 126 82
---- ----
Total debt............................................. 856 680
---- ----
Redeemable Preferred Stock(3)............................... 32 --
Stockholders' equity:
Common Stock, $.01 par value; 1,000,000 shares authorized,
181,560 shares issued and outstanding and shares
authorized and shares issued and outstanding as
adjusted(4)............................................ -- --
Paid-in capital........................................... 170 397
Retained earnings (deficit)(5)............................ (538) (561)
---- ----
Total stockholders' deficit............................ (368) (164)
---- ----
Total capitalization.............................. $520 $516
==== ====
</TABLE>
- ---------------
(1) The total capacity under the revolving credit facility is $350 million. See
"Description of Certain Indebtedness."
(2) Excludes $1 million of accrued interest payable.
(3) Net of unamortized discount of $3 million and excludes accreted dividends
aggregating approximately $4 million as of December 31, 1997.
(4) Excludes shares reserved for issuance pursuant to the Company's
management share option plan. See "Management."
(5) As adjusted reflects a $5 million write-off of a pro rata share of deferred
financing costs associated with the repayment of the Company's indebtedness,
as well as $11 million of repayment and redemption premiums.
15
<PAGE> 22
DILUTION
The deficit in net tangible book value of the Company at December 31, 1997
was approximately $ million or $ per share of Common Stock. Without
taking into account any changes in the deficit in net tangible book value
attributable to operations after December 31, 1997, after giving effect to the
sale of the shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share and the application of the estimated net
proceeds as described under "Use of Proceeds," the pro forma deficit in net
tangible book value of the Company as adjusted at December 31, 1997 would have
been $ million, or $ per share of Common Stock. This represents an
immediate reduction in the deficit in net tangible book value of $ per share
of Common Stock to the existing stockholders, including TPG, and an immediate
dilution of $ per share of Common Stock to new investors of shares of Common
Stock in the Offering. The following table illustrates such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Deficit in net tangible book value per share of Common Stock
before the Offering(1).................................... $
Reduction in deficit in net tangible book value per share of
Common Stock attributable to new investors(2)............. $
Pro forma deficit in net tangible book value per share of
Common Stock after the Offering........................... $
------
Dilution per share to new investors(3)...................... $
======
</TABLE>
- ---------------
(1) Deficit in net tangible book value per share is determined by dividing the
Company's unaudited net deficit in tangible book value (total tangible
assets less total liabilities) of $ million at December 31, 1997 by the
aggregate number of shares of Common Stock outstanding at December 31, 1997.
(2) After deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(3) Dilution is determined by subtracting pro forma deficit in net tangible book
value per share of Common Stock after the Offering from the assumed initial
public offering price paid by a new investor for a share of Common Stock.
16
<PAGE> 23
UNAUDITED PRO FORMA FINANCIAL DATA
On April 18, 1997, the Company completed the Recapitalization. In
connection with the Recapitalization, the Company repaid substantially all of
its funded debt obligations existing immediately before the Recapitalization. On
December 19, 1997, the Company acquired Contadina for $177 million plus an
estimated working capital adjustment of approximately $20 million. The purchase
price is subject to adjustment based on the final calculation of net working
capital as of the closing date for the Contadina Acquisition. The following
Unaudited Pro Forma Statements of Operations were prepared by the Company as if
the Contadina Acquisition, the Recapitalization and related financings had
occurred as of July 1, 1996. The Unaudited Pro Forma Statements of Operations do
not purport to represent what the Company's results of operations actually would
have been if the Contadina Acquisition and the Recapitalization had occurred as
of the dates indicated or what such results will be for any future periods.
The unaudited pro forma financial data are based on the historical
financial statements of the Company and the assumptions and adjustments
described in the accompanying notes. The Company believes that such assumptions
are reasonable. The unaudited pro forma financial data should be read in
conjunction with the consolidated financial statements of the Company and the
accompanying notes thereto appearing elsewhere in this Prospectus.
Contadina was not operated as a separate business unit and, as such, it did
not have regularly prepared financial statements. The Company has obtained and
prepared financial information of Contadina for the year ended December 31,
1996, the period ended December 18, 1997 and the nine-month periods ended
September 30, 1996 and 1997. Due to the limited information available to the
Company, the Company has prepared the Unaudited Pro Forma Statement of
Operations for the year ended June 30, 1997 using Contadina historical financial
information for the 12-month period ended September 30, 1997 derived from the
audited financial statements for the year ended December 31, 1996 and unaudited
financial data for the nine-month periods ended September 30, 1996 and 1997
appearing elsewhere in this Prospectus. The Unaudited Pro Forma Statement of
Operations for the six-month period ended December 31, 1997 reflects the
historical revenues and expenses of Contadina from July 1, 1997 through December
18, 1997. Such historical financial information includes allocations from Nestle
for certain operating costs including, without limitation, costs of utilizing
outside storage facilities; all selling costs including, without limitation,
direct sales force and brokerage expenses; costs for utilizing centralized
distribution and storage facilities; costs associated with marketing services;
and general and administrative costs associated with support services such as
finance, legal, human resources and information systems. The Company believes
that it will experience operating costs of a similar nature to those charged by
Nestle in its cost allocations but at a significantly reduced level; however, no
assurances can be given in this regard. See "Risk Factors -- Risks Relating to
the Contadina Acquisition."
17
<PAGE> 24
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
CONTADINA(a)
TWELVE
DEL MONTE MONTHS PRO FORMA
YEAR ENDED ENDED PRO FORMA YEAR ENDED
JUNE 30, 1997 SEPT. 30, 1997 ADJUSTMENTS JUNE 30, 1997
------------- -------------- ----------- -------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales...................................... $ 1,217 $156 $ -- $1,373
Cost of sales (without inventory step-up)...... 817 155 (19)(c) 953
Inventory step-up (d).......................... -- -- 9 9
-------- ---- ---- ------
Gross profit................................. 400 1 10 411
Selling, advertising, administrative and 327 20 (11)(e) 336
general expenses.............................
-------- ---- ---- ------
OPERATING INCOME (LOSS)........................ 73 (19) 21 75
Interest expense............................... 52 6 35(f) 93
Loss on sale of divested assets................ 5 -- -- 5
Other (income) expense......................... 30 -- (22)(g) 8
-------- ---- ---- ------
INCOME (LOSS) BEFORE INCOME TAXES AND (14) (25) 8 (31)
EXTRAORDINARY ITEM...........................
Provision for income taxes..................... -- -- -- --
-------- ---- ---- ------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM........ $ (14) $(25) $ 8 $ (31)
======== ==== ==== ======
Loss per common share(h)....................... $ $
======== ======
Weighted average number of shares
outstanding..................................
======== ======
OTHER DATA:
EBITDA (i):
Operating income............................. $ 73 $ 75
Other expense................................ (30) (8)
Depreciation and amortization (j)............ 24 36
One-time and non-cash charges (i)............ 54 16
-------- ------
$ 121 $ 119
======== ======
EBITDA margin (i).............................. 10.4% 9.0%
Capital expenditures........................... 20 30
</TABLE>
See accompanying notes.
18
<PAGE> 25
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
DEL MONTE CONTADINA(a)(b) ADJUSTMENTS PRO FORMA
--------- --------------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $ 620 $ 92 $ -- $712
Cost of sales.................................... 413 91 (16)(c) 488
-------- ---- ---- ----
Gross profit................................ 207 1 16 224
Selling, advertising, administrative and general 162 13 12(e) 187
expenses.......................................
-------- ---- ---- ----
OPERATING INCOME (LOSS).......................... 45 (12) 4 37
Interest expense................................. 36 3 10(f) 49
Other (income) expense........................... 6 -- (7)(g) (1)
-------- ---- ---- ----
INCOME (LOSS) BEFORE INCOME TAXES................ 3 (15) 1 (11)
Provision for income taxes....................... -- -- -- --
-------- ---- ---- ----
INCOME (LOSS).................................... $ 3 $(15) $ 1 $(11)
======== ==== ==== ====
Loss per common share (h)........................ $ $
======== ====
Weighted average number of shares outstanding....
======== ====
OTHER DATA:
EBITDA (i):
Operating income............................ $ 45 $ 37
Other income (expense)...................... (6) 1
Depreciation and amortization (j)........... 13 18
One-time charges (i)........................ 7 --
-------- ----
59 56
======== ====
EBITDA margin (i)................................ 9.5% 7.9%
Capital expenditures............................. 6 11
</TABLE>
See accompanying notes.
19
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The Unaudited Pro Forma Statements of Operations reflect the adjustments
for the Contadina Acquisition, the Recapitalization and related financings as if
such events had occurred as of July 1, 1996.
(a) The historical financial information for Contadina for the 12-month period
ended September 30, 1997 was derived from the audited financial statements
and unaudited financial data appearing elsewhere in this Prospectus. The
historical financial data provided to the Company includes certain allocated
expenses for functions and services provided by Nestle. Such allocated costs
are comprised of, without limitation, costs of utilizing outside storage
facilities; all selling costs including, without limitation, direct sales
force and brokerage expenses; costs for utilizing centralized distribution
and storage facilities; costs associated with marketing services; and
general and administrative costs associated with support services such as
finance, legal, human resources and information systems and interest
expense. The additional operating cost allocations were $25 million and $17
million, and the interest allocations were $6 million and $3 million for the
12-month period ended September 30, 1997 and the six-month period ended
December 31, 1997, respectively.
(b) Represents the historical revenue and expenses of Contadina from July 1,
1997 through December 18, 1997.
(c) Adjustment to cost of sales reflects the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
JUNE 30, DECEMBER 31,
1997 1997
---------- ------------
<S> <C> <C>
Reclassification of Contadina trade promotion
costs............................................. $(14) $(13)
Elimination of royalties to Nestle for trademark
license........................................... (5) (3)
---- ----
$(19) $(16)
==== ====
</TABLE>
(d) Represents the cost of sales related to the sales of the inventory acquired
from Contadina which was written-up by the Company to estimated fair value
as part of the preliminary purchase price allocation relating to the
Contadina Acquisition.
(e) Adjustment to selling, advertising, administrative and general expenses
reflect the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
JUNE 30, DECEMBER 31,
1997 1997
---------- ------------
<S> <C> <C>
Reclassification of Contadina trade promotion
costs............................................. $ 14 $ 13
Exclusion of Recapitalization expenses(1)........... (25) --
Elimination of amortization of Nestle goodwill...... (1) (1)
Amortization of intangible acquired................. 1 --
---- ----
$(11) $ 12
==== ====
</TABLE>
- ---------------
(1) Expenses primarily related to management incentive payments.
(f) Represents pro forma interest adjustments due to debt incurred in connection
with the Contadina Acquisition, adjustments for the pro forma interest
related to the Recapitalization and reversal of interest allocated from
Nestle.
(g) For the year ended June 30, 1997, represents the exclusion of $22 million of
expenses incurred in connection with the Recapitalization. For the six
months ended December 31, 1997, represents exclusion of $7 million of
certain indirect expenses incurred in connection with the Contadina
Acquisition.
(h) Loss per Common Share is computed as loss before extraordinary item reduced
by the cash and in-kind dividends for the period on redeemable preferred
stock.
(i) EBITDA represents income (loss) before provision for income taxes,
extraordinary item and cumulative effect of accounting change, plus interest
expense and special charges, depreciation and amortization
20
<PAGE> 27
expense and other one-time and non-cash charges, less gains (losses) on
sales of assets and the results of the Divested Operations. Pro forma EBITDA
represents income (loss) before provision for income taxes, extraordinary
item and cumulative effect of accounting change, plus interest expense and
special charges, depreciation and amortization expense and other one-time
and non-cash charges, less gains (losses) on sales of assets and the results
of the Divested Operations. EBITDA is not presented as an alternative
measure of operating income or cash flow from operations (both as determined
in accordance with GAAP). For fiscal 1997, historical one-time and non-cash
charges exclude $47 million of expenses incurred in connection with the
Recapitalization and $7 million related to the write-off of a long-term
asset. For the year ended June 30, 1997, pro forma one-time and non-cash
charges include $7 million related to the write-off of a long-term asset and
$9 million related to the application of purchase accounting in connection
with the Contadina Acquisition for fiscal 1997. For the six months ended
December 31, 1997, historical one-time charges include $7 million of certain
indirect expenses related to the Contadina Acquisition. EBITDA margin is
calculated as EBITDA as a percentage of net sales (excluding net sales of
Divested Operations of $48 million for the year ended June 30, 1997).
(j) Historical depreciation and amortization exclude amortization of $5 million
and $2 million of deferred debt issue costs for fiscal 1997 and for the
six-month period ended December 31, 1997, respectively. Pro forma
depreciation and amortization exclude amortization of $5 million and $2
million of pro forma deferred debt issue costs for fiscal 1997 and for the
six-month period ended December 31, 1997, respectively.
21
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial
information of the Company. The historical unaudited financial data presented
below as of December 31, 1996 and 1997 and for the six months then ended were
derived from interim consolidated financial statements of the Company as of such
dates which, in the opinion of management, reflect all adjustments, consisting
of only normal, recurring adjustments, necessary for a fair presentation of such
data and which have been prepared in accordance with the same accounting
principles followed in the presentation of the Company's audited financial
statements for the fiscal year ended June 30, 1997. Operating results for the
six months ended December 31, 1997 are not necessarily indicative of results to
be expected for the full fiscal year. The statement of operations data for each
of the fiscal years in the four-year period ended June 30, 1996 and the balance
sheet data as of June 30, 1993, 1994, 1995 and 1996 have been derived from
consolidated financial statements of the Company audited by Ernst & Young LLP,
independent auditors. The statement of operations data for the year ended June
30, 1997 and the balance sheet data as of June 30, 1997 have been derived from
consolidated financial statements of the Company audited by KPMG Peat Marwick
LLP, independent auditors. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of the Company and related
notes and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------- --------------
1993 1994 1995 1996 1997 1996 1997
------ ------ ------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(a)................. $1,556 $1,500 $1,527 $1,305 $1,217 $ 628 $ 620
Cost of sales(a)............. 1,213 1,208 1,183 984 817 430 413
------ ------ ------ ------ ------ ----- -----
Gross profit................. 343 292 344 321 400 198 207
Selling, advertising,
administrative and general
expenses(a)................ 286 225 264 239 327(b) 156 162
Special charges(c)........... 140 -- -- -- -- -- --
------ ------ ------ ------ ------ ----- -----
Operating income (loss)...... (83) 67 80 82 73 42 45
Interest expense............. 68 61 76 67 52 26 36
Loss (gain) on sale of
assets(d).................. (13) (13) -- (107) 5 5 --
Other (income) expense(e).... 4 8 (11) 3 30 -- 6
------ ------ ------ ------ ------ ----- -----
Income (loss) before income
taxes, minority interest,
extraordinary item and
cumulative effect of
accounting change.......... (142) 11 15 119 (14) 11 3
Provision for income taxes... 10 3 2 11 -- 2 --
Minority interest in earnings
of subsidiary.............. 8 5 1 3 -- -- --
------ ------ ------ ------ ------ ----- -----
Income (loss) before
extraordinary item and
cumulative effect of
accounting change.......... (160) 3 12 105 (14) 9 3
Extraordinary loss(f)........ -- -- 7 10 42 4 --
Cumulative effect of
accounting change(g)....... 28 -- -- 7 -- -- --
------ ------ ------ ------ ------ ----- -----
Net income (loss)............ $ (188) $ 3 $ 5 $ 88 $ (56) $ 5 $ 3
====== ====== ====== ====== ====== ===== =====
Income (loss) per common
share(h)................... $ $ $ $ $ $ $
====== ====== ====== ====== ====== ===== =====
Weighted average number of
shares outstanding.........
====== ====== ====== ====== ====== ===== =====
</TABLE>
22
<PAGE> 29
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------- --------------
1993 1994 1995 1996 1997 1996 1997
------ ------ ------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gross margin(a).............. 22.0% 19.5% 22.5% 24.6% 32.9% 31.5% 33.4%
EBITDA(i).................... $ 62 $ 63 $ 76 $ 92 $ 121 $ 54 $ 59
EBITDA margin(i)............. 5.4% 5.7% 6.9% 8.6% 10.4% 9.1% 9.5%
Depreciation and
amortization(j)............ $ 59 $ 35 $ 35 $ 26 $ 24 $ 12 $ 13
Capital expenditures......... 34 36 24 16 20 5 6
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------------------------ --------------
1993 1994 1995 1996 1997 1996 1997
------ ------ ------ ------ ------ ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $ 92 $ 88 $ 99 $ 207 $ 116 $ 173 $ 224
Total assets...................... 1,066 936 960 736 667 848 1,053
Total debt, including current
maturities...................... 624 569 576 373 610 388 856
Redeemable preferred stock........ 216 215 215 213 32 213 32
Stockholders' deficit............. (385) (384) (393) (304) (412) (273) (368)
</TABLE>
- ---------------
(a) In fiscal 1997, certain merchandising allowances, which previously were
included as a cost of sales, have been reclassified to selling expense. Such
merchandising allowances totaled $113 million, $67 million, $106 million,
$100 million, $143 million and $68 million in the fiscal years ended June
30, 1993, 1994, 1995, 1996 and 1997, and the six months ended December 31,
1996, respectively. In addition, certain military distributor allowances,
which previously were treated as a reduction in net sales, have been
reclassified to selling expense. Such military distributor allowances
amounted to $1 million, $1 million, $1 million, $1 million, $2 million and
$1 million in fiscal years ended June 30, 1993, 1994, 1995, 1996 and 1997,
and the six months ended December 31, 1996, respectively. All financial
information has been restated to conform to this presentation.
(b) In connection with the Recapitalization, expenses of approximately $25
million were incurred primarily for management incentive payments and, in
part, for severance payments.
(c) In June 1993, the Company recorded special charges of $140 million, which
included $115 million for permanent impairment of acquisition-related
intangible assets, including goodwill, and $25 million for facility
consolidations.
(d) The Company sold its equity investment in Del Monte International in the
fiscal quarter ended March 31, 1993 and recognized a $13 million gain. The
Company sold its can manufacturing operations in the fiscal quarter ended
December 31, 1993 and recognized a $13 million gain. In November 1995, the
Company sold its pudding business for $89 million, net of $4 million of
related transaction fees. The sale resulted in a gain of $71 million. In
March 1996, the Company sold its 50.1% ownership interest in Del Monte
Philippines for $100 million, net of $2 million of related transaction fees.
The sale resulted in a gain of $52 million of which $16 million was deferred
and $36 million was recognized in fiscal 1996. The purchase price included a
premium paid to the Company as consideration for an eight-year supply
agreement. The gain associated with the value of the premium was deferred
and is being amortized over the term of the agreement. In the fiscal quarter
ended December 1996, the Company sold Del Monte Latin America. The combined
sales price of $50 million, reduced by $2 million of related transaction
expenses, resulted in a loss of $5 million.
(e) In fiscal 1995, other income includes the Company's receipt of proceeds of a
$30 million letter of credit, reduced by $4 million of related transaction
expenses, as a result of the termination of a merger agreement with Grupo
Empacador de Mexico, S.A. de C.V. In fiscal 1997, $22 million of expenses
were
23
<PAGE> 30
incurred in conjunction with the Recapitalization, primarily for legal,
investment advisory and management fees.
(f) In June 1995, the Company refinanced its then-outstanding revolving credit
facility, term loan and senior secured floating rate notes. In conjunction
with this debt retirement, capitalized debt issue costs of $7 million were
written off and accounted for as an extraordinary loss. In December 1995
and April 1996, the Company prepaid part of its term loan and senior
secured notes. In conjunction with the early debt retirement, the Company
recorded an extraordinary loss of $10 million for the early retirement of
debt. The extraordinary loss consisted of a $5 million prepayment premium
and a $5 million write-off of capitalized debt issue costs related to the
early retirement of debt. In fiscal 1997, $42 million of expenses related
to the early retirement of debt and to the Recapitalization was charged to
net income. In September 1996, the Company repurchased outstanding debt, in
conjunction with which capitalized debt issue costs of $4 million, net of a
discount on such debt, were written off and accounted for as an
extraordinary loss. In conjunction with the refinancing of debt that
occurred at the time of the Recapitalization, the Company recorded a $38
million extraordinary loss related to the early retirement of debt. The $38
million extraordinary loss consisted of previously capitalized debt issue
costs of approximately $19 million and a premium payment and a term loan
make-whole payment aggregating $19 million.
(g) Effective July 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions." The Company
elected to recognize this change in accounting on the immediate recognition
basis. The cumulative effect of adopting SFAS No. 106 resulted in a charge
to fiscal 1993 net earnings of $28 million. Effective July 1, 1995, the
Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The cumulative effect
of adopting SFAS No. 121 resulted in a charge to fiscal 1996 net earnings of
$7 million.
(h) Net income (loss) attributed to the shares of Common Stock is computed as
net income (loss) reduced by the cash and in-kind dividends for the period
on redeemable preferred stock.
(i) EBITDA represents income (loss) before provision for income taxes, minority
interest, extraordinary item, and cumulative effect of accounting change,
plus interest expense and special charges, depreciation and amortization
expense and other one-time and non-cash charges, less gains (losses) on
sales of assets and the results of the Divested Operations. EBITDA is not
presented as an alternative measure of operating income or cash flow from
operations (both as determined in accordance with GAAP). In fiscal 1993,
non-cash charges of $19 million represented amortization of intangible
assets subsequently written off. In fiscal 1994, other one-time and non-cash
charges included $1 million of fees related to a terminated transaction, $1
million related to write-offs of labels due to new labeling laws and $6
million of benefit plan charges. For fiscal 1995, EBITDA excludes $26
million received in connection with a terminated transaction, $4 million
paid by the Company to terminate its alliance with PCP and $7 million
related to the termination of a management equity plan. For fiscal 1996,
other one-time charges included $3 million for relocation costs and $6
million of costs associated with a significant headcount reduction. For
fiscal 1997, EBITDA excludes $47 million of expenses incurred in connection
with the Recapitalization and $7 million related to the write-off of a
long-term asset. For the six months ended December 31, 1997, one-time
charges consisted of $7 million of certain indirect expenses incurred in
connection with the Contadina Acquisition. EBITDA margin is calculated as
EBITDA as a percentage of net sales (excluding net sales of Divested
Operations of $402 million, $399 million, $417 million, $233 million and $48
million for the years ended June 30, 1993, 1994, 1995, 1996 and 1997,
respectively).
(j) Depreciation and amortization exclude amortization of $8 million, $5
million, $5 million, $5 million and $5 million of deferred debt issuance
costs for fiscal 1993, 1994, 1995, 1996 and 1997, respectively. Depreciation
and amortization exclude amortization of $3 million and $2 million of
deferred debt issuance costs in the six-month periods ended December 31,
1996 and 1997, respectively.
24
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity of the Company
during the six-month periods ended December 31, 1996 and 1997, and the
three-year period ended June 30, 1997. This discussion should be read in
conjunction with the unaudited consolidated financial statements of the Company
for the six-month periods ended December 31, 1996 and 1997 and the audited
consolidated financial statements of the Company for the three-year period ended
June 30, 1997 and notes thereto included elsewhere in this Prospectus.
GENERAL
The Company reports its financial results on a July 1 to June 30 fiscal
year basis to coincide with its inventory production cycle, which is highly
seasonal. Raw product is harvested and packed primarily in the months of June
through October, during which time inventories rise to their highest levels. At
the same time, consumption of canned products drops, reflecting, in part, the
availability of fresh alternatives. This situation affects operating results as
sales volumes, revenues and profitability decline during this period. Results
over the remainder of the fiscal year are affected by many factors including
industry supply and the Company's share of that supply. See "-- Seasonality."
Consistent with the Company's strategy to generate growth through
acquisitions, the Company consummated the Contadina Acquisition in December
1997. The Contadina Acquisition contributes another established brand and
positions the Company as the branded market leader in the high margin canned
solid tomato category. The Contadina Acquisition also establishes a strong
presence for the Company in the branded paste-based tomato products category,
which includes tomato paste, tomato sauce and pizza sauce. The Company believes
that Contadina's strong brand recognition, particularly in paste-based tomato
products, complements the Company's brand leadership in canned solid tomato
products and will enhance the Company's market share and household penetration.
In addition to diversifying further the Company's revenue base, the
Contadina Acquisition will expand the Company's processing scale, which the
Company believes will result in production cost efficiencies. Moreover, among
the facilities acquired by the Company is a state-of-the-art manufacturing
facility at Hanford, California. As part of its efforts to consolidate
production, tomato production at the Company's Modesto, California facility is
expected to be transferred to Hanford following the summer 1998 pack. The
Modesto facility would then be converted to a fruit processing facility and
would assume the production currently conducted at the Company's San Jose and
Stockton facilities in California, which are expected to be closed after the
summer 1999 and 2000 packs, respectively. It is anticipated that these
properties will be sold in the year following closure. In connection with these
actions, the Company anticipates that it will incur charges of approximately $35
million in the third quarter of fiscal 1998, principally consisting of asset
write-offs. The Company does not anticipate that it will incur material
additional charges as a result of these plant closures. The Company is, however,
continuing to evaluate its production facilities and believes that further
consolidations may be appropriate. In conjunction with the purchase price
allocation relating to the Contadina Acquisition, the Company has stepped up the
value of the purchased inventory. Such step-up is currently estimated to be $9
million.
Commencing in 1996, the Company has sought to leverage its brand and price
leadership to improve sales and operating margins and, to that end, increased
prices for many of its fruit and vegetable products in that year. As a result,
the Company experienced an anticipated volume loss and market share decline. In
the case of its fruit operations, the Company's significantly improved margins
generally offset the effects of the lower volume, and the Company's market share
recovered by year-end 1997 to achieve a higher level than that experienced prior
to the price increases. In the case of its vegetable operations, the Company's
market share has stabilized at a level lower than its share prior to the price
increases. The Company coupled these price increases with a new marketing
strategy that emphasizes consumption-driven trade promotion programs, as well as
consumer-targeted promotions such as advertising and coupons, to encourage
retailers to use store advertisements, displays and consumer-targeted
promotions, rather than periodic price-only promotions. The
25
<PAGE> 32
Company plans to continue to emphasize its status as a price leader and, in
1997, in connection with the Recapitalization, began implementing a new business
strategy designed to improve sales and operating margins by: (i) increasing
market share and household penetration of high margin value-added products; (ii)
introducing product and packaging innovations; (iii) increasing penetration of
high growth distribution channels, such as supercenters and club stores; (iv)
achieving cost savings through operating efficiencies, plant consolidations and
investments in new and upgraded production equipment; and (v) completing
strategic acquisitions. As part of this new strategy, the Company completed the
Contadina Acquisition in December 1997. See "Prospectus Summary -- Historical
Financial Data of Contadina" and "Unaudited Pro Forma Financial Data."
In fiscal 1995, Del Monte terminated an exclusive supply agreement with PCP
to purchase substantially all of PCP's tomato and fruit production. During
fiscal 1996 and the first half of fiscal 1997, the Company sold its pudding
business, its 50.1% interest in Del Monte Philippines and all of its interest in
Del Monte Latin America. At the end of fiscal 1997, a distribution agreement
expired under which Del Monte sold certain products for Yorkshire Dried Fruits
and Nuts, Inc. ("Yorkshire") at cost. These events are collectively referred to
as the "Divested Operations."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of operations, expressed as
percentages of the Company's net sales for such fiscal period:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------- ------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100% 100% 100% 100% 100%
Cost of sales................................... 78 76 67 68 67
--- --- --- --- ---
Gross profit.................................... 22 24 33 32 33
Selling, advertising, administrative and general
expenses...................................... 17 18 27 25 26
--- --- --- --- ---
Operating income................................ 5% 6% 6% 7% 7%
=== === === === ===
Interest expense................................ 5% 5% 4% 4% 6%
=== === === === ===
</TABLE>
The following tables set forth, for the periods indicated, the Company's
net sales by product categories, expressed in dollar amounts and as percentages
of the Company's total net sales for such period:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------- ------------
1995 1996 1997 1996 1997
------ ------ ------ ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Canned vegetables(a)................... $ 441 $ 402 $ 437 $227 $248
Canned fruit(a)........................ 394 367 431 226 218
Tomato products(a)..................... 211 217 229 101 116
Canned pineapple(a).................... 66 72 65 35 34
Other(b)............................... 219 89 41 25 4
------ ------ ------ ---- ----
Subtotal domestic............ 1,331 1,147 1,203 614 620
Latin America.......................... 65 55 17 17 --
Philippines............................ 180 142 -- -- --
Intercompany sales..................... (49) (39) (3) (3) --
------ ------ ------ ---- ----
Total net sales.............. $1,527 $1,305 $1,217 $628 $620
====== ====== ====== ==== ====
</TABLE>
26
<PAGE> 33
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------- ------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Canned vegetables(a).................................... 29% 31% 36% 36% 40%
Canned fruit(a)......................................... 26 28 35 36 35
Tomato products(a)...................................... 14 16 19 16 19
Canned pineapple(a)..................................... 4 6 5 6 5
Other(b)................................................ 14 7 4 3 1
--- --- --- --- ---
Subtotal domestic............................. 87 88 99 97 100
Latin America........................................... 4 4 1 3 --
Philippines............................................. 12 11 -- -- --
Intercompany sales...................................... (3) (3) -- -- --
--- --- --- --- ---
Total......................................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
- ---------------
(a) Includes sales of the entire product line across each channel of
distribution, including sales to grocery chains, warehouse clubs,
supercenters, mass merchandisers and other grocery retailers, as well as the
Company's foodservice, food ingredients, export and vegetable private label
businesses and military sales.
(b) Includes dried fruit, gel and pudding cups and certain other retail
products, as well as the Company's private label fruit and tomato
businesses, which were discontinued in fiscal 1995 with the termination of
the alliance with PCP.
SEASONALITY
The Company's quarterly operating results have varied in the past and are
likely to vary in the future based upon a number of factors. The Company's
historical net sales have exhibited seasonality, with the second and third
fiscal quarters having the highest net sales. These two quarters reflect
increased sales of the Company's products during the holiday period in the
United States extending from late November through December, as well as sales
associated with the Easter holiday. Net sales in the first fiscal quarter have
historically been affected by lower levels of promotional activity, the
availability of fresh produce and other factors. Quarterly gross profit
primarily reflects fluctuations in sales volumes and is also affected by the
overall product mix. The Company's fruit operations have a greater percentage of
annual sales and cost of sales in the first fiscal quarter, as compared to its
vegetable and tomato operations, due principally to increased sales of fruit
cups during the "back to school" period. The Company's vegetable and fruit
operations have a greater percentage of annual sales and cost of sales in the
second and third fiscal quarters, principally due to the year-end holiday season
in the United States, although sales of ketchup and related cost of sales
typically increase in the fourth fiscal quarter. Selling, advertising, general
and administrative expenses tend to be greater in the first half of the fiscal
year, reflecting promotional expenses relating to the "back to school" period
and the year-end holiday season, while Easter is the only major holiday in the
second half of the fiscal year.
During the early 1990s, the markets for the Company's principal products of
canned vegetables and canned fruit were in a position of stable demand and
excess supply. This excess supply primarily resulted from overplanting and
abundant harvests of raw product, combined with processing over-capacity. During
such periods of industry oversupply, pressure was placed on absolute volumes and
gross margins. The Company, as well as certain of its competitors, implemented
vegetable plant closures in an attempt to reduce processing over-capacity. The
summer 1995 pack was below average for both vegetables and fruit due to flooding
in the Midwest and heavy rains in California during the winter and spring of
1995. As a result, inventory levels during fiscal 1996 were lower than in
previous years, leaving industry supply for vegetables and fruit in a
balanced-to-tight position. The summer 1996 pack was slightly below average for
fruit, while tomato production was slightly higher than expected. Vegetable
production during the summer of 1996 was above average. This, coupled with an
industry decrease in sales, resulted in higher than expected carryover
inventories of vegetables. In response, planned vegetable plantings were
decreased for summer 1997 which
27
<PAGE> 34
resulted in higher vegetable costs. In addition, cooler weather than normal
resulted in late plantings for some vegetables causing lower recoveries, while
smaller fruit size lowered raw product fruit recoveries. These conditions have
had very little impact on the Company's supply of product available for sale,
however, since carry-in inventories (inventories on hand at the start of a
packing season) were adequate to cover shortfalls from the summer 1997 harvest.
The weather conditions which existed during the summer of 1995 resulted in
reduced acreage yields and production recoveries of fruits and vegetables which
negatively impacted the Company's production costs in fiscal 1996. During fiscal
1996, the Company's management developed a strategy to increase prices. These
price increases resulted in volume and market share decreases for the Company
during fiscal 1996 as competitors sold greater volume because their prices
remained below the Company's. Despite the reduced market share, the Company's
profitability was significantly higher in the fourth quarter of fiscal 1996 as a
result of higher net selling prices. These price increases were applied to all
product lines in fiscal 1997. Although the Company's aggregate volumes decreased
in fiscal 1997 as compared to fiscal 1996, the Company regained and exceeded
prior year fruit market share while vegetable market share was maintained and
profitability growth continued due to these higher net selling prices.
Profitability growth and market share may be unfavorably affected in the future
due to the market dynamics of available supply and competitors' pricing.
In the winter of 1997-98, certain areas in California, one of the Company's
principal growing regions for tomatoes and fruit, experienced substantial
rainfall as a result of the "El Nino" phenomenon. The Company does not believe
at this time that such weather conditions will have a material adverse effect on
the 1998 harvesting season or on its results of operations. Historically,
significant weather-related shortages in fruit, vegetable and tomato harvests
have resulted in price increases that have offset increases in raw product costs
and reductions in sales volumes. Nevertheless, no assurance can be given that,
if such adverse weather conditions persist, the harvesting season will not be
delayed or otherwise adversely affected with consequent adverse effects on the
Company's cost of goods sold, inventory and sales.
SIX MONTHS ENDED DECEMBER 31, 1997 VS. SIX MONTHS ENDED DECEMBER 31, 1996
Contadina Acquisition
On December 19, 1997, the Company completed the Contadina Acquisition for a
total of $197 million, comprising a base price of $177 million and an estimated
working capital adjustment of approximately $20 million. The purchase price is
subject to adjustment based on the final calculation of net working capital as
of the closing date. Nestle has provided its calculation of the net working
capital, which would result in a payment to the Company of approximately $2
million. The Company has until April 18, 1998 to review this calculation and
determine if it has any objection to the calculation. The Contadina Acquisition
also included the assumption of certain liabilities of approximately $4 million.
The acquisition was accounted for using the purchase method of accounting.
Net Sales
Consolidated net sales for the six months ended December 31, 1997 decreased
by $8 million compared to the same period of the prior year. Net sales, after
adjusting for the effect of the Divested Operations, increased by $27 million
compared to the prior year six-month period primarily due to higher volumes in
the vegetable and tomato businesses and the acquisition of Contadina ($6
million). The vegetable and tomato businesses have experienced an increase in
sales volumes year-to-date of 9% and 17%, respectively, while net sales for the
vegetable and tomato businesses increased by 10% and 15%, respectively, compared
to the prior year period. Although fruit volume has been relatively flat, net
sales for fruit decreased 3% primarily due to competitive pricing pressures in
the foodservice market. The Company addressed competitive discounting in the
marketplace in the vegetable and tomato businesses by using an effective mix of
targeted trade and consumer promotions. These actions enabled the Company to
achieve increased volumes and net sales in the vegetable and tomato businesses.
28
<PAGE> 35
Cost of Sales and Gross Profit
Gross profit for the first half of fiscal 1998 increased by $9 million from
the same prior year period. Gross margin percentage on a year-to-date basis,
after adjusting for the effect of the Divested Operations, has remained
relatively stable. Although costs have increased in the current year over the
prior year, this increase has been offset to date by a favorable sales mix of
higher margin products.
Costs have increased in the current year primarily due to an increase in
processing costs caused by a compressed harvesting season for fruits, which
resulted in the increased use of cold storage until processing capacity became
available. Also affecting costs were reduced plantings for some vegetables and
lower fruit raw product recoveries. The adverse harvesting conditions have had
very little impact on the Company's supply of product available for sale,
however, since carry-in inventories were adequate to cover shortfalls from the
current year harvest.
Selling, Advertising, Administrative and General Expenses
Selling, advertising, administrative and general expenses, after adjusting
for Divested Operations, increased by $9 million for the six-month period versus
the same period of the prior year. Selling, advertising, administrative and
general expenses have increased from the prior year period due to an increase in
trade promotion support offset by lower benefit plan costs. The increase in
trade promotion was primarily due to an increase in volumes.
Interest Expense
Interest expense has increased by $10 million for the first half of fiscal
1998 compared to the same period in the prior year primarily due to higher
outstanding debt balances in the first half of the current year resulting from
the Recapitalization that occurred in the fourth quarter of fiscal 1997.
Other Expense
Other expense for the current year primarily represents certain indirect
costs associated with the Contadina Acquisition.
Provision for Income Taxes
There was no provision for income taxes for the six months ended December
31, 1997 as a result of utilization of net operating loss carryforwards, as
compared to a provision of $2 million for the six-month period ended December
31, 1996.
THREE YEARS ENDED JUNE 30, 1997
Net Sales
Consolidated net sales for fiscal 1996 decreased $222 million or 15% from
the prior year due to lower volumes in domestic operations. Net sales for the
domestic operations, after adjusting for the effect of Divested Operations, were
$1,072 million for fiscal 1996 as compared to $1,110 million for fiscal 1995, a
decrease of $38 million or 3%. The Company increased retail fruit and vegetable
prices; however, these price increases were not immediately followed by the
competition and resulted in lower sales volumes as compared to the prior year.
In fiscal 1996, the Company's market share for Del Monte brand vegetables was
20.4% versus 24.1% for the previous year, and the Company's market share for Del
Monte brand fruit was 35.6% versus 38.8% for the previous year. Consolidated net
sales for fiscal 1997 decreased by $88 million or 7% from \fiscal 1996. This
decrease was attributable to the absence of the Divested Operations. Net sales
for the domestic operations, after adjusting for the effect of Divested
Operations, increased by $97 million from $1,072 million in fiscal 1996 to
$1,169 million in fiscal 1997 due to higher prices across all product lines. The
retail vegetable and fruit businesses increased prices in the second half of
fiscal 1996. The export and foodservice businesses each increased fruit prices
at the beginning of fiscal 1997. Generally balanced industry supplies of fruit
and the Company's emphasis on consumer promotions were contributing factors
towards realizing the higher prices.
29
<PAGE> 36
Volume increases in the fruit business were more than offset by volume decreases
in the vegetable and tomato businesses. The volume decrease in the Company's
vegetable business reflects, in part, an overall decline in canned vegetable
consumption. In fiscal 1997, the Company's market share for Del Monte brand
vegetable products was 20.3% versus 20.4% in the previous year, while the
Company's market share for Del Monte brand fruit products was 40.6% compared to
35.6% for the previous year.
Del Monte Philippines' net sales for the first nine months of fiscal 1996,
until the Company's sale of its interest in this joint venture, accounted for 8%
of consolidated net sales for the year ended June 30, 1996. Del Monte Latin
America's net sales for fiscal 1996 (4% of consolidated sales in fiscal 1996)
decreased $10 million or 15% even though volumes were at approximately the same
level as the prior year period. This decrease was primarily due to the
significant Mexican peso devaluation.
Cost of Sales and Gross Profit
Gross margin was 22.5%, 24.6% and 32.9% in fiscal 1995, 1996 and 1997,
respectively. Domestic gross margin (adjusted for the absence of the Divested
Operations) was 26.4%, 26.4% and 34.0% in fiscal 1995, 1996 and 1997,
respectively. Higher selling prices, changes in marketing strategy and
relatively stable costs resulted in significantly higher gross profit margin
than in prior years. In fiscal 1996, higher manufacturing costs were offset by
price increases across all major product lines.
Del Monte Philippines' gross margins were 11.8% and 17.4% in fiscal 1995
and 1996, respectively. Gross margins for Del Monte Latin America were 23.8% and
24.3% in fiscal 1995 and 1996, respectively. The increases in fiscal 1996
resulted primarily from opportunistic price increases due to inflationary
conditions in Mexico with a lag in increases of cost of goods sold due to
seasonal packing.
Selling, Advertising, Administrative and General Expenses
Selling, advertising, administrative and general expense as a percentage of
net sales (excluding the Divested Operations) were 21.2%, 19.8% and 27.5% in
fiscal 1995, 1996 and 1997, respectively. Selling, advertising, administrative
and general expenses for fiscal 1997 increased significantly due to the
Recapitalization and the change in marketing strategy. Expenses incurred
primarily for management incentive payments and, in part, for severance payments
incurred related to the Recapitalization were approximately $25 million.
Marketing spending increased as the Company placed more emphasis on consumer
promotion programs versus discounts from retailers' list prices than in the
prior year.
Included in general and administrative expenses are research and
development costs of $6 million, $6 million and $5 million for fiscal 1995, 1996
and 1997, respectively. Research and development spending in fiscal 1995, 1996
and 1997 remained focused on strategic spending to maintain the existing
business and to develop product line extensions.
Interest Expense
The 12% decrease in interest expense for fiscal 1996 compared to fiscal
1995 resulted from lower net borrowings under the Company's revolving credit
facility and lower outstanding debt balances resulting in part from the sale of
the Divested Operations. Interest expense decreased 22% in fiscal 1997 compared
to fiscal 1996. This decrease was due to the lower outstanding debt balances
during the first nine months of fiscal 1997 (before the Recapitalization).
Other (Income) Expense
Other income for fiscal 1995 reflects the Company's receipt of the proceeds
of a $30 million letter of credit (reduced by $4 million of related transaction
expenses) as a result of the termination of the merger agreement with Grupo
Empacador de Mexico, S.A. de C.V. in September 1994. Other expense for fiscal
1997 increased due to $22 million of expenses incurred in the Recapitalization
(primarily legal, investment advisory and management fees). Also included in
fiscal 1997 other expense is the revaluation of a long-term asset.
30
<PAGE> 37
Provision for Income Taxes
The tax provision increased to $11 million in fiscal 1996 from $2 million
in fiscal 1995 primarily due to alternative minimum tax and state income tax as
a result of the sales of divested assets in fiscal 1996. There was no tax
provision in fiscal 1997 compared to a provision of $11 million in fiscal 1996.
This decrease was primarily due to the expenses of the Recapitalization. As of
June 30, 1997, the Company had $84 million in net operating loss carryforwards
for tax purposes, which will expire between 2008 and 2012.
Extraordinary Loss
In June 1995, the Company refinanced its then-outstanding revolving credit
facility, term loan and senior notes. The net proceeds of the pudding business
sale and proceeds of the Del Monte Philippines sale were used for the early
retirement of debt. In conjunction with this early debt retirement, in the
second and fourth quarters of fiscal 1996, $5 million in capitalized debt issue
costs were written off and $5 million primarily related to a prepayment premium
were charged to income, both of which have been accounted for as an
extraordinary item. In conjunction with the debt retirement, capitalized debt
issue costs of $7 million were written off and accounted for as an extraordinary
loss as required by generally accepted accounting principles. In conjunction
with an exchange offer, capitalized debt issue costs of approximately $4
million, net of a discount, were charged to net income in fiscal 1997 and
accounted for as an extraordinary loss. In conjunction with the refinancing of
debt that occurred at the time of the Recapitalization, previously capitalized
debt issue costs of approximately $19 million and a note premium and a term loan
make-whole aggregating $19 million were charged to fiscal 1997 net income and
accounted for as an extraordinary loss.
Cumulative Effect of Accounting Change
Effective July 1, 1995, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The cumulative effect of adopting SFAS No. 121 resulted in a charge to
fiscal 1996 net earnings of $7 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1996, the AICPA Accounting Standards Executive Committee issued
Statement of Position ("SOP") No. 96-1 "Environmental Remediation Liabilities."
The SOP provides guidance with respect to the recognition, measurement and
disclosure of environmental remediation liabilities. SOP No. 96-1 is required to
be adopted for fiscal years beginning after December 15, 1996. The Company has
adopted SOP 96-1 for the first quarter of fiscal year 1998 and, based on current
circumstances, does not believe the effect of adoption will be material.
The Financial Accounting Standards Board (the "FASB") recently issued SFAS
No. 129, "Disclosure of Information about Capital Structure"; SFAS No. 130,
"Reporting Comprehensive Income"; SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information"; and SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The Company believes the
effect of adoption of these statements will not be material.
YEAR 2000
As part of its information services outsourcing arrangements with
Electronic Data Systems Corporation ("EDS"), EDS maintains and operates the
Company's proprietary software applications and also owns and operates a
substantial portion of the related hardware. EDS is expected to update the
Company's software application portfolio by June 1999. The cost for such
updating has been fully budgeted by the Company for expenditure in fiscal years
1998 and 1999 and is not material to the Company's expected cash outlays. The
Company is conducting inquiries regarding the Year 2000 compliance programs of
its suppliers and customers. No assurance can be given that the Company's
suppliers and customers will all be Year 2000 compliant. The Company cannot
predict to what extent its operations may be adversely affected if they are not
compliant.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are to fund debt service, finance
seasonal working capital needs and make capital expenditures. Internally
generated funds and amounts available under its revolving credit and other
short-term borrowing facilities are the Company's primary sources of liquidity.
Management believes that cash flow from operations and availability under
the Revolving Credit Facility will provide adequate funds for the Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations. The Company's ability to fund its operations and make planned
capital expenditures, to make scheduled debt payments, to refinance its
indebtedness and to remain in compliance with all of the financial covenants
under its debt agreements depends on its future operating performance and cash
flow, which, in turn, are subject to prevailing economic conditions and to
financial, business and other factors, some of which are beyond its control. The
Company actively considers various means of reducing inventory levels to improve
cash flow.
Operating Activities
The working capital position of the Company is seasonally affected by the
growing cycle of the vegetables, fruit and tomatoes it processes. Substantially
all inventories are produced during the harvesting and packing months of June
through October and depleted through the remaining seven months. Accordingly,
working capital requirements fluctuate significantly. The Company uses funds
from its Revolving Credit Facility, which provides for a $350 million line of
credit, to finance the seasonal working capital needs of its operations.
Cash used in operating activities in the six months ended December 31, 1997
was $75 million as compared to $65 million for the same period in fiscal 1997.
Inventories at December 31, 1997 consist of inventories of Contadina of $101
million (as calculated based on the preliminary working capital which is subject
to adjustment based on the final calculation of the working capital adjustment
and activity since acquisition) and other inventories of $499 million. The
increase in inventories (excluding the Contadina inventory) at December 31, 1997
from June 30, 1997 reflects the seasonal inventory buildup. The increase in
accounts payable and accrued expenses from June 30, 1997 to December 31, 1997
primarily reflects accrued expenses resulting from higher levels of trade and
consumer promotions and accruals remaining from the peak production period. As
of December 31, 1997, $153 million was outstanding under the Revolving Credit
Facility, compared to $82 million at June 30, 1997.
Cash provided by operating activities decreased by $3 million in fiscal
1996 over fiscal 1995 primarily due to a decrease in inventories and in accounts
receivable offset by a decrease in accounts payable and accrued expenses. The
decrease in inventories resulted from high carry-over inventories from fiscal
1995 versus low inventory levels at the end of fiscal 1996 due to a tight
industry supply of certain inventory items. The decrease in accounts receivable
resulted primarily from a decrease in sales activity during June 1996 as
compared to June 1995. The decrease in accounts payable and accrued expenses was
due primarily to a decrease in amounts payable to PCP due to the termination of
a joint venture at the end of fiscal 1995 and a decrease in marketing accruals
due to a change in marketing strategy during fiscal 1996. Also impacting accrued
expenses in fiscal 1996 was a charge to an accrual established in fiscal 1993 to
implement multi-year cost savings measures. The decrease occurred as costs
associated with fiscal 1996 consolidation efforts were charged to this accrual.
In fiscal 1997, cash provided by operations decreased by $35 million over fiscal
1996 primarily due to various expenses associated with the Recapitalization, as
well as an increase in inventories due to lower sales volume during the year
than anticipated.
Investing Activities
The increase of $191 million in cash provided by investing activities in
fiscal 1996 versus fiscal 1995 and the decrease of $133 million in cash provided
by investing activities in fiscal 1997 versus fiscal 1996 was principally due to
net cash proceeds from the sale of its pudding business ($85 million) and the
sale of its interest in Del Monte Philippines ($98 million) in fiscal 1996. The
effect of the fiscal 1996 divested asset sales was partially offset in fiscal
1997 by the sale of the Company's Latin America subsidiaries ($48 million).
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Capital expenditures for fiscal 1997 were $20 million including
approximately $1 million for environmental compliance. The Company expects that
capital expenditures during fiscal 1998 will be approximately $35 million as the
Company implements a new program which is intended to generate cost savings by
introducing new equipment that would result in general production efficiencies.
Approximately $11 million of such amount had been spent through February 1998.
The Company also plans an aggregate of approximately $136 million of additional
capital expenditures through 2001, of which $54 million, $58 million and $24
million is expected to be spent in fiscal 1999, 2000 and 2001, respectively. The
Company continually evaluates its capital expenditure requirements, and such
plans are subject to change depending on market conditions, the Company's cash
position, the availability of alternate means of financing and other factors.
Capital expenditures are expected to be funded from internally generated cash
flows and by borrowing from available financing sources.
Financing Activities -- 1998 Activity
Contadina Acquisition. In connection with the Contadina Acquisition, Del
Monte issued the Del Monte Notes with an aggregate principal amount at maturity
of $230 million and received gross proceeds of approximately $126 million. The
Del Monte Notes accrue interest at 12.50% payable on each June 15 and December
15, which will be accreted through December 15, 2002, after which time interest
is required to be paid in cash until maturity. The Del Monte Notes mature on
December 15, 2007.
In connection with the Contadina Acquisition, the Company also amended its
bank financing agreements and related debt covenants to permit additional
funding under the existing Term B loan in an amount of $50 million, thus
increasing the aggregate amount outstanding under the Term Loan Facility to $430
million. Amortization of the additional Term B loan amount is incremental to the
scheduled amortization of the existing Term B loan. Such additional amortization
will begin on a quarterly basis in the second quarter of fiscal 1999 in the
amount of $0.5 million on an annual basis with such amortization increasing in
the fourth quarter of fiscal 2004, through the third quarter of fiscal 2005, to
approximately $12 million per quarter.
Financing Activities -- 1997 Activity
The Recapitalization. On February 21, 1997, Del Monte entered into a merger
agreement (the "Merger Agreement"), which was amended and restated as of April
14, 1997, with TPG and a newly created merger vehicle ("Shield"). On April 18,
1997, Del Monte was recapitalized through the merger of Shield with and into Del
Monte, with Del Monte being the surviving corporation. By virtue of the
Recapitalization, shares of Del Monte's preferred stock having an implied value
of approximately $14 million held by certain of Del Monte's stockholders who
remained investors were cancelled and were converted into the right to receive
new Del Monte Common Stock. All other shares of Del Monte stock were cancelled
and were converted into the right to receive cash consideration. In connection
with the Recapitalization, the Company repaid substantially all of its funded
debt obligations existing immediately before the Recapitalization. In the
Recapitalization, the common stock and preferred stock of Shield was converted
into new shares of Common Stock and Preferred Stock, respectively, of Del Monte.
Cash funding requirements for the Recapitalization totaled $809 million and
included repayment of $158 million of then outstanding notes, $113 million of
the then-existing term loan, and $30 million of the then-existing revolving
credit facility. In addition, $422 million was paid to former shareholders as
cash consideration for their shares and approximately $86 million was paid in
other fees and expenses. These cash funding requirements were satisfied through
the following: (i) a cash equity investment by TPG and other investors of $126
million in Common Stock; (ii) a cash equity investment by TPG and other
investors of $35 million in shares of redeemable preferred stock and warrants to
purchase Common Stock; (iii) $380 million of borrowings under the Term Loan
Facility; (iv) $119 million of borrowings under the revolving credit facility
(the "Revolving Credit Facility" and, together with the Term Loan Facility, the
"Bank Financing"); (v) $147 million from the net proceeds of the offering of the
DMC Notes; and (vi) $2 million of proceeds from the sale of a surplus property.
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Bank Financing. Concurrent with the Recapitalization, the Company entered
into the Bank Financing. The Term Loan Facility provides for term loans in the
aggregate amount of $380 million, consisting of Term Loan A of $200 million and
Term Loan B of $180 million. The Revolving Credit Facility provides for
revolving loans in an aggregate amount of $350 million, including a $70 million
Letter of Credit subfacility. The Revolving Credit Facility will expire in
fiscal 2003, Term Loan A will mature in fiscal 2003, and Term Loan B will mature
in fiscal 2005. Scheduled principal payments on Term Loan A begin in the first
quarter of fiscal 1999 and continue quarterly through maturity. Initial
quarterly amortization is approximately $8 million per quarter, rising
periodically at approximately $1 million per quarter to a final quarterly
amortization, beginning in the first quarter of fiscal 2003, of approximately
$17 million through maturity. Scheduled principal payments on Term Loan B begin
in the third quarter of fiscal 1998 and continue quarterly through maturity.
Initial quarterly amortization amounts to approximately $2 million per year.
Substantial amortization begins in the fourth quarter of fiscal 2004, with
quarterly amortization of approximately $42 million. The interest rates
applicable to amounts outstanding under Term Loan A and the Revolving Credit
Facility are currently, at the Company's option, either (i) the base rate (the
higher of .50% above the Federal Funds Rate and the bank's reference rate) plus
1.00% or (ii) the reserve adjusted offshore rate plus 2.00%. Interest rates on
Term Loan B are, at the Company's option, either (i) the base rate plus 2.00% or
(ii) the offshore rate plus 3.00%.
Senior Subordinated Notes. In connection with the Recapitalization, on
April 18, 1997, Del Monte Corporation, a wholly owned subsidiary of Del Monte
("DMC"), issued the DMC Notes with an aggregate principal amount of $150 million
and received gross proceeds of $147 million. The DMC Notes accrue interest at
12.25% per year, payable semiannually in cash on each April 15 and October 15.
The DMC Notes are guaranteed by Del Monte and mature on April 15, 2007. DMC's
obligations under the DMC Notes are secured by substantially all personal
property of DMC and by first priority liens on certain of its unencumbered real
property fee interests. Del Monte's guarantee is secured by a pledge of the
stock of DMC.
The terms of the Company's indebtedness contain restrictive covenants, the
most restrictive of which is that the Company must maintain a minimum level of
EBITDA (as defined). See "Description of Certain Indebtedness." The Company is
in compliance with all such covenants.
Financing Activities -- 1996 Activity
The increase in net cash used in financing activities of $180 million in
fiscal 1996 as compared to fiscal 1995 reflects a lower balance under the
Revolving Credit Facility at year end 1996 versus 1995 and higher net pay-down
of long-term debt. The higher payments on the Revolving Credit Facility and
long-term debt were due to cash available from the Company's sales of the
pudding business and Del Monte Philippines. In connection with the early debt
repayment a prepayment penalty of $5 million was charged to income and recorded
as an extraordinary loss. Included in other financing activities in fiscal 1996
was a deposit of $30 million of Del Monte Philippines sale proceeds into a
collateral account until agreement was reached with the term lenders as to final
application.
PENSION FUNDING
As described more fully in Note F to the audited consolidated financial
statements of the Company for the year ended June 30, 1997, the Company's
defined benefit pension plans are underfunded. It had been the Company's policy
to fund the Company's retirement plans in an amount consistent with the funding
requirements of federal law and regulations and not to exceed an amount that
would be deductible for federal income tax purposes. In connection with the
Recapitalization, the Company has entered into an agreement with the U.S.
Pension Benefit Guaranty Corporation dated April 7, 1997 whereby the Company
contributed $15 million within 30 days after the consummation of the
Recapitalization to its defined benefit pension plans. The Company will also
contribute a minimum of $15 million in calendar 1998, of which $5 million has
been paid, $9 million in calendar 1999, $8 million in calendar 2000 and $8
million in calendar 2001, for a total of $55 million. The agreement provides
that the contributions required to be made in 1999, 2000 and 2001 will be
secured by a $20 million letter of credit to be obtained by the Company by
August 31, 1998. The contribution required to be made in 1998 will be paid prior
to any scheduled amortization under the Bank Financing in
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excess of $1 million, and the Company has agreed not to make voluntary
prepayments of the loans under the Bank Financing prior to making the
contribution required to be made in 1998 or prior to obtaining the letter of
credit.
TAX NET OPERATING LOSS CARRYFORWARDS
As of June 30, 1997, the Company had $84 million in net operating loss
carryforwards, which will expire between 2008 and 2012. The Company's use of
these net operating loss carryforwards in any year may be limited by applicable
law.
INFLATION
The Company's costs are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. However, the Company has
historically mitigated the inflationary impact of increases in its costs by
controlling its overall cost structure.
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BUSINESS
GENERAL
The Company was originally incorporated in 1916 and remained a publicly
traded company until its acquisition in 1979 by the predecessor of RJR Nabisco.
In December 1989, RJR Nabisco sold the Company's fresh produce operations
("Fresh Del Monte"), to Polly Peck International PLC ("Polly Peck"). In January
1990, an investor group led by Merrill Lynch & Co. ("ML&Co.") purchased the
Company and certain of its subsidiaries from RJR Nabisco for $1.5 billion (the
"RJR Nabisco Sale"). Following such sale, the Company divested several of its
non-core businesses and all of its foreign operations.
The Company, a branded marketer of premium quality, nutritious food
products, is the largest producer and distributor of canned vegetables and
canned fruit in the United States, with pro forma net sales of $1.4 billion in
fiscal 1997. Management believes that the Company's principal brand, Del Monte,
which has been in existence since 1892, has the highest unaided brand awareness
of any canned food brand in the United States. Del Monte brand products are
found in substantially all national grocery chains and independent grocery
stores throughout the United States. As the brand leader in three major
processed food categories (canned vegetables, fruit and solid tomato products),
the Company has a full-line multi-category presence that management believes
provides it with a substantial competitive advantage in selling to the retail
grocery industry. The Contadina Acquisition contributes another established
brand and strengthens the Company's position as the branded market leader in the
high margin canned solid tomato category and establishes a strong presence for
the Company in the branded paste-based tomato products category.
The Company sells its products to national grocery chains and wholesalers
through a nationwide sales network consisting primarily of independent food
brokers. The Company's direct sales force also sells to warehouse club stores,
selected mass merchandisers, such as Wal-Mart and Kmart, and larger mass
merchandising outlets that include full grocery sections, such as Wal-Mart
Supercenters and Kmart's SuperKs. In addition, the Company sells its products to
the foodservice industry, food processors and the military through different
independent food brokers. The Company also exports a small percentage of its
products to certain foreign countries directly and through independent exporters
based in the United States.
The Company operates 15 production facilities in California, the Midwest,
Washington and Texas, as well as six strategically located distribution centers.
The Company has over 2,500 contracts to purchase vegetables and fruit from
individual growers and cooperatives located in various geographic regions of the
United States, principally California, the Midwest, the Northwest and Texas.
This diversity of sourcing helps insulate the Company from localized disruptions
during the growing season, such as weather conditions, that can affect the price
and supply of vegetables and fruit.
The Company owns a number of registered and unregistered trademarks that it
uses in conjunction with its business, including the trademarks Del Monte, Fruit
Cup, FreshCut, Snack Cups, Fruit Naturals, Orchard Select, Fruit Smoothie
Blenders, Del Monte Lite and Contadina. In connection with and subsequent to the
RJR Nabisco Sale, the Company granted various perpetual, exclusive royalty-free
licenses for the use of the Del Monte name and trademark, as well as the use of
certain copyrights, patents, and trade secrets, generally outside of the United
States. The licensees include Fresh Del Monte and its affiliates (which
succeeded to Polly Peck as the owner of the Company's former fresh produce
operations), Del Monte International, Kikkoman Corporation ("Kikkoman"),
affiliates of RJR Nabisco, and Yorkshire. None of the licensees is an affiliate
of the Company, other than Yorkshire with respect to which the Company owns 20%
of the common stock. See "Risk Factors -- Brand Risk."
In April 1997, the Company completed the Recapitalization as a result of
which Texas Pacific Group, a private investment group, obtained a controlling
interest in the Company. Under a new senior management team introduced in
connection with the Recapitalization, the Company began implementing a new
business strategy designed to increase sales and improve operating margins, by:
(i) increasing market share and distribution of high margin value-added
products; (ii) introducing product and packaging innovations; (iii) increasing
penetration of high growth distribution channels, such as supercenters and club
stores;
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(iv) achieving cost savings through investments in new and upgraded production
equipment and plant consolidations; and (v) completing strategic acquisitions.
COMPETITIVE STRENGTHS
Management believes that the following elements contribute to the Company's
position as a leading branded producer, marketer and distributor of canned
vegetables, fruit and tomato products in the United States and provide a solid
foundation for the Company's business strategy.
- - STRONG BRAND NAME RECOGNITION AND LEADING MARKET SHARES -- The Del Monte
brand name, which has been in existence since 1892, is one of the leading
brand names in the food industry. Management believes that the Del Monte
brand has the highest unaided brand awareness of any canned food brand in the
United States. The Company recently acquired the Contadina brand, an
established national brand with a strong reputation for quality. The
Company's 1997 19.7% market share of canned vegetables is larger than the
combined market shares of the Company's two largest branded competitors, and
its 41.0% market share of canned fruit is larger than the combined market
shares of all other branded competitors. The Company, including its Contadina
business had a pro forma 16.2% market share in the high margin solid segment
of the canned tomato market for 1997.
<TABLE>
<CAPTION>
MARKET SHARE FOR 52 WEEKS ENDED
DECEMBER 27, 1997
------------------------------------------------------
MARKET NEXT LEADING BRANDED
CATEGORY POSITION(A) PERCENTAGE COMPETITOR'S PERCENTAGE(A)
-------- ----------- ---------- --------------------------
<S> <C> <C> <C>
Canned vegetables........................ #1 19.7% 13.6% (Green Giant)
Canned fruit............................. #1 41.0% 11.7% (Libby's)
Canned solid tomato products(b).......... #1 16.2% 11.2% (Hunt's)
</TABLE>
- ---------------
(a) Excludes private label.
(b) Pro forma to include Contadina sales.
- - TECHNICAL EXPERTISE AND LOW COST PRODUCTION ADVANTAGES -- The Company has
significant experience in developing new products and packaging alternatives
and in engineering efficient food processing operations. These capabilities
are leveragable across many food categories. The Company has developed
proprietary vegetable seed varieties, which increase harvest and cannery
recoveries and improve flavor and quality. The Company also benefits from
many long-term relationships with experienced, geographically diverse growers
who work with the Company to maximize yields of raw product. These
relationships also help to ensure a consistent supply of raw product. As a
result of its technical expertise, proprietary seed varieties and raw product
sourcing diversity, as well as its modern processing equipment and labeling,
packaging, warehousing and distribution efficiencies, management believes
that the Company is one of the lowest cost producers of canned vegetables,
fruit and tomatoes in the United States.
- - PREFERRED SUPPLIER STATUS -- Competitive pressures in the retail food
industry are causing many retailers to prefer large suppliers such as the
Company that are able to provide consumer-favored brands, full product lines
and sophisticated inventory and category management programs. Del Monte
anticipated this trend and has developed proprietary software tools to assist
its customers and promote sales of its products. Del Monte's proprietary
category management system is designed to address retailers' efforts to
maximize profitability of shelf space dedicated to canned food categories. A
substantial majority of the Company's customers that have employed Del
Monte's category management system have increased the relative amount of
shelf space dedicated to the Company's products as compared to competing
products. The Company's proprietary vendor-managed inventory software allows
Del Monte to manage directly its customers' inventories of the Company's
products. This inventory management software is designed to reduce customers'
overhead costs and to enable them to achieve lower average inventory levels
while enhancing the Company's opportunities to sell its products. Retailers
also rely on Del Monte's in-depth knowledge as the leading branded marketer
in the canned fruit, vegetable and tomato categories, and they seek the
Company's advice on marketing and promoting these categories. Finally, Del
Monte has strong, well-developed relationships with all major participants in
the retail grocery trade. The Company believes
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that these relationships will become increasingly important as consolidation
among grocery retailers continues. The Company is seeking to use its category
knowledge, customer relationships and software tools, along with its
multi-category product line that can readily be ordered and shipped on a full
truck-load basis, to become the preferred supplier in its product categories.
- - EXTENSIVE NATIONAL SALES AND DISTRIBUTION SYSTEM -- The Company's extensive
sales and distribution network is responsible for the distribution of
finished goods to over 2,400 customer destinations nationwide. This network
enables the Company to compete with other national brands and regional
competitors, and to introduce new products on a regional or national basis.
The Company operates six strategically located distribution centers offering
customers a variety of services, including electronic data interchange and
direct store shipments. Management believes that the Company's distribution
system makes an important contribution to the Company's success and provides
the Company with a competitive advantage over regional and private label
competitors.
- - EXPERIENCED MANAGEMENT TEAM -- Richard G. Wolford and Wesley J. Smith, the
Company's Chief Executive Officer and Chief Operating Officer, respectively,
are veteran managers with extensive food industry experience. Mr. Wolford has
30 years of experience in the food industry, 20 of which were with Dole. He
was president of Dole Packaged Foods from 1982 to 1987, and during Mr.
Wolford's tenure at Dole, Dole experienced increased profitability, sales
volume and market share. Mr. Wolford played a key role in redefining the Dole
brand and expanding the range of products sold under the brand. From 1988 to
1996, he was Chief Executive Officer of HK Acquisition Corp. where he
developed food industry investments with venture capital investors and
managed the investor-owned companies. Mr. Smith has 25 years of experience,
23 of which were with Dole, where he oversaw the building of Dole's domestic
fresh pineapple business and the restructuring of Dole's sizable Hawaiian
operations. In addition, Mr. Smith was responsible for establishing Dole's
juice business at Dole with minimal capital investment.
BUSINESS STRATEGY
Following the consummation of the Recapitalization in 1997, the Company
implemented a new business strategy designed to increase sales and improve
operating margins. The key elements of this new business strategy are discussed
below.
- - LEVERAGE BRAND EQUITY TO INCREASE SALES AND MARKET SHARE OF HIGH MARGIN
PRODUCTS -- The Company plans to leverage the Del Monte and Contadina brand
names and its strong relationships with customers to increase sales of its
existing product lines, focusing specifically on high margin products, such
as its specialty fruits and vegetables, diced tomatoes and its Fruit Cup
line, where the Company has historically had either low market share or low
household penetration relative to its overall category position.
- - FOCUS ON CONSUMPTION-DRIVEN MARKETING STRATEGY -- To enhance its ability to
leverage its brand equity, the Company has refocused its marketing efforts
and promotional strategy. To leverage its brand strength, the Company has
increased consumer-targeted marketing programs, primarily through the
distribution of free-standing coupon inserts, and has established clearly
differentiated product positioning that emphasizes the Company's premium
quality. The Company increased spending on consumer promotions from $12
million in fiscal 1996 to $46 million in fiscal 1997 and anticipates that its
consumer spending in fiscal 1998 and 1999 will be generally consistent with
levels of consumer spending in fiscal 1997. To improve the effectiveness of
its trade promotion strategy, the Company implemented performance-based
programs under which trade spending is based on retailers' sales of the
Company's products to consumers rather than on purchases from the Company.
The Company believes that this performance-based strategy, coupled with the
Company's category management capabilities, will continue to increase sales
and reduce costs.
- - IMPROVE PROFITABILITY THROUGH NEW PRODUCTS AND PACKAGING -- The Company is
developing new high margin products and line extensions designed to leverage
the Company's presence in its current product categories and to capitalize on
its food technology expertise. The Company has successfully introduced
flavored diced tomatoes, two lines of flavored canned fruit, Orchard Select,
a premium fruit product packaged in glass, and Fruit Smoothie Blenders, a
flavored fruit drink. These products extend the Company's traditional product
lines and appeal to consumers' demands for high quality, convenient and
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nutritious food products. The Company is evaluating introductions of other
new products packaged in glass and plastic to further expand its presence in
the market beyond the canned food aisle.
- - INCREASE PENETRATION OF HIGH-GROWTH DISTRIBUTION CHANNELS -- Changes in the
retail grocery environment have resulted in substantial growth of alternative
retailers such as warehouse clubs, mass merchandisers and supercenters. The
Company believes it is well-positioned to benefit from these changes because
these vendors generally seek leading brand name products that generate high
inventory turnover. In addition, vendors in this category generally are
attracted to large, technologically sophisticated suppliers such as the
Company that have the ability to meet their stringent inventory and
shelf-management requirements. The Company believes it is currently the
leading supplier of canned vegetables and fruit to Wal-Mart's Sam's Club, and
is a major supplier to PriceCostco. The Company also believes it is the
leading supplier of canned vegetables, fruit and solid tomato products as a
group to Wal-Mart Supercenters.
- - IMPLEMENT FURTHER COST SAVINGS -- The Company is aggressively pursuing cost
reduction opportunities, which have already contributed to an increase in
EBITDA margins (excluding the results of Divested Operations) from 6.9% in
1995 to 10.4% in 1997. Management's strategy is to improve profitability
through the implementation of capital projects that offer rapid returns on
investment, and through plant consolidations and increased operating
efficiencies. The Company has announced plans to consolidate, over the next
three fiscal years, six existing fruit and tomato operations in California
into four facilities, including one large state-of-the-art facility acquired
as part of the Contadina Acquisition. The Company continually evaluates its
production facilities and believes that further consolidations may be
warranted in the future. In addition, the Company plans to invest in new,
state-of-the-art production equipment to increase production efficiencies and
strengthen its position as a low cost producer.
- - COMPLETE STRATEGIC ACQUISITIONS -- The Company will pursue strategic
acquisitions when there are opportunities to leverage the Company's key
strengths in product development, food processing, marketing, sales and
distribution. In evaluating potential acquisition candidates, the Company
seeks, among other things: (i) leading brands that can be expanded by
leveraging the Company's technical and manufacturing expertise and/or its
sales and distribution systems, (ii) new products that can achieve growth
through re-branding and (iii) economies of scale in manufacturing,
distribution and capacity utilization. The Contadina Acquisition, for
example, adds a leading national brand which strengthens the Company's market
share in key tomato segments and allows the Company to realize cost savings
through plant consolidations. The Contadina Acquisition also allows the
Company to introduce new branded retail products and to increase sales to the
branded foodservice market.
THE INDUSTRY
The domestic canned food industry is generally characterized by relatively
stable growth based on modest price and population increases. Within the
industry, however, certain categories have been experiencing substantial growth.
Over the last ten years, the industry has experienced consolidation as
competitors have shed non-core business lines and made strategic acquisitions to
complement category positions, maximize economies of scale in raw material
sourcing and production and expand retail distribution. Sustaining strong
relationships with retailers has become a critical success factor for food
companies and is driving initiatives such as category management. Food companies
with category leadership positions and strong retail relationships have
increasingly benefited from these initiatives as a way to maintain and increase
shelf space and maximize distribution efficiencies.
Pricing and innovation in the canned food segments in which the Company
competes are typically led by branded food manufacturers. A majority of market
share in these categories is, however, attributable to private label
manufacturers. The private label segment has historically been highly fragmented
among regional producers seeking to compete principally based on price. The
aggregate market share of these manufacturers has remained relatively stable
over the past several years in each of the Company's principal product
categories. For the 52 weeks ended December 27, 1997, private label
manufacturers as a group represented 42.7%, 40.5% and 30.0% of canned vegetable,
fruit and solid tomato product sales, respectively. Recently,
39
<PAGE> 46
some consolidation has occurred among private label manufacturers in the canned
vegetable category. The Company believes that this consolidation may result in
increasing rationalization of production capacity in the industry, which may in
turn result in higher price positioning by private label manufacturers of canned
vegetable products.
The Company increased vegetable and fruit prices in fiscal 1996 to cover
higher raw product costs and to improve margins. Higher prices put the Company
at a significant price disadvantage in the marketplace for most of the year as
competition did not raise prices until late in the fiscal year. As a result, the
Company experienced an anticipated volume loss and market share decline. In the
case of its fruit operations, however, the Company's significantly improved
margins generally offset the effects of the lower volume, and the Company's
market share recovered by year-end 1997 to achieve a higher level than that
experienced prior to the price increases. In the case of its vegetable
operations, the Company's market share has stabilized at a level lower than its
share prior to the price increases. See "Risk Factors -- Competition."
COMPANY PRODUCTS
The Company has a full-line, multi-category presence with products in four
major processed food categories: canned vegetable, fruit, tomato and pineapple
products.
The following table sets forth, for the periods indicated, the Company's
net sales by canned product category, expressed in dollar amounts and as a
percentage of the Company's total pro forma net sales for such period:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1997
--------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Vegetables (a)........................................ $ 437 32% $248 35%
Fruit(a).............................................. 431 31 218 31
Tomato products(a)(b)................................. 385 28 208 29
Pineapple(a).......................................... 65 5 34 5
Other(c).............................................. 55 4 4 --
------ --- ---- ---
Total(b).................................... $1,373 100% $712 100%
====== === ==== ===
</TABLE>
- ---------------
(a) Includes sales of the entire product line across each channel of
distribution, including sales to grocery chains, warehouse clubs,
supercenters, mass merchandisers and other grocery retailers, as well as the
Company's foodservice, food ingredients, export and vegetable private label
business and military sales.
(b) Includes $156 million and $92 million of sales of tomato products by
Contadina, on a pro forma basis, for the fiscal year ended June 30, 1997 and
the six months ended December 31, 1997, respectively.
(c) Includes pickles, dried fruit and certain other retail products, as well as
sales of Divested Operations.
Vegetables
The canned vegetable industry in the United States generated approximately
$3.3 billion in sales in fiscal 1997. The domestic canned vegetable industry is
a mature segment characterized by high household penetration. Industry sales of
canned vegetables, including processed vegetables packaged in glass, through all
channels of distribution, have grown at an average of 2.4% annually since 1993,
as illustrated in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(IN BILLIONS)
<S> <C> <C> <C> <C> <C>
Vegetables.................................... $3.0 $3.0 $3.1 $3.2 $3.3
</TABLE>
- ---------------
Source: ACNielsen Market Planner.
40
<PAGE> 47
The Company views the retail canned vegetable market as consisting of three
distinct segments: major, flanker and specialty products. The Company competes
in each of these segments. The major segment consists of corn, green beans and
peas and represents the largest volume segment, accounting for $780 million or
approximately 65% of fiscal 1997 canned vegetable supermarket case sales
(excluding pickles and tomato products). The Company's entries in the major
segment include cut green beans and French-style green beans, as well as whole
kernel and cream-style corn. The flanker segment, which includes mixed
vegetables, spinach, beets, carrots, potatoes and sauerkraut, accounted for $237
million or approximately 17% of fiscal 1997 canned vegetable supermarket case
sales. The specialty segment, comprised of asparagus, zucchini, baby beets and a
variety of corn and bean offerings, represents $284 million or approximately 12%
of fiscal 1997 canned vegetable supermarket case sales. Many of the Company's
specialty vegetable products are enhanced with flavors and seasonings, such as
the Company's zucchini in tomato sauce and its Fiesta corn, which is made with
green peppers and seasonings. The Company's specialty vegetables are priced at a
premium to its other vegetable products and carry higher margins. All of the
Company's vegetable products are offered to the retail market principally in
14-15 ounce sizes and to the foodservice market primarily in a larger commercial
size can. The Company produces six or eight can multi-packs primarily for its
club store customers. A cross-segment, buffet products, includes all of the
above varieties in smaller can sizes. The Company also offers a no-salt product
line across most of its core varieties. Within these segments, the Del Monte
brand accounted for $349 million in retail sales in fiscal 1997. During the 52
weeks ended December 27, 1997, Del Monte brand vegetable products enjoyed an
average premium of 19c (41%) per item over private label products and the
Company held a 19.7% share of the canned vegetable market for that year.
The canned vegetable market is concentrated among a small universe of
branded players and a large, fragmented pool of private label competitors. In
the major vegetable market, the Company is the branded market share leader and
for the 52 weeks ended December 27, 1997 held a 23.6% market share in green
beans, a 19.0% market share in corn and a 16.3% market share in peas. The
Company also is the branded market share leader in the flanker category and is
the overall market share leader in the buffet market. Private label products
taken as a whole command the largest share of the canned vegetable market (42.7%
for the 52 weeks ended December 27, 1997), but their market share has remained
relatively stable over the past decade. The Company's primary branded
competitors in the market include Green Giant nationally, and regional brands
such as Freshlike, Stokely and Libby's, in addition to private label producers.
VEGETABLE MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 19.7%
Green Giant (Pillsbury)..................................... 13.6%
Libby's (Seneca)............................................ 3.6%
Stokely (Chiquita).......................................... 2.4%
Freshlike (Dean Foods)...................................... 2.1%
All private label combined.................................. 42.7%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended December 27, 1997 (based on
equivalent cases).
41
<PAGE> 48
The Company has relationships with approximately 900 vegetable growers
located primarily in Wisconsin, Illinois, Minnesota, Washington and Texas.
Fruit
The processed canned fruit industry in the United States generates
approximately $2.4 billion in sales per year. The domestic canned fruit industry
is a mature segment characterized by high household penetration. Industry sales
of canned fruit, including processed fruit packaged in glass, have remained
virtually flat in recent years, as illustrated in the following table.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(IN BILLIONS)
<S> <C> <C> <C> <C> <C>
Fruit......................................... $2.3 $2.3 $2.3 $2.2 $2.4
</TABLE>
- ---------------
Source: ACNielsen Market Planner.
The Company is the largest processor of branded canned fruit in the United
States. The Company competes in three distinct segments of the canned fruit
industry: major, specialty and pineapple products. These three distinct segments
account for over 60% of the canned fruit industry's total sales. The major
segment consists of cling peaches, pears and fruit cocktail/mixed fruit and
fruit cups. The specialty segment includes apricots, freestone and spiced
peaches, mandarin oranges and cherries. The major fruit and specialty fruit
segments of the canned fruit market together accounted for $1.4 billion of total
canned fruit industry sales in fiscal 1997. The pineapple segment is discussed
separately below.
Major fruit accounted for sales by retailers of $624 million in fiscal
1997. Sales by retailers of Del Monte brand major fruit products totaled $291
million in fiscal 1997. For the 52 weeks ended December 27, 1997, the Company
was the branded share leader with a 41.0% market share. The Company is also the
share leader in every major sub-segment of the major category. In single serve
sizes, the Company has over a 65% market share. The Company's major fruit and
fruit cup products are distributed in substantially all grocery outlets.
The Company is the branded leader in the specialty category as a whole and
the market leader in apricots and freestone and spiced peaches. Specialty fruits
are higher margin, lower volume niche items, which benefit from the Company's
brand recognition. Del Monte apricots and freestone peaches are distributed in
over 71% and 66% of grocery outlets, respectively. Mandarin oranges and cherries
are distributed in 23% and 8% of grocery outlets, respectively.
The Company believes that it has substantial opportunities to leverage the
Del Monte brand name to increase sales of its existing high margin specialty
products, such as its Fruit Cup line. The Company has also been developing new
high margin products designed to leverage the Company's presence in existing
categories, to capitalize on its existing manufacturing capabilities and to
expand the Company's presence in the market beyond the canned food aisle. For
example, following initial success in test markets, the Company is planning
national distribution of its Orchard Select, a premium fruit product packaged in
glass. The Company is also test marketing a new flavored fruit drink, Fruit
Smoothie Blenders, to expand its presence into the beverage aisle. An important
focus of the Company's new product development efforts is the production of high
quality, convenient and nutritious products, particularly snack-type products.
The Company competes in the canned fruit business on the basis of product
quality and category support to both the trade and consumers. On the industry's
highest volume can size (15-16 oz.), the Del Monte brand commanded an average 7c
(8%) per item premium. The Company faces competition in the canned fruit segment
primarily from Tri-Valley Growers and PCP, both of which are grower
co-operatives that produce private label products. Tri-Valley Growers also packs
the Libby's and S&W brands. Libby's holds an overall
42
<PAGE> 49
canned fruit market share of 11.7%. Forty-one percent of industry sales are
generated primarily by private label producers including Tri-Valley Growers and
PCP.
MAJOR FRUIT MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 41.0%
Libby's (Tri-Valley)........................................ 11.7%
All private label combined.................................. 40.5%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended December 27, 1997 (based on
equivalent cases).
The Company has relationships with approximately 600 fruit growers located
primarily in California, Oregon and Washington.
Tomato Products
Tomato products generated fiscal 1997 industry-wide sales of $5.4 billion.
Total sales of tomato products have grown steadily in recent years, achieving a
five-year compound annual growth rate of 3% per year. The diced segment of the
retail canned solid tomato category (which segment includes chunky tomatoes and
tomato wedges) grew 13% on an equivalent case basis during the 52 weeks ended
December 27, 1997 as consumer preferences trend toward more convenient cut and
seasoned tomato products. The following table presents total industry sales of
all processed tomato products in recent years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(IN BILLIONS)
<S> <C> <C> <C> <C> <C>
Tomato products............................... $4.7 $4.8 $5.1 $5.3 $5.4
Solid tomato products(a).................... $0.6 $0.6 $0.6 $0.7 $0.7
Paste-based tomato products(b).............. $4.1 $4.2 $4.5 $4.6 $4.7
</TABLE>
- ---------------
Source: AC Nielsen Market Planner.
(a) Includes diced/chunky/wedges and stewed, whole and crushed canned tomato
products.
(b) Includes ketchup, spaghetti/marinara, pizza, sloppy joe, chili and other
cooking sauces, seafood and cocktail sauces, and tomato paste, sauce and
puree.
The processed tomato market can be separated into more than ten distinct
product categories which differ widely in terms of profitability, price
sensitivity and growth potential. Consumers use tomato products for a variety of
purposes ranging from ingredients to condiments, beverages and main dishes.
The Company's tomato product offerings consist of two major segments: solid
tomato products, which are differentiated primarily by cut style, with varieties
including stewed, crushed, diced, chunky and wedges, and paste-based tomato
products, such as ketchup, tomato sauce and tomato paste and value-added
products, including spaghetti, pasta and sloppy joe sauces.
The Company is the leading producer of canned solid tomato products, which
are generally higher margin tomato products and are the fastest growing segment
of the Company's tomato products. As a result of the Contadina Acquisition, the
Company extended its presence in this segment through the addition of
Contadina's share of the market for crushed tomato products. The canned solid
tomato segment has evolved to include additional value-added items, such as
flavored diced tomato products. The Company believes that
43
<PAGE> 50
there is substantial opportunity to increase sales of solid tomato products,
including particularly crushed tomato products, through similar line extensions
that capitalize on the Company's manufacturing and marketing expertise.
SOLID TOMATO PRODUCTS MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE/CONTADINA......................................... 16.2%
Hunt's (ConAgra)............................................ 11.2%
S&W (Tri Valley Growers).................................... 5.2%
All private label combined.................................. 30.0%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended December 27, 1997 (based on
equivalent cases).
With the Contadina Acquisition, the Company has strengthened its position
in the branded paste-based tomato products categories in which it competes. The
Company markets its spaghetti, pasta and sloppy joe sauces, as well as its
ketchup products, under the Del Monte brand name using a "niche" marketing
strategy targeted toward value-conscious consumers seeking a branded, high
quality product. The Company's tomato paste products are marketed under the
Contadina brand name, which is an established national brand for Italian-style
food products. Contadina also targets the branded food service tomato market,
including small restaurants that use Contadina brand products, such as finished
spaghetti and pasta sauces. The Company plans to use this presence as a platform
to expand its branded foodservice business, including sales of Del Monte brand
products to new and existing Contadina foodservice customers.
The Company faces competition in the tomato product market from brand name
competitors including S&W and Hunt's in the solid tomato category; Heinz and
Hunt's in the ketchup category; and Hunt's, Campbell Soup's Prego and Unilever's
Ragu in the spaghetti sauce category. Hunt's is the Company's chief competitor
in the tomato paste segment. In addition, the Company faces competition from
private label products in all major categories. While the Company has a small
share of the overall tomato product market (with market shares for the 52 weeks
ended December 27, 1997 of 4.1% in spaghetti sauce and 6.2% in tomato sauce), it
is the largest branded competitor in the solid tomato segment with a market
share of 16.2% for the 52 weeks ended December 27, 1997. Hunt's, the next
largest branded processor, possessed a 11.2% share of the solid tomato segment
for this period. In other key categories, for the 52 weeks ended December 27,
1997, Heinz was the market leader in ketchup with a 46.5% market share, and
Hunt's was the leader in tomato sauce with a 34.9% market share.
The Company has relationships with approximately 40 tomato growers located
primarily in California, where approximately 95% of domestic tomatoes are
produced. See "Risk Factors -- Severe Weather Conditions and Natural Disasters."
Pineapple
The canned pineapple products industry in the United States generated
approximately $339 million in sales in fiscal 1997. The domestic pineapple
industry is a mature segment of the canned fruit industry that has generated
stable sales. Industry sales of canned pineapple products have remained
virtually flat in recent years, as illustrated in the following table.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Pineapple products............................ $334 $329 $317 $329 $339
</TABLE>
- ---------------
Source: ACNielsen Market Planner.
Individual pineapple items are differentiated by cut style, with varieties
including sliced, chunk, tidbits and crushed. Currently, 84% of pineapple
product sold is packed in juice, with the remaining 16% packed in heavy syrup.
Size offerings include the 20 oz. size, which accounts for 74% of category
sales. Other sizes offered include the 8 oz. and 15 oz. varieties.
44
<PAGE> 51
The Company's retail pineapple line consists of sliced, chunk, crushed and
juice products in a variety of container sizes. In addition to sales by
retailers, which totaled $35 million in fiscal 1997, the Company sells a
significant amount of juice concentrate and crushed pineapple through the food
ingredients channel and also sells pineapple solids and juice products to
foodservice customers. The Company has operated its canned pineapple business
primarily on a regional basis, but plans to expand its distribution of these
products to other markets.
The Company is the second leading brand of canned pineapple, with a 14.0%
market share for the 52 weeks ended December 27, 1997. Dole is the industry
leader with a market share of 45.1%. Private label and foreign pack brands
comprise the low-price segment of this category and hold market shares of 27.4%
and 12.2%, respectively. The five major foreign pack brands, Geisha, Libby's,
Liberty Gold, Empress and 3-Diamond, have regional distribution and are supplied
by Thai and Indonesian packers. Certain foreign brands grew through 1995 by
"dumping" product in the United States at below cost prices which depressed
category pricing. In 1995, the U.S. Government imposed anti-dumping tariffs on
Thai packers which allowed the domestic industry to recover some of its margins
and volume.
PINEAPPLE MARKET SHARE
<TABLE>
<S> <C>
DEL MONTE................................................... 14.0%
Dole........................................................ 45.1%
Foreign pack................................................ 12.2%
All private label combined.................................. 27.4%
</TABLE>
- ---------------
Source: ACNielsen SCANTRACK, 52 weeks ended December 27, 1997 (based on
equivalent cases).
The Company sources virtually all of its pineapple requirements from its
former subsidiary, Del Monte Philippines, under a long-term supply agreement.
The agreement provides for a guaranteed supply of quality pineapple with pricing
based on fixed retail and foodservice margins.
SUPPLY AND PRODUCTION
The Company owns virtually no agricultural land. Each year, the Company
buys over one million tons of fresh vegetables, fruit and tomatoes pursuant to
over 2,500 contracts with individual growers and cooperatives located primarily
in the United States, many of which are long-term relationships. The Company is
exploring ways in which to extend its growing season. For example, it has been
planting green bean crops in Texas, which has a longer growing season than the
Company's other bean growing locations in the Midwest region. Like other
processed vegetable, fruit and tomato product manufacturers, the Company is
subject to market-wide price fluctuations resulting from seasonal or other
factors, although its long-term relationships with growers help to ensure a
consistent supply of raw product.
The Company's vegetable growers are located in Wisconsin, Illinois,
Minnesota, Washington, Texas and Arizona. The Company provides the growers with
planting schedules, seeds, insecticide management and hauling capabilities and
actively participates in agricultural management and quality control with
respect to all sources of supply. The Company's vegetable supply contracts are
generally for a one-year term. The Company believes that one of its competitive
advantages in the canned vegetable category derives from its proprietary seed
varieties. For example, the Company believes that its "Del Monte Blue Lake Green
Bean" variety is higher yielding than green bean varieties used by the Company's
competitors. In addition, the Company's green bean production is primarily on
irrigated fields, which facilitates production of high quality, uniformly-sized
beans.
The Company's fruit and tomato growers are located primarily in California;
pear growers are also located in Oregon and Washington. The Company's fruit
supply contracts range from one to ten years. Prices are generally negotiated
with grower associations. The Company actively participates in agricultural
management and quality control and provides insecticide management and hauling
capabilities. Where appropriate, the Company manages the growers' agricultural
practices.
45
<PAGE> 52
Fifteen Company-owned plants, located throughout the United States, process
the Company's products. The Company produces the majority of its products
between June and October. Most of the Company's seasonal plants operate at close
to full capacity during the packing season.
The following table lists the Company's production facilities:
<TABLE>
<CAPTION>
LOCATION PRIMARY PRODUCT LINE SQUARE FOOTAGE
-------- -------------------- --------------
<S> <C> <C>
Hanford, CA....................... Solid and Paste-Based Tomato Products 589,000
Kingsburg, CA..................... Peaches, Zucchini and Corn 121,000
Modesto, CA....................... Solid and Paste-Based Tomato Products and 220,000
Snap-E-Tom
San Jose, CA...................... Apricots, Fruit Cups, Fruit Cocktail, 371,000
Chunky Fruit and Diced Pears
Stockton, CA...................... Peaches, Cocktail Cherries, Fruit Cocktail 446,000
and Fruit Concentrate
Woodland, CA...................... Bulk Paste and Bulk Diced Tomatoes 520,000
Mendota, IL....................... Peas, Corn, Lima Beans, Mixed Vegetables, 246,000
Carrots and Peas & Carrots
Plymouth, IN...................... Paste-Based Tomato Products, Snap-E-Tom and 156,000
Pineapple Juice
Sleepy Eye, MN.................... Peas and Corn 230,000
Crystal City, TX.................. Green Beans, Spinach, Carrots, Beets and 362,000
Potatoes
Toppenish, WA..................... Asparagus, Corn, Lima Beans and Peas 228,000
Yakima, WA........................ Cherries and Pears 214,000
Arlington, WI..................... Peas, Corn and Sauerkraut 209,000
Markesan, WI...................... Green Beans, Wax Beans and Italian Beans 291,000
Plover, WI........................ Beans, Carrots, Beets and Potatoes 250,000
</TABLE>
In January 1998, the Company announced a four-year plan to consolidate its
California production facilities in order to enhance the efficiency of its fruit
and tomato processing operations and to better meet the competitive challenges
of the market. Tomato production currently taking place at the Modesto plant is
expected to be transferred to the Company's newly acquired state-of-the-art
facility in Hanford in 1999. The Modesto location would then be converted to a
fruit processing plant allowing production currently processed at the San Jose
plant to be transferred to Modesto. At the end of the production season in 2000,
the Company is also expected to close its Stockton fruit plant and transfer
production from that plant to Modesto. Considerations of plant age and location
were primary factors in the decision to close the 80-year-old San Jose plant and
the 70-year-old Stockton plant and transfer production closer to growing areas.
The Company plans an aggregate of approximately $136 million of capital spending
through 2001 to increase production efficiency and reduce costs.
Co-packers are used for pickles and certain other non-core products and to
supplement supplies of certain canned vegetables, fruit and tomato products.
Prior to December 1993, the Company produced almost all of the cans used to
package its products in the United States at its nine can manufacturing
facilities located throughout the United States. In December 1993, the Company
sold substantially all the assets (and certain related liabilities) of the
Company's can manufacturing business to Silgan Container Corporation ("Silgan").
The transaction included the sale or lease of the Company's nine can
manufacturing facilities. In connection with this agreement, Silgan and the
Company entered into a ten-year supply agreement, with optional successive
five-year extensions under which Silgan agreed to supply all of the Company's
requirements for metal food and beverage containers in the United States. The
Company's total annual can usage is approximately two billion cans.
46
<PAGE> 53
SALES, MARKETING AND DISTRIBUTION
Sales and Marketing
The Company's sales organization for retail products is divided into three
groups: (i) a retail broker network (which consists of 100% independent broker
representation at the market level, managed by Company sales managers); (ii) an
in-house sales force with responsibility for warehouse clubs, mass merchandisers
and supercenters; and (iii) an in-house team responsible for trade promotion.
Retail brokers are independent, commissioned sales organizations which represent
multiple manufacturers. The Company's broker network represents the Company to a
broad range of grocery retailers. The Company's warehouse club, mass
merchandiser and supercenter group calls on these customers directly
(non-brokered) and is responsible for the development and implementation of
sales programs for non-grocery channels of distribution that include Wal-Mart,
PriceCostco, Kmart and Target. Foodservice, food ingredients, private label and
military sales are accomplished through both direct sales and brokers.
The Company's marketing group directs product development, pricing
strategy, consumer promotion, advertising, publicity and package design.
Consumer advertising and promotion support are used, together with trade
spending, to support awareness of new items and initial trial by consumers and
to build recognition of the Del Monte and Contadina brand names.
The Company has been enhancing its sales and marketing efforts with
proprietary software applications, principally its Trade Wizard application and
applications designed to assist customers in managing product categories. The
Trade Wizard application assists the Company in implementing and managing the
timing and scope of its trade and consumer promotions. Customers using the
Company's category management software tools are able to more rapidly identify
sales levels for various product categories so as to achieve an optimal product
mix. Use of these category management tools has resulted in increased shelf
presence for the Company's products, particularly fruit products, relative to
those of the Company's competitors. The Company also has proprietary tools that
allows it to manage its customers' inventory requirements for its products,
thereby reducing customers' inventory levels while enhancing the Company's
opportunities to sell its products.
Distribution
The Company's distribution organization is responsible for the distribution
of finished goods to over 2,400 customer destinations. Customers can order
products to be delivered via third party trucking, rail or on a customer pickup
basis. The Company's distribution centers provide, among other services, casing,
labeling, special packaging, cold storing and fleet trucking services. Other
services the Company provides to customers include One Purchase Order/One
Shipment, in which the Company's most popular products are listed on a
consolidated invoicing service; the UCS Electronic Data Interchange, a paperless
system of purchase orders and invoices; and the Store Order Load Option (SOLO),
in which products are shipped directly to stores.
The following table lists the Company's distribution centers:
<TABLE>
<CAPTION>
LOCATION OWNED/LEASED SQUARE FOOTAGE
-------- ------------ --------------
<S> <C> <C>
Birmingham, AL................... Leased 292,000
Clearfield, UT................... Leased 80,000
Dallas, TX....................... Leased 175,000
Rochelle, IL..................... Owned 425,000
Stockton, CA..................... Leased 512,000
Swedesboro, NJ................... Owned 267,000
</TABLE>
CUSTOMERS
The Company's customer base is broad and diverse, and no single customer
accounted for more than 10% of fiscal 1997 net sales. The Company's 15 largest
customers during fiscal 1997 represented approximately 45.1% of the Company's
net sales. These companies have all been Del Monte customers for at least ten
years and, in some cases, for 20 years or more. The Company has sought to
establish and strengthen its alliances
47
<PAGE> 54
with key customers by offering sophisticated proprietary software applications
to assist customers in managing inventories. The Company plans to expand its
promotion of these applications with its customers.
COMPETITION
The Company faces substantial competition throughout its product lines from
numerous well-established businesses operating nationally or regionally with
single or multiple branded product lines, as well as with private label
manufacturers. In general, the Company competes on the basis of quality, breadth
of product line and price. See "Risk Factors -- Competition" and "-- Company
Products."
INFORMATION SERVICES
In November 1992, the Company entered into an agreement with EDS to provide
services and administration to the Company in support of its information
services functions. Payments under the terms of the agreement are based on
scheduled monthly base charges subject to various adjustments based on such
factors as production levels and inflation. The agreement expires in November
2002 with optional successive one-year extensions. The Company periodically
reviews its general information system needs, including Year 2000 compliance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
RESEARCH AND DEVELOPMENT
The Company's research and development organization provides product,
packaging and process development and analytical and microbiological services,
as well as agricultural research and seed production. In fiscal 1995, 1996 and
1997, R&D expenditures (net of revenue for services to third parties) were $6
million, $6 million and $5 million, respectively. The Company maintains an R&D
facility in Walnut Creek, California where it conducts research in a number of
areas related to its business including seed production, packaging, pest
management, food and nutrition science and plant breeding.
EMPLOYEES
At December 31, 1997, the Company had approximately 2,700 full-time
employees. An additional 12,400 individuals are hired on a temporary basis
during the pack season. The Company considers its relations with its employees
to be good.
The Company has ten collective bargaining agreements with seven union
locals covering approximately 10,800 of its hourly and seasonal employees. Two
collective bargaining agreements expire in calendar 1998. These agreements are
being renegotiated, and the Company believes that negotiations will be completed
by the end of calendar 1998. The remaining agreements expire in calendar 1999,
2000 and 2001.
INTELLECTUAL PROPERTY
The Company owns a number of registered and unregistered trademarks for use
in connection with various food products, including the marks Del Monte, Snack
Cups, Fruit Cup, FreshCut, Fruit Naturals, Orchard Select, Fruit Smoothie
Blenders, Del Monte Lite and Contadina. These trademarks are important to the
Company because brand name recognition is a key factor in the success of the
Company's products. The current registrations of these trademarks in the United
States and foreign countries are effective for varying periods of time, and may
be renewed periodically, provided that the Company, as the registered owner, or
its licensees, where applicable, comply with all applicable renewal requirements
including, where necessary, the continued use of the marks in connection with
similar goods. The Company is not aware of any material challenge to the
ownership by the Company of its major trademarks.
DMC owns approximately 12 issued U.S. patents covering machines used in
filling, cleaning, and sealing cans, food preservation methods, extracts and
colors, and peeling and coring devices. The patents expire between 2002 and 2014
and cannot be renewed. Patents are generally not material to the Company's
business.
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The Company claims copyright protection in its proprietary category
management software and vendor-managed inventory software. The Company's
customers receive reports generated by these software programs and provide data
to the Company for use in connection with the programs. The software itself,
however, is not currently licensed to the Company's customers. The copyrights
are not registered.
The Company has developed a number of proprietary vegetable seed varieties
which it protects against disclosure by restricting access and/or by the use of
non-disclosure agreements. There can be no assurance that the means taken by the
Company to protect the secrecy of its seed varieties will be sufficient to
protect their secrecy or that others will not independently develop similar
technology. The Company has obtained U.S. plant variety protection certificates
under the Plant Variety Protection Act on some of its proprietary seed
varieties. Under such a certificate, the breeder has the right, among other
rights, to exclude others from offering or selling the variety or reproducing it
in the United States. The protection afforded by a plant variety protection
certificate generally runs for 20 years from the date of its issuance.
In connection with the RJR Nabisco Sale, and the divestitures of the
Company's non-core and foreign operations subsequent to that sale, the Company
granted various perpetual, exclusive, royalty-free licenses for use of the Del
Monte name and mark along with certain other trademarks, patents, copyrights and
trade secrets to the acquiring companies or their affiliates. In particular,
with respect to all food and beverage products other than fresh fruits,
vegetables and produce, affiliates of RJR Nabisco hold the rights to use Del
Monte trademarks in Canada and South America; Kikkoman holds the rights to use
Del Monte trademarks in the Far East and Pacific Rim (excluding the
Philippines); Del Monte International holds the rights in Europe, Africa, the
Middle East and the Indian Subcontinent. Fresh Del Monte holds the rights to use
the Del Monte name and trademark with respect to fresh fruit, vegetables, and
produce and certain chilled and frozen products related thereto throughout the
world. With respect to dried fruit, nut and snack products, Yorkshire holds the
rights to use Del Monte trademarks in the United States, Mexico, Central America
and the Caribbean. In connection with agreements to sell Del Monte Latin
America, an affiliate of Hicks, Muse, Tate & Furst acquired the right to use the
Del Monte trademarks with respect to all food and beverage products other than
fresh fruits, vegetables and produce in Mexico and Capital Universal Ltd. (an
affiliate of Donald W. Dickerson, Inc.) acquired similar rights in Central
America and the Caribbean. Dewey Limited (an affiliate of Del Monte
International) owns the rights in the Philippines to the Del Monte brand name.
See "Risk Factors -- Brand Risk."
The Company retains the right to review the quality of the licensee's
products under each of its license agreements. The Company generally may inspect
the licensees' facilities and the licensees must periodically submit samples to
the Company for inspection. Licensees may grant sublicenses but all sublicensees
are bound by these quality control standards and other terms of the license.
The Company has also granted various security and tangible interests in its
trademarks and related trade names, copyrights, patents, trade secrets and other
intellectual property to its creditors, in connection with the Bank Financing,
and to its licensees, to secure certain of the Company's obligations under the
license agreements.
GOVERNMENTAL REGULATION
The Company's operating businesses are subject to regulation and inspection
by various federal, state and local governmental agencies which enforce strict
standards of sanitation, product composition, packaging and labeling, work place
safety and environmental compliance. The Company believes it is in substantial
compliance with such regulations.
LEGAL PROCEEDINGS
The Company is involved from time to time in various legal proceedings
incidental to its business, including claims with respect to product liability,
worker's compensation, tort and other general liability and automobile
liability, for which the Company carries insurance or is self-insured, as well
as trademark, copyright and related litigation, and wrongful discharge and other
employer/employee claims and litigation. The Company believes that no such legal
proceedings will have a material adverse effect on the results of
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<PAGE> 56
operations, cash flow, liquidity or financial condition of the Company. See
"-- Environmental Compliance" for a description of certain environmental matters
in which the Company is involved.
ENVIRONMENTAL COMPLIANCE
As a result of its agricultural, food processing and canning activities,
the Company is subject to numerous environmental laws and regulations. Many of
these laws and regulations are becoming increasingly stringent and compliance
with them is becoming increasingly expensive. The Company believes that it is in
substantial compliance with all such laws and regulations. The Company cannot
predict the extent to which any environmental law or regulation that may be
enacted or enforced in the future may affect its operations. The Company is
engaged in a continuing program to maintain its compliance with existing laws
and regulations and to establish compliance with anticipated future laws and
regulations. The Company spent an aggregate of approximately $5 million on
domestic environmental expenditures from fiscal 1995 through fiscal 1997, and
projects that it will spend an aggregate of approximately $4 million in fiscal
1998 and 1999 on capital projects and other expenditures in connection with
environmental compliance.
In connection with the Company's divestiture of certain properties, the
Company may be required to remediate environmental conditions at such
properties. The Company has also identified certain conditions that require
remediation at properties it continues to own or operate. At one such property,
the Company is currently conducting a groundwater investigation for
contamination that it believes resulted from third party operations. At the
present time, the Company is unable to predict the total remediation cost for
this matter or the extent to which it may obtain contributions for any related
remediation from such third party. Nonetheless, the Company does not expect that
these and other such remediation costs will have a material adverse effect on
the Company's financial condition or results of operations.
The Company has been notified by governmental authorities and private
claimants that it is a PRP for environmental investigation and remediation costs
at certain contaminated sites under CERCLA or under similar state laws.
Currently the Company is indemnified for any liability at two of these sites,
which indemnification obligation has been accepted by the indemnitors for each
such matter.
With one exception, the Company is considered a PRP at each site because it
sent certain wastes from its operations to these sites for disposal. With
respect to the sites at which the Company has been identified as a PRP and is
not indemnified by another party, the environmental investigation and
remediation activities are at various stages. Because the investigation and
remediation process is usually long and complicated, it is difficult to predict
the ultimate extent of the Company's liability. However, at most such sites, the
Company believes it will incur a minor, if any, share of liability. There can be
no assurance that the Company will not be identified as a PRP at additional
sites in the future or that additional investigation or remediation requirements
will not be imposed on properties currently or previously owned or operated by
the Company. The Company believes that its CERCLA and any other environmental
liabilities will not have a material adverse effect on the Company's financial
position or results of operations.
PROPERTIES
As of December 31, 1997, the Company operated 15 production facilities and
six distribution centers. See "-- Supply and Production" and "-- Sales,
Marketing and Distribution." The Company's production facilities are owned
properties, while its distribution centers are owned or leased. The Company has
various warehousing/ storage facilities, which are primarily leased facilities.
The Company's leases are generally long term. Virtually all of the Company's
properties, whether owned or leased, are subject to liens or security interests.
The Company's principal administrative headquarters are located in leased
office space in San Francisco, California. The Company owns its primary research
and development facility in Walnut Creek, California.
The Company holds certain excess properties for sale and periodically
disposes of excess land and facilities through sales.
Management considers its facilities to be suitable and adequate for the
business conducted therein, and to have sufficient production capacity for the
purposes for which they are presently intended.
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CORPORATE HISTORY
DMC was acquired in 1979 by the predecessor of RJR Nabisco. In 1990, DMC
and certain of its subsidiaries and affiliates were sold in the RJR Nabisco Sale
for $1.5 billion to Del Monte and DMPF Corp., a Delaware corporation, which were
organized by ML&Co. and capitalized by ML&Co. and certain other investors
including Court Square Capital, L.P., an affiliate of Citibank, N.A., Kikkoman,
Polly Peck, W.R. Huff Asset Management Co., Charterhouse Equity Partners, L.P.
and certain present and former members of management of the Company. The RJR
Nabisco Sale excluded certain businesses that were retained by RJR Nabisco, such
as the Del Monte processed foods operations in Canada and South America. Certain
other Del Monte businesses were not acquired, including the Del Monte fresh
produce business, which was sold by RJR Nabisco to Polly Peck, which, in turn,
sold it to Fresh Del Monte. In connection with the RJR Nabisco Sale and,
subsequently, in connection with the sale of the Company's foreign operations,
as described below, the Company granted various perpetual, exclusive
royalty-free licenses for the use of the Del Monte name and trademark. The
licensees of the Del Monte name and trademark include Del Monte International,
Kikkoman, Fresh Del Monte and Yorkshire. None of the licensees is affiliated
with the Company except for Yorkshire, of which the Company owns 20% of the
common stock. See "Risk Factors -- Brand Risk" and "Business -- Intellectual
Property."
Following the RJR Nabisco Sale, the Company sold certain of its properties,
including the Company's processed foods operations in the Far East (other than
the Philippines) to Kikkoman for approximately $104 million; the Hawaiian Punch
business to Procter & Gamble for approximately $147 million; and Del Monte
International to Gravelgrove Limited for approximately $360 million, and applied
substantially all of the proceeds from such sales to the partial repayment of
the bank financing used to finance the RJR Nabisco Sale. In connection with the
sale of Del Monte International, the Company acquired an 8.35% equity investment
in Del Monte International. Subsequently, in the fiscal quarter ended March 31,
1993, the Company sold such equity investment for approximately $23 million.
In January 1991, the Company completed the sale of a 49.9% interest in Del
Monte Philippines. As a result of this transaction, the Company received $16.7
million in cash, $17.9 million in notes (which were subsequently repaid), $8.7
million in a future purchase price adjustment (all of which has been paid) and
$1.3 million of preferred stock of a subsidiary of Del Monte Philippines (20% of
which was redeemed in May 1994 and 20% redeemed in May 1995). The Company
retained a 50.1% interest in Del Monte Philippines. In March 1996, the Company
sold its 50.1% interest in Del Monte Philippines and the remaining preferred
stock to a joint venture affiliated with Del Monte International for $100
million. In connection with the sale of its interest in Del Monte Philippines,
the Company signed an eight-year supply agreement under which the Company is
required to source substantially all of its pineapple requirements from Del
Monte Philippines over the term of the agreement.
In August 1993, the Company sold its dried fruit and snack operation to
Yorkshire for cash and stock totaling $22.6 million. As part of the asset sale
transaction, the Company acquired 20% of the outstanding common stock and 1,000
shares of 7% preferred stock of Yorkshire. Following the expiration of a
standstill agreement in July 1996, the Company granted a right of first refusal
to Yorkshire to acquire the Company's equity interest in Yorkshire, and
Yorkshire Foods, Inc., the parent of Yorkshire ("YFI"), granted a right of
co-sale to the Company in the event that YFI proposed to sell its equity
interest in Yorkshire.
In December 1993, the Company sold substantially all of the assets and
certain related liabilities of its can manufacturing operations in the United
States to Silgan for $72 million. At the same time, the Company entered into a
ten-year supply agreement under which Silgan would, effective immediately after
the sale, provide the Company with substantially all of its domestic can
requirements. The supply agreement provides the Company with a long-term supply
of cans at prices that adjust over time for normal manufacturing cost increases
or decreases. See "Business -- Supply and Production."
On June 27, 1994, Del Monte entered into an Agreement and Plan of Merger
(the "1994 Merger Agreement") with Grupo Empacador de Mexico, S.A. de C.V. and
CCP Acquisition Company of Maryland, Inc., which were formed by an investor
group led by Mr. Carlos Cabal Peniche for the purpose of effecting an
acquisition (the "Proposed Acquisition") of the Company. The Merger Agreement
provided that Del Monte
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was entitled to terminate the 1994 Merger Agreement if the effective date of the
Proposed Acquisition failed to occur on or prior to September 19, 1994. The
effective date of the Proposed Acquisition did not occur on or prior to such
date and, on September 21, 1994, Del Monte terminated the 1994 Merger Agreement
in accordance with its terms. Pursuant to the 1994 Merger Agreement, because the
Proposed Acquisition failed to occur by September 19, 1994, Del Monte drew $30
million under a letter of credit issued by Banco Union, S.A., a bank affiliated
with Mr. Cabal. Such amount was applied to the repayment of indebtedness then-
outstanding under the Company's then-existing revolving credit agreement.
In November 1995, the Company sold its pudding business to Kraft for $89
million.
In October 1996, the Company sold its Mexican subsidiary for $38 million,
and, in November 1996, sold its Central American and Caribbean operations for
$12 million.
On April 18, 1997, Shield was merged with and into Del Monte, with Del
Monte being the surviving corporation. In connection with the merger, DMC repaid
substantially all of its funded debt obligations existing immediately before the
closing of the merger.
On December 19, 1997, the Company acquired the Contadina business for $177
million in cash, plus an estimated working capital adjustment of approximately
$20 million. The purchase price is subject to adjustment based on the final
calculation of net working capital as of the closing date. Nestle has provided
its calculation of the net working capital, which would result in a payment to
the Company of approximately $2 million. The Company has until April 18, 1998 to
review this calculation and determine if it has any objection to the
calculation. The Contadina Acquisition also included the assumption of certain
liabilities of approximately $4 million.
Following the Offering, TPG will own approximately % of the Common
Stock ( % if the U.S. Underwriters' overallotment option is exercised in
full) and will continue to have the power to direct the management and policies
of the Company. TPG is part of Texas Pacific Group, which was founded by David
Bonderman, James G. Coulter and William S. Price, III in 1992 to pursue public
and private investment opportunities. Texas Pacific Group's other investments
include such branded consumer products companies as Beringer Wine Estates,
Ducati Motors S.p.A., Favorite Brands International, and J. Crew Group, Inc.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of individuals
who are serving as directors and executive officers of Del Monte. Such
individuals hold the same positions with DMC. Each director will hold office
until the next annual meeting of shareholders or until his successor has been
elected and qualified. Officers are elected by the Board of Directors and serve
at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Richard W. Boyce....................... 43 Chairman of the Board; Director
Richard G. Wolford..................... 53 Chief Executive Officer; Director
Wesley J. Smith........................ 51 Chief Operating Officer; Director
Timothy G. Bruer....................... 40 Director
Al Carey............................... 46 Director
Patrick Foley.......................... 66 Director
Brian E. Haycox........................ 56 Director
Denise M. O'Leary...................... 40 Director
William S. Price, III.................. 41 Director
Jeffrey A. Shaw........................ 33 Director
David L. Meyers........................ 52 Executive Vice President,
Administration and Chief Financial
Officer
Glynn M. Phillips...................... 60 Executive Vice President, Sales
Brent D. Bailey........................ 45 Executive Vice President, Marketing
Thomas E. Gibbons...................... 50 Senior Vice President and Treasurer
William J. Spain....................... 56 Senior Vice President, Technology
Richard L. French...................... 40 Vice President and Chief Accounting
Officer
William R. Sawyers..................... 35 Vice President, General Counsel and
Secretary
</TABLE>
Richard W. Boyce, Chairman of the Board; Director. Mr. Boyce became
Chairman of the Board and a director of Del Monte in August 1997. Mr. Boyce
became President of SRB, Inc., which provides management services to TPG and its
affiliated companies, in 1997. He was employed by PepsiCo from 1992 to 1997,
most recently as Senior Vice President of Operations for Pepsi-Cola North
America. From 1980 to 1992, Mr. Boyce was employed by Bain & Co.
Richard G. Wolford, Chief Executive Officer; Director. Mr. Wolford joined
Del Monte as Chief Executive Officer and a director in April 1997 upon
consummation of the Recapitalization. From 1967 to 1987, he held a variety of
positions at Dole Foods, including President of Dole Packaged Foods from 1982 to
1987. From 1988 to 1996, he was Chief Executive Officer of HK Acquisition Corp.
where he developed food industry investments with venture capital investors.
Wesley J. Smith, Chief Operating Officer; Director. Mr. Smith joined Del
Monte as Chief Operating Officer and a director in April 1997 upon consummation
of the Recapitalization. From 1972 to 1995, he was employed by Dole Foods in a
variety of positions, including senior positions in finance, marketing,
operations and general management in California, Hawaii and Honduras.
Timothy G. Bruer, Director. Mr. Bruer became a director of Del Monte in
August 1997. Mr. Bruer has been President and Chief Executive Officer and a
director of Silverado Foods, Inc. since March 1997. From 1993 until that time,
he was Vice President and General Manager of the Culinary Division of Nestle. He
is also a director of Authentic Specialty Foods Inc.
Al Carey, Director. Mr. Carey became a director of Del Monte in November
1997. He is the Chief Operating Officer of Frito-Lay, Inc., a division of
PepsiCo, Inc., and has been employed in various capacities with that company
since 1981.
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Patrick Foley, Director. Mr. Foley became a director of Del Monte in August
1997. Mr. Foley is Chairman, President and Chief Executive Officer of DHL
Corporation, Inc. and its major subsidiary, DHL Airways, Inc. He joined DHL in
September 1988, with more than 30 years experience in hotel and airline
industries. He was formerly Chairman and President of Hyatt Hotel Corporation.
Mr. Foley serves on the Boards of Directors of Continental Airlines, Inc., DHL
International, Foundation Health Systems, Inc. and Glenborough Realty Trust,
Inc.
Brian E. Haycox, Director. Mr. Haycox was elected to the Board of Directors
of Del Monte in June 1995. He was elected as Co-Chairman and Co-Chief Executive
Officer of Del Monte in December 1995, and he served in those capacities until
the consummation of the Recapitalization. Mr. Haycox served as President and
Chief Executive Officer of Del Monte Tropical Fruit Company from 1988 until
1993. Prior to that time Mr. Haycox served in a variety of management positions
within the Del Monte organization.
Denise M. O'Leary, Director. Ms. O'Leary became a director of Del Monte in
August 1997. Ms. O'Leary has been a Special Limited Partner of Menlo Ventures
since 1996. From 1983 to 1996, she was a General Partner of Menlo Ventures. Ms.
O'Leary serves on the Boards of Directors of various private companies as well
as on the Board of ALZA Corporation. She is a member of the Board of Trustees of
Stanford University and a director of UCSF Stanford Health Care.
William S. Price, III, Director. Mr. Price became a director of Del Monte
in August 1997. Mr. Price was founding partner of TPG in 1992. Prior to forming
TPG, he was Vice President of Strategic Planning and Business Development for G.
E. Capital. Mr. Price is Chairman of the Board of Favorite Brands International,
Inc. He also serves on the Boards of Directors of Belden & Blake Corporation,
Beringer Wine Estates, Continental Airlines, Inc., Denbury Resources and Vivra
Specialty Partners, Inc.
Jeffrey A. Shaw, Director. Mr. Shaw became a director of Del Monte in May
1997. Mr. Shaw has been an executive of TPG since 1993. Prior to joining TPG,
Mr. Shaw was a principal of Acadia Partners, L.P., an investment partnership,
for three years. Mr. Shaw serves as a director of Favorite Brands International,
Inc., Ryanair PLC, Ducati Motors S.p.A and Ducati North America, Inc.
David L. Meyers, Executive Vice President, Administration and Chief
Financial Officer. Mr. Meyers joined the Company in 1989. He was elected Chief
Financial Officer of Del Monte in December 1992 and served as a member of the
Board of Directors of Del Monte from January 1994 until consummation of the
Recapitalization. Prior to joining the Company, Mr. Meyers held a variety of
financial and accounting positions with RJR Nabisco (1987 to 1989), Nabisco
Brands USA (1983 to 1987) and Standard Brands, Inc. (1973 to 1983).
Glynn M. Phillips, Executive Vice President, Sales. Mr. Phillips joined Del
Monte in October 1994. Prior to joining the Company, Mr. Phillips was Vice
President, Sales of The Clorox Company where he also held various sales and
marketing positions from 1973 to 1994.
Brent D. Bailey, Executive Vice President, Marketing. Mr. Bailey joined Del
Monte in his current position in January 1998. Prior to that he was with The
Dial Corporation since 1992 as Senior Vice President and General
Manager -- Household Division, and Senior Vice President -- Portfolio Group.
From 1974 to 1992, Mr. Bailey held marketing management positions with Procter &
Gamble, Frito-Lay and Pillsbury.
Thomas E. Gibbons, Senior Vice President and Treasurer. Mr. Gibbons joined
Del Monte in 1969 and was elected to his current position in February 1995. He
was elected Vice President and Treasurer of Del Monte in January 1990. Mr.
Gibbons' prior experience also includes a variety of positions within the
Company's and RJR Nabisco's tax and financial organizations.
William J. Spain, Senior Vice President, Technology. Mr. Spain joined Del
Monte in 1966 and was elected to his current position in February 1995.
Previously, he was Vice President, Research, Government and Industry Relations
of both Del Monte. Mr. Spain has also held various positions within Del Monte in
corporate affairs, production management, quality assurance, environmental and
energy management, and consumer services.
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Richard L. French, Vice President and Chief Accounting Officer. Mr. French
joined Del Monte in 1980 and was elected to his current position in August 1993.
Mr. French was Controller and Chief Accounting Officer of both Del Monte from
March 1990 through August 1993 and has held a variety of positions within the
Company's financial organization.
William R. Sawyers, Vice President, General Counsel and Secretary. Mr.
Sawyers joined Del Monte in November 1993 and was elected to his current
position in 1995. Prior to joining the Company, Mr. Sawyers was an associate
with the law firm of Shearman & Sterling from 1987 to 1993.
COMMITTEES OF THE BOARD OF DIRECTORS; TERM
Del Monte's Board of Directors has the committees described below.
The Compensation Committee has authority to determine executive
compensation and will approve the terms of stock options and stock purchase
rights pursuant to the Company's plans and arrangements (as described below).
The Compensation Committee's current members are Messrs. Price and Shaw and Ms.
O'Leary.
On or prior to the consummation of the Offering, Del Monte will establish
an Audit Committee to be responsible for reviewing the activities of the
Company's independent accountants and internal audit department. The Audit
Committee's members will be Messrs. Boyce, Bruer and Haycox. Two of the three
directors on the Audit Committee will not be affiliated with the Company or TPG
upon their respective appointments to the Board of Directors, in accordance with
applicable New York Stock Exchange requirements.
Upon the completion of the Offering, the Board of Directors of Del Monte
will be divided into three classes, as nearly equal in number as possible, with
each director serving a three year term and one class being elected at each
year's annual meeting of stockholders. Messrs. Bruer, Haycox and Price will be
in the class of directors whose term expires at the 1999 annual meeting of Del
Monte's stockholders. Messrs. Foley, Shaw and Smith will be in the class of
directors whose term expires at the 2000 annual meeting of Del Monte's
stockholders. Messrs. Boyce, Carey and Wolford and Ms. O'Leary will be in the
class of directors whose term expires at the 2001 annual meeting of Del Monte's
stockholders. At each annual meeting of Del Monte's stockholders, successors to
the class of directors whose term expires at such meeting will be elected to
serve for three year terms and until their successors are elected and qualified.
Executive officers are elected by, and serve at the discretion of, the
Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company for fiscal
years 1995, 1996 and 1997 to each individual serving as its Chief Executive
Officer during fiscal 1997 and to each of the four other most
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<PAGE> 62
highly compensated executive officers of the Company as of the end of fiscal
1997, and to one executive officer whose employment terminated prior to the end
of fiscal 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(3)
---------------
OTHER ANNUAL LTIP ALL OTHER
SALARY(1) BONUS COMP. (2) PAYOUTS COMP.(4)
NAME AND PRINCIPAL POSITIONS FISCAL YEAR ($) ($) ($) ($) ($)
- ---------------------------- ----------- --------- ------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Wolford(5)........ 1997 100,641 -- -- -- 251,196
Chief Executive Officer
Brian E. Haycox.............. 1997 602,404 -- 73,471 -- 5,323,303
Co-Chairman/Co-CEO(6) 1996 420,673 -- 247,780 -- 8,052
Paul H. Mullan............... 1997 602,404 -- 221,940 -- 5,288,452
Co-Chairman/Co-CEO(7) 1996 420,673 -- 817,978 -- 8,052
David L. Meyers.............. 1997 286,000 159,400 -- 421,000 2,959,771
Executive Vice President, 1996 273,000 143,000 55,386 421,000 11,242
Administration & CFO 1995 302,500 -- 145,954 421,000 9,786
Glynn M. Phillips............ 1997 239,118 118,300 -- 280,000 1,974,454
Executive Vice President, 1996 225,750 118,250 -- 280,000 9,206
Sales
1995 158,907 -- -- 280,000 52,724
Thomas E. Gibbons............ 1997 183,458 59,900 -- 210,000 115,829
Senior Vice President and 1996 175,600 63,900 -- 54,600 4,717
Treasurer 1995 161,703 53,600 -- 50,400 4,728
William J. Spain............. 1997 147,917 49,500 -- 162,000 115,766
Senior Vice President, 1996 139,167 49,700 -- 42,100 4,417
Technology 1995 126,542 40,700 -- 38,900 4,024
David M. Little(8)........... 1997 250,250 -- -- 421,000 3,363,581
Executive Vice President, 1996 286,650 150,150 -- 421,000 10,660
Worldwide Operations 1995 309,500 -- -- 421,000 10,302
</TABLE>
- ---------------
(1) Reflects actual base earnings for the fiscal year specified.
(2) Fiscal 1995 reflects certain perquisites, including moving expenses for Mr.
Meyers ($129,838). Fiscal 1996 reflects certain perquisites, including
relocation related expenses for Mr. Haycox ($243,092) and Mr. Mullan
($812,333); moving expenses for Mr. Meyers ($33,091) and company car
($15,500). Fiscal 1997 reflects certain perquisites, including relocation
related taxes for Mr. Haycox ($57,005) and Mr. Mullan ($198,955).
(3) Reflects payments under the Company's Old MEP and Long Term Incentive Plan.
(4) For fiscal 1995: Company contributions to the Del Monte Corporation Savings
Plan -- Mr. Meyers $4,500; Mr. Gibbons $4,500; Mr. Spain $3,796; Mr. Little
$4,500, Company paid term life premiums -- Mr. Meyers $1,960; Mr. Phillips
$2,724; Mr. Gibbons $228; Mr. Spain $228; Mr. Little $2,080, a sign-on bonus
for Mr. Phillips $50,000, amount paid under the nonqualified Additional
Benefits Plan -- Mr. Meyers $3,326; Mr. Little $3,722. For fiscal 1996:
Company contributions to the Del Monte Corporation Savings Plan -- Mr.
Haycox $4,500; Mr. Mullan $4,500; Mr. Meyers $4,500; Mr. Phillips $4,500;
Mr. Gibbons $4,500; Mr. Spain $4,200; Mr. Little $4,500, Company paid term
life premiums -- Mr. Haycox $3,552; Mr. Mullan $3,552; Mr. Meyers $3,407;
Mr. Phillips $4,706; Mr. Gibbons $217; Mr. Spain $217; Mr. Little $2,428,
amount paid under the nonqualified Additional Benefits Plan -- Mr. Meyers
$3,335; Mr. Little $3,732. For fiscal 1997: Company contributions to the Del
Monte Corporation Savings Plan -- Mr. Haycox $4,800; Mr. Mullan $5,738; Mr.
Meyers $4,500; Mr. Phillips $4,500; Mr. Gibbons $4,500; Mr. Spain $4,437;
Mr. Little $3,003; Company paid term life premiums -- Mr. Wolford $1,196;
Mr. Haycox $13,057; Mr. Mullan $10,657; Mr. Meyers $4,198; Mr. Phillips
$5,325; Mr. Gibbons $217; Mr. Spain $217; Mr. Little $2,739, amount paid
under the nonqualified Additional Benefits Plan -- Mr. Meyers $4,130; Mr.
Little $4,567, amount paid due to termination for Mr. Haycox
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$393,874; Mr. Mullan $360,485; Mr. Little $406,329, change in control bonus
paid April 1997 -- Mr. Haycox $4,911,572; Mr. Mullan $4,911,572; Mr. Meyers
$2,946,943; Mr. Phillips $1,964,629; Mr. Gibbons $111,112; Mr. Spain
$111,112; Mr. Little $2,946,943. For Mr. Wolford, the fiscal 1997 amount
includes a consulting fee of $250,000 paid in December 1997 for the period
prior to April 18, 1997.
(5) Mr. Wolford became Chief Executive Officer as of April 18, 1997.
(6) Mr. Haycox's employment as Co-Chairman/Co-CEO terminated as of April 18,
1997.
(7) Mr. Mullan's employment as Co-Chairman/Co-CEO terminated as of April 18,
1997.
(8) Mr. Little's employment as Executive Vice President, Worldwide Operations
terminated as of April 30, 1997.
EMPLOYMENT AND OTHER ARRANGEMENTS
The Management Equity Plan
Established beginning in fiscal 1995 and modified in March 1996, the
Company's Management Equity Plan ("New MEP") provided awards to certain key
executives upon the sale of the Company or upon the public offering of the
Company's Common Stock. Under the terms of the New MEP, the "Base Value" of the
Company's preferred and Common Stock was established at $125 million. To the
extent that proceeds from the sale of the Company to preferred and common
stockholders (after repayment of debt but without reduction for payment to
executives under the New MEP) exceeded the $125 million Base Value, an award
pool of 6% of such excess was set aside for payment to the Company's executive
officers. The New MEP was terminated concurrent with the Recapitalization.
In connection with the Recapitalization, the Company made payments
aggregating approximately $19.7 million pursuant to the New MEP. This amount was
allocated as follows:
<TABLE>
<S> <C>
Mr. Haycox............................................... $4,911,572
Mr. Mullan............................................... 4,911,572
Mr. Little............................................... 2,946,943
Mr. Meyers............................................... 2,946,943
Mr. Phillips............................................. 1,964,629
Other officers(1)........................................ 2,000,016
</TABLE>
- ---------------
(1) Other officers include Messrs. Gibbons and Spain and 16 other senior
officers.
Messrs. Meyers, Little and Phillips were participants in the MEP prior to
its modification in March 1996 (the "Old MEP"), and as such became eligible for
awards for fiscal 1995 based on the annual equity growth formula in effect under
the Old MEP for such year. Messrs. Meyers, Little and Phillips were paid
installment payments of the Old MEP awards in the amounts of $421,000, $421,000
and $280,000, respectively, in June 1996 and remained eligible for installment
payment of the Old MEP awards in the amounts of $421,000, $421,000 and $280,000,
respectively, for fiscal 1997. The Company paid these fiscal 1997 awards at the
time of the Recapitalization.
Long Term Incentive Plan
Established on July 1, 1990, amended and restated on July 1, 1995, the Long
Term Incentive Plan ("LTIP") provided certain key management employees with a
long-term incentive program based on Company performance. The LTIP had a
performance cycle of three fiscal years with interim award payments at the end
of each fiscal year based on the employee's target award. The three-year target
award was determined by multiplying (i) the executive's base pay by (ii) a
percentage based on salary grade level, and multiplying the result by (iii)
three (for each fiscal year in the performance cycle). Interim awards were
determined by comparing actual financial performance compared to target goals
and subject to a percentage payout schedule. Mr. Gibbons received fiscal 1995
and fiscal 1996 awards of $50,400 and $54,600, respectively. Mr. Gibbons
received the final fiscal 1997 award in the amount of $210,000 at the time of
the
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<PAGE> 64
Recapitalization. Mr. Spain received fiscal 1995 and fiscal 1996 awards of
$38,900 and $42,100, respectively. Mr. Spain received the final fiscal 1997
award in the amount of $162,000 at the time of the Recapitalization. This plan
was terminated following the Recapitalization.
The Annual Incentive Award Plan
The Annual Incentive Award Plan ("AIAP") provides annual cash bonuses to
certain management employees, including certain of the named senior executives.
The target bonus for each eligible employee is based on a percentage of base
salary. Actual payment amounts are based on the Company's achievement of annual
earnings objectives and individual performance objectives at fiscal year end.
The targeted percentage of base salary is as follows: Mr. Little -- 50%, Mr.
Meyers -- 50%, Mr. Phillips -- 50%, Mr. Gibbons -- 30% and Mr. Spain -- 30%. Mr.
Haycox and Mr. Mullan were not eligible for the AIAP for fiscal 1996 or fiscal
1997. Mr. Wolford was not eligible for the AIAP for fiscal 1997. Mr. Little
received his fiscal 1997 AIAP payment of $150,150 at the time of his termination
as of April 30, 1997.
Stock Purchase Plan
The Del Monte Foods Company Employee Stock Purchase Plan was approved on
August 4, 1997 and amended on November 4, 1997. Under the Plan, key employees
are allowed to purchase up to $5 million in Common Stock to be issued at fair
market value. To date, 2,371 shares of the Company's Common Stock have been
purchased by and issued to eligible employees.
Stock Incentive Plan
The Del Monte Foods Company 1997 Stock Incentive Plan was approved on
August 4, 1997 and amended on November 4, 1997. Under the Plan, grants of
incentive stock options and nonqualified stock options representing 9,319 shares
of Common Stock may be made to key employees. The options will be granted at an
exercise price equal to the fair market value of the shares at the time of such
grant and have a ten-year term. Two different vesting schedules have been
approved under the 1997 Stock Incentive Plan. The first provides for annual
vesting on a proportionate basis over five years and the second provides for
monthly vesting on a proportionate basis over four years. Pursuant to this Plan,
options for 9,066 shares of Common Stock have been granted to eligible employees
to date and options for 8,877 shares remain outstanding. The per share exercise
price of the options granted to date was $1,000 which was determined to be the
fair market value of said shares.
The Del Monte Retirement Plan for Salaried Employees
The Del Monte Corporation Retirement Plan for Salaried Employees (the "Del
Monte Corporation Retirement Plan"), which became effective as of January 1,
1990, is a non-contributory defined benefit retirement plan covering salaried
employees of the Company. Credits are made monthly to each participant's
personal retirement account ("PRA") consisting of a percentage of that month's
eligible compensation, plus interest on his or her account balance. A
participant is fully vested upon completion of five years of service.
The percentage of monthly compensation credited varies according to age as
follows:
<TABLE>
<CAPTION>
ALL MONTHLY MONTHLY COMPENSATION
PARTICIPANT AGE COMPENSATION ABOVE SOCIAL SECURITY BASE
--------------- ------------ --------------------------
<S> <C> <C>
Below 35................................... 4.0% 3.0%
35 but below 45............................ 5.0 3.0
45 but below 55............................ 6.0 3.0
55 and over................................ 7.0 3.0
</TABLE>
The Del Monte Corporation Retirement Plan was amended effective January 1,
1998 to change the interest credit from 110% of the U.S. Pension Benefit
Guaranty Corporation ("PBGC") rate to the yield on the 12-month Treasury Bill
rate plus 1.5%. In addition, the factors for annuity conversions were changed
from specific Company factors to factors based on 30-year Treasury Bond yields
and an Internal Revenue Service
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<PAGE> 65
("IRS") specified mortality table. A participant's annual age 65 annuity benefit
will be the greater of an annuity based on (i) the credit balance as of December
31, 1997 increased by interest credits (and not compensation credits) of 110% of
the December 31, 1997 PBGC rate divided by 8.2 or (ii) the credit balance at the
time of retirement using an annuity factor based on 30-year Treasury Bond yields
and an IRS specified mortality table. Alternatively, a participant at retirement
or other termination of employment may elect a lump sum distribution of his or
her account balance.
Participants who, as of January 1, 1988, were at least age 40 with ten or
more years' service, or at least age 55 with five or more years' service, are
eligible to receive an alternative retirement benefit that is based on the terms
of the prior Del Monte Corporation Retirement Plan. For credited service after
December 31, 1981, such participants have accrued an annual benefit of 1.75% of
average final compensation multiplied by years of credited service. Average
final compensation is the participant's highest five years' average compensation
during his or her last ten years of credited service; compensation generally
includes base salary and awards under the AIAP but not other forms of incentive
compensation. The amount determined by this alternative benefit formula is
reduced by .75% of the participant's Social Security benefit, multiplied by
years of credited service. For credited service prior to January 1, 1982, a
similar benefit formula is applied.
The Del Monte Corporation Retirement Plan was amended effective April 30,
1992 to cease recognition of any future credited service or average final
compensation under the alternative retirement benefit. At retirement, a
participant who was eligible for the alternative retirement benefit will receive
an annual retirement benefit equal to the greater of the retirement benefit
determined by his or her PRA, or his or her alternative retirement benefit based
on compensation and credited service to April 30, 1992. Alternatively, a
participant may elect the greater of a lump sum distribution of his or her PRA
account balance or the actuarial equivalent lump sum of the alternative benefit.
Nonqualified Retirement Plans. Effective January 1, 1990, the Company
established the Del Monte Corporation Additional Benefits Plan and the Del Monte
Corporation Supplemental Benefits Plan (the "Nonqualified Retirement Plans").
The Nonqualified Retirement Plans are "top hat" and "excess" benefit plans
designed to provide benefits in excess of those otherwise permitted under the
Del Monte Corporation Retirement Plan and the Del Monte Corporation Savings Plan
(which is qualified under Section 401(k) of the Internal Revenue Code) by
Sections 401(a)(17) and 415 of the Internal Revenue Code. The Nonqualified
Retirement Plans also provide benefits in respect of certain amounts of
severance not taken into account under the Del Monte Corporation Retirement Plan
or the Del Monte Corporation Savings Plan. Employees who participate in the Del
Monte Corporation Retirement Plan or the Del Monte Corporation Savings Plan are
generally eligible to participate in the Nonqualified Retirement Plans. Benefits
under the Nonqualified Retirement Plans are unfunded and paid from the general
assets of the Company.
Set forth below are the estimated annual benefits payable at age 65
(assuming lump sum payments are not elected) under the Del Monte Corporation
Retirement Plan and the Nonqualified Retirement Plans:
<TABLE>
<CAPTION>
YEAR ATTAINING ESTIMATED ANNUAL
PARTICIPANT AGE 65 RETIREMENT BENEFIT(A)
----------- -------------- ---------------------
<S> <C> <C>
Mr. Wolford................................... 2009 $125,819
Mr. Phillips.................................. 2002 28,260
Mr. Meyers.................................... 2010 179,742
Mr. Gibbons................................... 2012 178,762
Mr. Spain..................................... 2007 104,915
</TABLE>
- ---------------
(a) The estimated annual retirement benefits shown assumes no increase in
compensation or AIAP and interest credits of 6.68%.
Employment Arrangements. During fiscal 1997, the Company had employment
agreements with each of Messrs. Haycox, Mullan, Meyers, Little, Phillips,
Gibbons and Spain. The following summaries of the material provisions of the
employment agreements with Messrs. Haycox and Mullan (each, a "CEO Agreement"
and collectively, the "CEO Agreements"), the employment agreements with Messrs.
Meyers and Little (each, an "EVP Employment Agreement" and collectively, the
"EVP Employment Agreements")
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<PAGE> 66
and the employment agreement with Mr. Phillips (the "Phillips Employment
Agreement") do not purport to be complete and are qualified in their entirety by
reference to such agreements. The employment of Messrs. Haycox and Mullan
pursuant to the CEO Agreements was terminated effective as of April 18, 1997.
The employment of Mr. Little pursuant to his EVP Employment Agreement was
terminated effective as of April 30, 1997. The employment agreements of Messrs.
Meyers, Phillips, Gibbons and Spain have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
The CEO Agreements provided for an initial term ending on December 31,
1997. Under the terms of the CEO Agreements, if an executive is terminated for
any reason other than for cause, if he resigns for good reason or if his
employment is terminated upon a sale of the Company, he shall be entitled to a
lump sum payment, within ten days of his termination, equal to the base salary
that he would have earned through December 31, 1997. The executive will also
receive any amounts due under the MEP, and will continue to participate in any
employee benefit plans and programs maintained by the Company until the earlier
of (i) December 31, 1997, or (ii) such time as he is covered by comparable
programs of a subsequent employer.
Each of the EVP Employment Agreements is for an indefinite term and
contains virtually identical terms. Specifically, each EVP Employment Agreement
provides that if the executive's employment terminates for any reason other than
for cause or if the executive resigns for good reason, such executive would
receive as severance, subject to the executive's not competing with the Company
or disclosing confidential information or trade secrets of the Company,
severance payments over a three-year period commencing on the date of such
termination or resignation. The aggregate amount of the severance payable to the
executive over such three-year period would equal two times the sum of: (a) the
executive's highest annual base salary in effect during the 12-month period
prior to such termination or resignation and (b) the target award (50% of annual
base salary) under the AIAP (or successor thereto) for the year in which such
termination or resignation occurs (or, if greater, the amount of the award for
the next preceding year). In addition, the executive would receive a pro rata
annual bonus under the AIAP for the year in which such termination or
resignation occurs and would be entitled to participate in the employee benefit
plans and programs maintained by the Company in which the executive participates
until the earlier of (i) the end of the three-year period and (ii) such time as
the executive is covered by comparable programs of a subsequent employer.
The Phillips Employment Agreement is for an indefinite term. The Phillips
Employment Agreement provides that if Mr. Phillips' employment terminates for
any reason other than for cause or if Mr. Phillips resigns for good reason, Mr.
Phillips would receive as severance three months of his then current base pay.
In addition, if Mr. Phillips executes and delivers to the Company a written
agreement confirming his commitment not to compete with the Company and not to
disclose confidential information or trade secrets of the Company, the Company
would then provide Mr. Phillips severance payments over an 18-month period
commencing on the date of such termination or resignation. The aggregate amount
of the severance payable to Mr. Phillips over such 18-month period would equal
the sum of (a) Mr. Phillips' highest annual rate of base salary in effect during
the 12-month period prior to such termination or resignation, and (b) the target
award under the AIAP (or successor thereto) for the year in which such
termination or resignation occurs (or, if greater, the amount of the award for
the next preceding year of employment). In addition, Mr. Phillips would receive
a pro rata annual bonus under the AIAP for the year in which such termination or
resignation occurs and would be entitled to participate in the employee benefit
plans and programs maintained by the Company in which Mr. Phillips participates
until the earlier of (i) the end of the 18-month period or (ii) such time as Mr.
Phillips is covered by comparable programs of a subsequent employer.
Messrs. Gibbons' and Spain's employment agreement is similar to that of Mr.
Phillips except that it does not require Messrs. Gibbons or Spain to execute an
agreement not to compete or disclose confidential information in order to
receive severance payments over an 18-month period.
On March 16, 1998, Del Monte entered into employment agreements with Mr.
Wolford and Mr. Smith (the "Wolford/Smith Employment Agreements") as Chief
Executive Officer and Chief Operating Officer, respectively. Copies of the
Wolford/Smith Employment Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The Wolford/Smith
Employment Agreements are for an indefinite term. Under the terms of the
Wolford/Smith Employment Agreements, if the
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<PAGE> 67
employment of Mr. Wolford or Mr. Smith is terminated by Del Monte for any reason
other than for cause or by such executive for any reason, he would be entitled
to continue to receive his base salary and target award under the AIAP (50% of
base salary) and to participate in certain employee welfare benefit plans and
programs of the Company for up to two years after the date of such termination
of employment, subject to his not competing with the Company, not soliciting
employees of the Company and not disclosing proprietary or confidential
information of the Company and subject to his signing a general release and
waiver with respect to certain claims he may have against the Company.
DIRECTORS' COMPENSATION
Under Company policy, Messrs. Bruer, Carey, Foley and Haycox and Ms.
O'Leary will each receive $25,000 per year to be paid in cash or in Common
Stock, at the option of the director. Each of these directors will also receive
$2,000 for each committee meeting of the Board of Directors attended in person.
In February 1998, the Company adopted a stock incentive plan with terms
substantially identical to the terms of the Del Monte Foods 1997 Stock Incentive
Plan for the benefit of outside directors and independent contractors of the
Company. Pursuant to that plan, Mr. Boyce received options representing 777
shares of Common Stock.
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<PAGE> 68
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of February 28, 1998, and as adjusted to
reflect the sale of the shares offered hereby (i) by each person who is known by
the Company to own beneficially more than 5% of the Common Stock, (ii) by each
of the Company's directors, (iii) by each of the executive officers of the
Company identified in the table set forth under the heading
"Management -- Executive Compensation" and (iv) by all executive officers and
directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(A) SHARES OFFERING(B)
NAME AND ADDRESS OF --------------------------- BEING --------------------
BENEFICIAL OWNER NUMBER PERCENT(C) OFFERED NUMBER PERCENT
------------------- ----------- ---------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
TPG Partners, L.P......................... 128,863.69(d)(e) 70.4
201 Main Street, Suite 2420
Fort Worth, TX 76102
TPG Parallel I, L.P....................... 12,842.24(d)(f) 7.1
201 Main Street, Suite 2420
Forth Worth, TX 76102
399 Venture Partners, Inc................. 13,000.00 7.2
399 Park Avenue, 14th Floor
New York, NY 10043
Richard W. Boyce.......................... 777.00(g) 0.0
Richard G. Wolford........................ 3,321.00(h) 1.8
Wesley J. Smith........................... 3,321.00(h) 1.8
Timothy G. Bruer.......................... -- --
Al Carey.................................. 6.00(i) 0.0
Patrick Foley............................. 13.00(i) 0.0
Brian E. Haycox........................... 19.00(i) 0.0
Denise M. O'Leary......................... 13.00(i) 0.0
William S. Price, III..................... --(d) --
Jeffrey A. Shaw........................... -- --
David L. Meyers........................... 1,042.00(j) 0.1
Glynn M. Phillips......................... 254.00(k) 0.0
Thomas E. Gibbons......................... 174.00(l) 0.0
William J. Spain.......................... 73.00(l) 0.0
All executive officers and directors as a
group (14 persons)...................... 150,719.93(m) 78.7
</TABLE>
- ---------------
(a) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in this table and these notes.
(b) Assumes no exercise of U.S. Underwriters' overallotment option.
(c) Calculated excluding all shares issuable pursuant to agreements, options or
warrants of Del Monte, except as to each individual, entity or group, the
shares issuable to such individual, entity or group pursuant to agreements,
options or warrants of Del Monte, as described below in notes (e) through
(l), as the case may be.
(d) TPG Partners, L.P. and TPG Parallel I, L.P. are entities affiliated with
William S. Price, III. Mr. Price disclaims beneficial ownership of all
shares owned by such entities.
(e) Includes 1,299.10 shares issuable upon exercise of warrants.
(f) Includes 129.47 shares issuable upon exercise of warrants.
(g) Includes 777 shares issuable upon exercise of options issued to Mr. Boyce.
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<PAGE> 69
(h) In each case, includes 350 shares that Del Monte agreed to issue on February
6, 1998 and 2,971 shares issuable upon exercise of options.
(i) Messrs. Carey, Foley and Haycox and Ms. O'Leary have elected to receive
shares of Common Stock in lieu of cash for their directors' fees. Although
such shares have not yet been issued, this number reflects shares accrued
through February 28, 1998. See "-- Directors' Compensation."
(j) Includes 792 shares issuable upon exercise of options.
(k) Includes 154 shares issuable upon exercise of options.
(l) In each case, includes 63 shares issuable upon exercise of options.
(m) Includes all shares held by entities affiliated with a director as described
in note (d) above and all shares issuable by Del Monte pursuant to
arrangements as described in notes (e) through (l) above.
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<PAGE> 70
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Recapitalization, the Company entered into a
ten-year agreement (the "Management Advisory Agreement") with TPG pursuant to
which TPG is entitled to receive an annual fee from the Company for management
advisory services equal to the greater of $500,000 and 0.05% of the budgeted
consolidated net sales of the Company for each fiscal year under the contract
term. In addition, the Company has agreed to indemnify TPG, its affiliates and
shareholders, and their respective directors, officers, controlling persons,
agents, employees and affiliates from and against all claims, actions,
proceedings, demands, liabilities, damages, judgments, assessments, losses and
costs, including fees and expenses, arising out of or in connection with the
services rendered by TPG thereunder. The Management Advisory Agreement makes
available the resources of TPG concerning a variety of financial and operational
matters. The services that will be provided by TPG cannot otherwise be obtained
by the Company without the addition of personnel or the engagement of outside
professional advisors. In management's opinion, the fees provided for under the
Management Advisory Agreement reasonably reflect the benefits to be received by
the Company.
In connection with the Recapitalization, the Company also entered into a
ten-year agreement (the "Transaction Advisory Agreement") with TPG pursuant to
which TPG received a cash financial advisory fee of approximately $8.4 million
upon the closing of the Recapitalization as compensation for its services as
financial advisor for the Recapitalization. TPG also is entitled to receive a
fee of 1.5% of the "transaction value" for each transaction in which the Company
is involved. The term "transaction value" means the total value of any
subsequent transaction, including, without limitation, the aggregate amount of
the funds required to complete the subsequent transaction (excluding any fees
payable pursuant to the Transaction Advisory Agreement and fees, if any, paid to
any other person or entity for financial advisory, investment banking, brokerage
or any other similar services rendered in connection with such transaction)
including the amount of any indebtedness, preferred stock or similar items
assumed (or remaining outstanding). The Transaction Advisory Agreement includes
indemnification terms similar to those in the Management Advisory Agreement. In
connection with the Contadina Acquisition, TPG received from the Company a
transaction fee of approximately $3 million. In management's opinion, the fees
provided for under the Transaction Advisory Agreement reasonably reflect the
benefits received and to be received by the Company.
Also in connection with the Recapitalization, Del Monte and the holders of
the Common Stock, including TPG and 399 Venture Partners, Inc. ("399 Venture
Partners"), entered into a stockholders' agreement dated as of April 18, 1997
(the "Stockholders' Agreement"). Among other things, the Stockholders' Agreement
(i) imposes certain restrictions on the transfer of shares of Common Stock by
such holders and (ii) gives such holders registration rights under certain
circumstances. Del Monte will bear the costs of preparing and filing any such
registration statement and will indemnify and hold harmless, to the extent
customary and reasonable, holders selling shares covered by such a registration
statement. Directors and members of management of the Company to date have
received 2,371 restricted shares of Common Stock, which are subject to
stockholders' agreements with the Company which impose similar restrictions.
As set forth in the Merger Agreement, an affiliate of 399 Venture Partners,
and certain current and former employees of an affiliate of 399 Venture
Partners, received approximately $7.9 million, and $215,000, respectively, in
return for shares of Del Monte preferred stock which were surrendered and were
cancelled by virtue of the Merger. Since the beginning of fiscal 1996, in
connection with certain interest rate protection transactions, the Company has
also paid fees and made other payments to affiliates of 399 Venture Partners
totaling approximately $442,000, consisting of fees for banking services. In
addition, in connection with the Recapitalization, the Company paid to 399
Venture Partners a transaction advisory fee of approximately $900,000.
The employment of Mr. Haycox pursuant to the CEO Agreement was terminated
effective as of April 18, 1997. Mr. Haycox continued to receive the salary that
he would have earned pursuant to the CEO Agreement until September 1997. In
September 1997, the Company paid to Mr. Haycox a lump sum payment of salary.
Such lump sum payment was in an amount equal to the base salary that Mr. Haycox
would have earned pursuant to the CEO Agreement between the date the lump sum
payment was made and December 31, 1997.
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<PAGE> 71
During the second and third quarters of fiscal 1998, the Company sold
shares of Common Stock to certain key employees, including the executive
officers of the Company, pursuant to the Company's Employee Stock Purchase Plan.
See "Management -- Employment and Other Arrangements -- Stock Purchase Plan."
Messrs. Wolford and Smith each borrowed $175,000 from the Company in order to
acquire a portion of the stock purchased by him pursuant to such plan. These
loans are evidenced by promissory notes which are secured by a pledge of the
stock purchased with the proceeds of the loans.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Subject to receipt of the appropriate stockholder approval, Del Monte, a
Maryland corporation, will reincorporate under the laws of the State of Delaware
(the "Reincorporation") on or prior to the consummation of the Offering. The
following description summarizes Del Monte's capital stock following
consummation of the Reincorporation and does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Certificate of Incorporation, a form of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Certificate of Incorporation will authorize the issuance of an
aggregate of 100,000,000 shares of Common Stock. Upon consummation of the
Offering, of those authorized shares of Common Stock, shall have been
validly issued, fully paid and nonassessable. Prior to the consummation of the
Offering, there were holders of Common Stock.
The holders of the shares of Common Stock are entitled to receive, when, as
and if declared by the Board of Directors out of legally available funds,
dividends and other distributions in cash, shares or property of the Company.
Dividends or distributions so declared by the Board will be paid ratably in
proportion to the number of shares held by the holders of Common Stock.
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of Del Monte, after payment of the creditors of Del Monte, the
remaining assets and funds of Del Monte available for distribution to Del
Monte's stockholders shall be divided among and paid ratably to the holders of
the shares of Common Stock.
Except as provided by statute or the Certificate of Incorporation, holders
of the shares of the Common Stock have the sole right and power to vote on all
matters on which a vote of Del Monte's stockholders is to be taken. At every
meeting of the stockholders, each holder of the shares of Common Stock is
entitled to cast one vote provided such holder is present in person or by proxy
for each share of Common Stock standing in his or her name as of the record date
for such a vote.
The holders of the shares of Common Stock are entitled, by a majority vote
of those present, to nominate and thereafter elect and remove directors to and
from the Board of Directors of Del Monte.
PREFERRED STOCK
The Certificate of Incorporation will authorize the issuance of an
aggregate of 2,000,000 shares of preferred stock. Upon consummation of the
Offering, there will be approximately shares of preferred stock
outstanding, with such shares having been designated as "Series A Redeemable
Preferred Stock" of Del Monte. Such shares of Series A Redeemable Preferred
Stock will have substantially the same preferences, rights and powers of the
currently outstanding shares of Series C Preferred Stock described below.
Del Monte's Board of Directors may, from time to time, direct the issue of
shares of preferred stock in series and may, at the time of issue, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding preferred stock would reduce the amount of funds
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<PAGE> 72
available for the payment of dividends on shares of Common Stock. Holders of
shares of preferred stock may be entitled to receive a preference payment in the
event of any liquidation, dissolution or winding-up of Del Monte before any
payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of preferred stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of Del Monte's securities or the removal of
incumbent management. Upon the affirmative vote of a majority of the total
number of directors then in office, the Board of Directors of Del Monte may
issue shares of preferred stock with voting and conversion rights which could
adversely affect the holders of shares of Common Stock.
Prior to the consummation of the Offering, there were approximately 37,253
shares of Series C Preferred Stock outstanding. The Company intends to use a
portion of the proceeds of the Offering to redeem such shares. See "Use of
Proceeds."
The Series C Preferred Stock accumulates dividends at the rate of 14% per
annum, which dividends are payable in cash or additional shares of Series C
Preferred Stock, at the option of Del Monte, subject to availability of funds
and the terms of its loan agreements. The Series C Preferred Stock has an
initial liquidation preference of $1,000 per share, and may be redeemed at the
option of Del Monte, in whole at any time or in part from time to time, at a
redemption price ranging from 103% of the liquidation preference, if redeemed
prior to October 1998, to 100% of the liquidation preference, if redeemed after
October 2000, plus accumulated and unpaid dividends to the redemption date. Del
Monte will be required to redeem all outstanding shares of Series C Preferred
Stock on April 18, 2008 at such redemption price. In certain other
circumstances, including the occurrence of a change of control of Del Monte, the
holders of the Series C Preferred Stock will have the right to require Del Monte
to repurchase said shares at 101% of the liquidation preference, plus
accumulated and unpaid dividends to the redemption date. Holders of Series C
Preferred Stock will not have any voting rights with respect thereto, except for
such rights as are provided under applicable law, the right to elect, as a
class, two directors of Del Monte in the event that six consecutive quarterly
dividends are in arrears and class voting rights with respect to transactions
adversely affecting the rights, preferences or powers of the Series C Preferred
Stock. In January 1998, TPG sold approximately 93% of its holdings of Series C
Preferred Stock to unaffiliated investors, and TPG currently holds approximately
1,315 shares of the approximately 37,253 shares of Series C Preferred Stock
outstanding.
WARRANTS
There are currently outstanding warrants to purchase, at an exercise price
of $0.01 per share, subject to adjustment in certain circumstances,
approximately 2,857 shares of Common Stock. Of those warrants which are
outstanding, TPG holds warrants to purchase approximately 1,429 shares of Common
Stock.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The Certificate of Incorporation will provide for the Board of Directors of
Del Monte to be divided into three classes, as nearly equal in number as
possible, serving staggered terms. Approximately one-third of the Board of
Directors will be elected each year. See "Management." The provision for a
classified board could prevent a party who acquires control of a majority of the
outstanding voting shares from obtaining control of the Board of Directors until
the second annual stockholders meeting following the date the acquiror obtains
the controlling share interest. The classified board provision is designed to
have the effect of discouraging a potential acquiror from making a tender offer
or otherwise attempting to obtain control of Del Monte and to increase the
likelihood that incumbent directors will retain their positions.
The Certificate of Incorporation will provide that stockholder action can
be taken only at a general meeting of stockholders and cannot be taken by
written consent in lieu of a meeting. The Certificate of Incorporation will
provide that, except as otherwise required by law, general meetings of the
stockholders can only be called pursuant to a resolution adopted by a majority
of the Board of Directors or by the Chairman of the Board. Stockholders will not
be permitted to call a general meeting or to require the Board of Directors to
call a general meeting.
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The Bylaws will establish an advance notice procedure for stockholder
proposals to be brought before a general meeting of stockholders of Del Monte,
including proposed nominations of persons for election to the Board of
Directors.
Stockholders at a general meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the Board of Directors or by a stockholder who was a
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting and who has given to Del Monte's Secretary timely written
notice, in proper form, of the stockholder's intention to bring that business
before the meeting. Although the Certificate of Incorporation will not give the
Board of Directors the power to approve or disapprove stockholder nominations of
candidates or proposals regarding other business to be conducted at a general
meeting, the Certificate of Incorporation may have the effect of precluding the
conduct of certain business at a meeting if the proper procedures are not
followed or may discourage or deter a potential acquiror from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of Del Monte.
The Certificate of Incorporation will provide that the provisions of
Section 203 of the Delaware General Corporation Law, which relate to business
combinations with interested stockholders, will not apply to Del Monte.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
BANK FINANCING
The summaries of the indebtedness contained herein do not purport to be
complete and are qualified in their entirety by reference to the provisions of
the various agreements and indentures related thereto, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
Revolving Credit Facility
The Revolving Credit Facility provides for revolving loans in an aggregate
amount of $350 million, including a letter of credit sublimit of $70 million and
a "swingline loan" sublimit of $25 million (representing funds that DMC may
borrow with only limited advance notice). Amounts available under the Revolving
Credit Facility are subject to certain borrowing base limitations based upon,
among other things, the amounts and applicable advance rates in respect of DMC's
eligible accounts receivable and eligible inventory. Interest rates per annum
applicable to amounts outstanding under the Revolving Credit Facility are
currently, at DMC's option, either (i) the Base Rate (as defined) plus 1.00%
(the "Applicable Base Rate Margin") or (ii) the reserve adjusted Offshore Rate
(as defined) plus 2.00% (the "Applicable Offshore Rate Margin"). In addition,
DMC is required to pay to lenders under the Revolving Credit Facility a
commitment fee (the "Commitment Fee") of 0.425%, payable quarterly in arrears,
on the unused portion of such Revolving Credit Facility. DMC is also required to
pay to lenders under the Revolving Credit Facility letter of credit fees
(collectively, the "Letter of Credit Fees") of 1.50% for commercial letters of
credit and 2.00% for all other letters of credit, as well as an additional fee
in the amount of 0.25% to the bank issuing such letters of credit. Upon
attainment of certain levels of the Senior Debt Ratio (as defined), such
Applicable Base Rate Margin and Applicable Offshore Rate Margin, as well as the
Commitment Fee and Letter of Credit Fees, will be adjusted.
Term Loan Facility
The Term Loan Facility consists of term loans in an aggregate amount of
$430 million, consisting of a $200 million Tranche A term loan and a $230
million Tranche B term loan. Interest rates per annum applicable to the Tranche
A term loan are, at DMC's option, either (i) the Base Rate plus the Applicable
Base Rate Margin, or (ii) the Offshore Rate plus the Applicable Offshore Rate
Margin. Upon attainment of certain levels of the Senior Debt Ratio, such
Applicable Base Rate Margin and Applicable Offshore Rate Margin will be
adjusted. Interest rates applicable to the Tranche B term loan are, at DMC's
option, either (i) the Base Rate plus 2.00% or (ii) the Offshore Rate plus
3.00%.
Consummation of the Contadina Acquisition required appropriate amendments
under the Bank Financing agreements to permit additional funding under the
existing Tranche B term loan in an amount of $50 million. Amortization of the
additional Tranche B term loan amount is incremental to scheduled amortization
of the existing Tranche B term loan. Such additional amortization will commence
in the second quarter of fiscal 1999 in a quarterly amount equal to $0.1
million, with such amortization increasing in the fourth quarter of fiscal 2004,
through the third quarter of fiscal 2005, to $11.8 million per quarter.
Amortization/Prepayment
The Revolving Credit Facility terminates March 31, 2003. The Tranche A term
loan matures March 31, 2003, and is subject to quarterly amortization,
commencing with the first quarter of fiscal 1999, in the quarterly amounts of
$7.50 million, $8.75 million, $10.00 million and $11.25 million during the
fiscal years 1999 through 2002, respectively, and $16.67 million per quarter for
the first three quarters of fiscal 2003. The Tranche B term loan matures March
31, 2005, and is subject to quarterly amortization, commencing with the third
quarter of fiscal 1998, in the quarterly amount of $0.45 million, with such
amortization increasing to $42.19 million per quarter in the fourth quarter of
fiscal 2004 through the first three quarters of fiscal 2005. The incremental
amortization which results from the additional Tranche B term loan is described
in the paragraph immediately above. With certain exceptions, as set forth in the
Bank Financing agreements, DMC will be required to make prepayments under both
the Revolving Credit Facility and the Term Loan Facility
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from excess cash flow, asset sales, issuance or condemnation proceedings and
issuances of debt and equity securities, including the Offering.
Guarantees and Collateral. Del Monte has guaranteed DMC's obligations under
the Bank Financing. DMC's obligations are secured by substantially all personal
property of DMC. Del Monte's guarantee is secured by a pledge of the stock of
DMC. DMC's obligations also are secured by first priority liens on certain of
its unencumbered real property fee interests.
Covenants
Pursuant to the terms of the Bank Financing, DMC is required to meet
certain financial tests, certain of which are set forth below. In addition, DMC
has covenanted that, among other things, it will limit the incurrence of
additional indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers, prepayment of other indebtedness, liens and encumbrances
and other matters customarily restricted in loan agreements.
The following is a summary of certain financial tests which apply under the
Bank Financing (capitalized terms have the meanings set forth in the Bank
Financing):
Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio (a
ratio of EBITDA to certain interest expense and scheduled principal payments
under the Term Loan Facility) for any Computation Period may not be less than
1.2 times through September 26, 1999, increasing over specified periods to 1.5
times at June 30, 2004 and thereafter.
Maximum Senior Debt Ratio. The Senior Debt Ratio (a ratio of outstanding
debt other than subordinated debt to EBITDA) for any Computation Period may not
exceed 5.25 times through March 29, 1998, decreasing over specified periods to
2.25 times at June 30, 2003 and thereafter.
Maximum Total Debt Ratio. The Total Debt Ratio (a ratio of total
indebtedness to EBITDA) on the last day of any fiscal year may not exceed 6.25
times through June 30, 1998, decreasing at specified dates to 3.50 times at June
30, 2003 and thereafter.
Maximum Capital Expenditures. The aggregate amount of all Capital
Expenditures by the Company for any fiscal year may not exceed $45 million at
June 30, 1998, varying during specified periods to $40 million at June 30, 2001
and thereafter.
Minimum EBITDA. EBITDA for Del Monte for any Computation Period may not be
less than $110 million through March 29, 1998, increasing over specified periods
to $155 million at June 30, 2002 and thereafter.
Events of Default
The Bank Financing contains customary events of default, including payment
defaults, breach of representations and warranties, covenant defaults,
cross-defaults, certain events of bankruptcy and insolvency, ERISA judgment
defaults, failure of any guaranty or security agreement supporting DMC's
obligations under the Bank Financing to be in full force and effect and a change
of control of Del Monte or DMC.
THE DMC NOTES AND THE DEL MONTE NOTES
On April 15, 1997, DMC issued and sold $150 million principal amount of
12 1/4% Senior Subordinated Notes due 2007 (the "Original DMC Notes"). On
December 17, 1997, Del Monte issued and sold $230 million principal amount at
maturity of 12 1/2% Senior Discount Notes due 2007 (the "Original Del Monte
Notes"). Such notes were initially sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. On July 31, 1997, DMC completed an
exchange offer whereby the Original DMC Notes were exchanged into the DMC Notes,
which are registered under the Securities Act with terms substantially identical
to the Original DMC Notes. On March 4, 1998, Del Monte filed a registration
statement with the Commission in contemplation of an exchange offer whereby the
Original Del Monte Notes will be exchanged into the Del Monte Notes, which will
be registered under the Securities Act with terms substantially identical to the
Original Del Monte Notes.
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The DMC Notes and Del Monte Notes will mature on April 15, 2007 and
December 15, 2007, respectively. Interest accrues at the rate of 12 1/4% and
12 1/2% per annum on the DMC Notes and the Del Monte Notes, respectively.
Interest is payable on the DMC Notes in cash, while interest on the Del Monte
Notes accretes until December 15, 2002, after which date interest is payable in
cash. Payment of principal, premium and interest on the DMC Notes is
subordinated, as set forth in the indenture governing the DMC Notes, to the
prior payment in full of DMC's senior debt. The obligations of DMC under the DMC
Notes are unconditionally guaranteed on a senior subordinated basis by Del
Monte. The DMC Notes and Del Monte Notes are redeemable by DMC and Del Monte,
respectively, in certain circumstances, including upon a change of control of
Del Monte.
The indentures for the Del Monte Notes and the DMC Notes contain various
restrictive covenants that limit the ability of Del Monte and DMC and their
subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, incur certain types of
indebtedness, incur liens, impose restrictions on the ability of a subsidiary to
pay dividends or make certain payments, merge or consolidate or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of Del Monte and DMC.
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CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the purchase, ownership and disposition of Common
Stock by a person that, for U.S. federal income tax purposes, is not a U.S.
Person (a "non-U.S. holder"). For purposes of this section, a "U.S. Person"
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source or a trust if (i)
a U.S. court is able to exercise primary supervision over the trust's
administration and (ii) one or more United States persons have the authority to
control all of the trust's substantial decisions, and the term "United States"
means the United States of America (including the States and the District of
Columbia).
THE DISCUSSION DOES NOT CONSIDER SPECIFIC FACTS AND CIRCUMSTANCES THAT MAY
BE RELEVANT TO A PARTICULAR NON-U.S. HOLDER'S TAX POSITION. ACCORDINGLY, EACH
NON-U.S. HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE U.S.
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON STOCK, AS
WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE,
MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30% rate, or at a lower
rate under an applicable income tax treaty that provides for a reduced rate of
withholding. However, if the dividends are effectively connected with the
conduct by the holder of a trade or business within the United States, then the
dividends will be exempt from the withholding tax described above and instead
will be subject to U.S. federal income tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain realized on a disposition of Common Stock, provided that (a)
the gain is not effectively connected with a trade or business conducted by the
non-U.S. holder in the United States and (b) in the case of a non-U.S. holder
who is an individual and who holds the Common Stock as a capital asset, such
holder is present in the United States for less than 183 days in the taxable
year of the sale and other conditions are met.
FEDERAL ESTATE TAXES
Common Stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will not
apply to dividends paid on Common Stock to a non-U.S. holder at an address
outside the United States, except that with regard to payments made after
December 31, 1998, a non-U.S. holder will be entitled to such an exemption only
if it provides a Form W-8 (or satisfies certain documentary evidence
requirements for establishing that it is a non-United States person) or
otherwise establishes an exemption. As a general matter, information reporting
and backup withholding also will not apply to a payment of the proceeds of a
sale of Common Stock effected outside the United States by a foreign office of a
foreign broker. However, information reporting requirements (but not backup
withholding) will apply to a payment of the proceeds of a sale of Common Stock
effected outside the United States by a foreign office of a broker if the broker
(i) is a U.S. person, (ii) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, or (iii)
is a "controlled foreign corporation" as to the United States or (iv) with
respect to payments made after December 31, 1998, is a foreign partnership that,
at any time during its taxable year is 50% or more (by income or capital
interest) owned by U.S. persons or is engaged in the conduct of a U.S. trade or
business, unless the broker has documentary evidence in its records that the
holder is a non-U.S. holder and certain
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conditions are met, or the holder otherwise establishes an exemption. Payment by
a United States office of a broker of the proceeds of a sale of Common Stock
will be subject to both backup withholding and information reporting unless the
holder certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the shares of
Common Stock. There can be no assurance that an active trading market for the
shares of Common Stock will develop or will continue if it develops. Further,
Del Monte cannot predict the effect, if any, of sales under Rule 144 or Rule
144A under the Securities Act or otherwise of "restricted" shares of Common
Stock or the availability of restricted shares of Common Stock for sale in the
public market. Sales of a substantial number of shares of Common Stock in the
public market following the Offering could adversely affect the market price of
the shares of Common Stock prevailing from time to time.
Upon completion of the Offering, Del Monte will have shares of
Common Stock outstanding (assuming no exercise of the U.S. Underwriters'
overallotment option). Of these shares, the shares sold in the
Offering will be freely transferable without restriction or registration under
the Securities Act, except for any shares purchased by an "affiliate" of Del
Monte, as that term is defined by the Securities Act (an "Affiliate"), which
shares will be subject to the resale limitations of Rule 144 adopted under the
Securities Act ("Rule 144"). Substantially all of the remaining outstanding
shares of Common Stock will be owned by TPG and certain other existing
stockholders of Del Monte and will be "restricted securities" as defined in Rule
144. "Restricted securities" may not be sold in the absence of an effective
registration statement under the Securities Act other than in accordance with
Rule 144 or another exemption from registration.
Each of Del Monte, TPG and certain other stockholders of the Company and
each of the directors and executive officers of Del Monte have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, they will not, during the period ending 180 days after the
date of this Prospectus, engage in specified transactions relating to the Common
Stock. See "Underwriters."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
restricted securities for at least one year (including the holding period of any
prior owner except an Affiliate) would be entitled to sell within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the number of shares of Common Stock then outstanding (approximately
shares immediately after the Offering) or (ii) the average weekly
trading volume of the shares of Common Stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale and notice requirements and to
the availability of current public information about Del Monte. Under Rule
144(k), a person who is not deemed to have been an Affiliate at any time during
the 90 days preceding a sale, and who has beneficially owned restricted
securities for at least two years (including the holding period of any prior
owner except an Affiliate), is entitled to sell such shares without complying
with the manner of sale, public information requirements, volume limitations or
notice requirements of Rule 144. Accordingly, subject to the contractual
restrictions described above in the case of Del Monte, the "restricted" shares
of Common Stock held by TPG will be eligible for sale in the public market
without registration under the Securities Act, subject to compliance with the
resale volume limitations and other restrictions of Rule 144 under the
Securities Act.
Rule 144A under the Securities Act ("Rule 144A") would allow the existing
stockholders of Del Monte to sell their current holdings of shares of Common
Stock to qualified institutional buyers (as defined in such Rule), and would
permit resales among such institutions, without regard to any volume or other
restrictions. There can be no assurance that Rule 144A will not have an adverse
effect on the liquidity and trading price of the Common Stock in the public
market.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated,
BancAmerica Robertson Stephens, Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are acting
as U.S. Representatives, and the International Underwriters named below, for
whom Morgan Stanley & Co. International Limited, BancAmerica Robertson Stephens,
Bear, Stearns International Limited, BT Alex. Brown International, a division of
Bankers Trust International PLC, and Donaldson, Lufkin & Jenrette International
are acting as International Representatives, have severally agreed to purchase,
and Del Monte has agreed to sell to them, severally, the respective number of
shares of Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
BancAmerica Robertson Stephens............................
Bear, Stearns & Co. Inc...................................
BT Alex. Brown Incorporated...............................
Donaldson, Lufkin & Jenrette Securities Corporation.......
---------
Subtotal...............................................
---------
International Underwriters:
Morgan Stanley & Co. International Limited................
BancAmerica Robertson Stephens............................
Bear, Stearns International Limited.......................
BT Alex. Brown International, a division of Bankers Trust
International PLC......................................
Donaldson, Lufkin & Jenrette Securities International.....
---------
Subtotal...............................................
---------
Total.............................................
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any of such shares are
taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in
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its capacity as a U.S. Underwriter apply only to it in its capacity as a U.S.
Underwriter and (ii) made by it in its capacity as an International Underwriter
apply only to it in its capacity as an International Underwriter. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement Between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person), and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the Underwriters under the Underwriting
Agreement are referred to herein as the "Shares."
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "U.K. Regulations"); (ii) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
and the U.K. Regulations with respect to anything done by it in relation to the
Shares in, from or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the offering of the Shares to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $. a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $. a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
Del Monte has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock, at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions. The
U.S.
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Underwriters may exercise such option solely for the purpose of covering
overallotments, if any, made in connection with the Offering. To the extent such
option is exercised, each U.S. Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.
The Underwriters have informed Del Monte that they do not intend sales to
discretionary accounts to exceed 5% of the total number of shares of Common
Stock offered by them.
Application will be made to list the shares of Common Stock on the New York
Stock Exchange under the symbol DLM.
Each of Del Monte, TPG and certain other stockholders of the Company and
each of the directors and executive officers of Del Monte have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, they will not, during the period ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to (x) the sale of the
Shares to the Underwriters, (y) the issuance by Del Monte of shares of Common
Stock upon the exercise of an option or a warrant or the conversion of a
security outstanding on the date of this Prospectus of which the Underwriters
have been advised in writing or (z) transactions by any person other than the
Company relating to shares of Common Stock or other securities acquired in open
market transactions after the completion of the Offering.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed shares of Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
From time to time, Morgan Stanley & Co. Incorporated has provided, and
continues to provide, certain financial advisory services to Del Monte and its
subsidiaries for which they have received customary fees and commissions.
Del Monte and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
DIRECTED SHARE PROGRAM
At the request of Del Monte, the Underwriters have reserved for sale, at
the initial offering price, up to shares, which may be offered to
directors, officers, employees, retirees and related persons of Del Monte. The
number of shares of Common Stock available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares offered hereby.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
among Del Monte and the U.S. Representatives. Among the factors
75
<PAGE> 82
to be considered in determining the initial public offering price will be the
future prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain other
legal matters in connection with the Offering will be passed upon for Del Monte
by Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York
10006, counsel for Del Monte. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Brown & Wood LLP, 555
California Street, San Francisco, California 94104.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1997,
and for the year then ended, appearing in this Prospectus and Registration
Statement have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, and as of June 30, 1996, and for each of the two years in
the period ended June 30, 1996, by Ernst & Young LLP, independent certified
public accountants, as set forth in their respective reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of said firms as experts in accounting and auditing.
The combined financial statements of Contadina (a division of Nestle USA,
Inc.) as of December 31, 1996 and December 18, 1997, and for the year ended
December 31, 1996 and the period January 1 through December 18, 1997, appearing
in this Prospectus and Registration Statement have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance on such
report given upon the authority of said firm as experts in accounting and
auditing.
76
<PAGE> 83
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- June 30, 1996 and 1997....... F-3
Consolidated Statements of Operations -- Years ended June
30, 1995, 1996 and 1997................................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit) -- Years ended June 30, 1995, 1996
and 1997.................................................. F-5
Consolidated Statements of Cash Flows -- Years ended June
30, 1995, 1996 and 1997................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Auditors.............................. F-25
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets -- December 31, 1996 and
December 31, 1997......................................... F-26
Consolidated Statements of Operations -- Six-Month Periods
ended December 31, 1996
and 1997.................................................. F-27
Consolidated Statements of Cash Flows -- Six-Month Periods
ended December 31, 1996
and 1997.................................................. F-28
Notes to Consolidated Financial Statements.................. F-29
CONTADINA (A DIVISION OF NESTLE USA, INC.)
Independent Auditors' Report................................ F-32
Combined Balance Sheets at December 31, 1996 and December
18, 1997.................................................. F-33
Combined Statements of Operations and Divisional Equity for
the year ended December 31, 1996 and the period from
January 1, 1997 through December 18, 1997................. F-34
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-35
Notes to Combined Financial Statements for the year ended
December 31, 1996 and the period from January 1, 1997
through December 18, 1997................................. F-36
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated balance sheet of Del Monte
Foods Company and subsidiaries as of June 30, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying financial statements
of Del Monte Foods Company and subsidiaries as of June 30, 1996 and for each of
the years in the two-year period ended June 30, 1996 were audited by other
auditors whose report, dated August 29, 1996, on those statements included an
explanatory paragraph that described the change in the Company's method of
accounting for impairment of long-lived assets and for long-lived assets to be
disposed of discussed in Note A to the financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Del Monte Foods Company and subsidiaries as of June 30, 1997 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
August 22, 1997
San Francisco, California
F-2
<PAGE> 85
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
--------------
1996 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 6 $ 5
Restricted cash........................................... 30
Trade accounts receivable, net of allowance............... 98 67
Other receivables......................................... 8 2
Inventories............................................... 304 339
Prepaid expenses and other current assets................. 13 9
---- ----
Total current assets.............................. 459 422
Property, plant and equipment, net........................ 247 222
Other assets.............................................. 30 23
---- ----
Total assets...................................... $736 $667
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $202 $222
Short-term borrowings..................................... 43 82
Current portion of long-term debt......................... 7 2
---- ----
Total current liabilities......................... 252 306
Long-term debt.............................................. 323 526
Other noncurrent liabilities................................ 250 215
Redeemable common stock ($.01 par value per share, 1,650,000
shares authorized; issued and outstanding: 159,386 at June
30, 1996)................................................. 2
Redeemable preferred stock ($.01 par value per share,
32,493,000 shares authorized; issued and outstanding:
17,300,041 at June 30, 1996; aggregate liquidation
preference: $579)......................................... 213
Redeemable preferred stock ($.01 par value per share,
1,000,000 shares authorized; issued and outstanding:
35,000 at June 30, 1997; aggregate liquidation preference:
$35)...................................................... 32
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 1,700,000
shares authorized; issued and outstanding: 223,468 in
1996).................................................
Common stock ($.01 par value per share, 1,000,000
shares authorized;
issued and outstanding: 140,000 in 1997).............
Paid-in capital........................................ 3 129
Retained earnings (deficit)............................ (281) (541)
Cumulative translation adjustment...................... (26)
---- ----
Total stockholders' equity (deficit).............. (304) (412)
---- ----
Total liabilities and stockholders' equity........ $736 $667
==== ====
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 86
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... $1,527 $1,305 $1,217
Cost of products sold....................................... 1,183 984 817
------ ------ ------
Gross profit.............................................. 344 321 400
Selling, advertising, administrative and general expense.... 264 239 327
------ ------ ------
Operating income.......................................... 80 82 73
Interest expense............................................ 76 67 52
Loss (gain) on sale of divested assets (Note B)............. (107) 5
Other (income) expense (Note D)............................. (11) 3 30
------ ------ ------
Income (loss) before income taxes, minority interest,
extraordinary item and cumulative effect of accounting
change................................................. 15 119 (14)
Provision for income taxes.................................. 2 11
Minority interest in earnings of subsidiary................. 1 3
------ ------ ------
Income (loss) before extraordinary item and cumulative
effect of accounting change............................ 12 105 (14)
Extraordinary loss from refinancing of debt and early debt
retirement................................................ 7 10 42
Cumulative effect of accounting change...................... 7
------ ------ ------
Net income (loss)................................. $ 5 $ 88 $ (56)
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 87
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE RETAINED CUMULATIVE TOTAL
COMMON PAID-IN FROM EARNINGS TRANSLATION STOCKHOLDERS'
STOCK CAPITAL STOCKHOLDERS (DEFICIT) ADJUSTMENT (DEFICIT)
------ ------- ------------ --------- ----------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994............ $-- $ 3 $(1) $(374) $(12) $(384)
Repurchase of shares................
Net income.......................... 5 5
Cumulative translation adjustment... (14) (14)
--- ---- --- ----- ---- -----
Balance at June 30, 1995............ -- 3 (1) (369) (26) (393)
Repayment of notes receivable from
stockholders...................... 1 1
Repurchase of shares................
Net income.......................... 88 88
--- ---- --- ----- ---- -----
Balance at June 30, 1996............ -- 3 -- (281) (26) (304)
Cancellation of shares in connection
with the Recapitalization......... (3) (204) (207)
Issuance of shares.................. 129 129
Net loss............................ (56) (56)
Cumulative translation adjustment... 26 26
--- ---- --- ----- ---- -----
Balance at June 30, 1997............ $-- $129 $-- $(541) $ -- $(412)
=== ==== === ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------------------------------
COMMON TOTAL COMMON
STOCK CLASS A CLASS B CLASS E SHARES
------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Shares issued and outstanding at June
30, 1994........................... 218,062 25,000 243,062
Repurchase of shares................. (3,353) (3,353)
------- -------- ------ ------- --------
Shares issued and outstanding at June
30, 1995........................... 214,709 25,000 239,709
Repurchase of shares................. (16,241) (16,241)
------- -------- ------ ------- --------
Shares issued and outstanding at June
30, 1996........................... 198,468 25,000 223,468
Cancellation of shares............... (198,468) (25,000) (223,468)
Issuance of shares................... 140,000 140,000
------- -------- ------ ------- --------
Shares issued and outstanding at June
30, 1997........................... 140,000 -- -- -- 140,000
======= ======== ====== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 88
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 5 $ 88 $ (56)
Adjustments to reconcile net income (loss) to net cash
flows:
Extraordinary loss from refinancing of debt and early
debt retirement...................................... 7 10 42
Cumulative effect of accounting change................. 7
Loss (gain) on sale of divested assets................. (107) 5
Loss on sales of assets................................ 3 2 3
Depreciation and amortization.......................... 40 31 29
Minority interest in earnings of subsidiary............ 1
Changes in operating assets and liabilities:
Accounts receivable.................................... (37) 33 24
Inventories............................................ (21) 11 (48)
Prepaid expenses and other current assets.............. 3 (2) 3
Other assets........................................... 4 1 6
Accounts payable and accrued expenses.................. 25 (28) 29
Other non-current liabilities.......................... 33 14 (12)
------- ------- -------
Net cash provided by operating activities......... 63 60 25
Investing activities:
Capital expenditures................................... (24) (16) (20)
Proceeds from sales of fixed assets.................... 3 4 9
Proceeds from sales of divested assets................. 182 48
------- ------- -------
Net cash provided by (used in) investing
activities...................................... (21) 170 37
Financing activities:
Short-term borrowings.................................. 1,901 1,276 1,137
Payment on short-term borrowings....................... (1,867) (1,354) (1,098)
Proceeds from long-term borrowings..................... 188 582
Principal payments on long-term debt................... (238) (108) (407)
Deferred debt issuance costs........................... (24) (2) (26)
Prepayment penalty..................................... (5) (20)
Payments to previous shareholders for cancellation of
stock................................................ (422)
Issuance of common and preferred stock................. 161
Specific Proceeds Collateral Account................... (30) 30
Dividends paid to minority shareholders................ (1)
Other.................................................. (3) (1)
------- ------- -------
Net cash used in financing activities............. (44) (224) (63)
Effect of exchange rate changes on cash and cash
equivalents............................................... 3 (8)
------- ------- -------
Net change in cash and cash equivalents........... 1 (2) (1)
Cash and cash equivalents at beginning of year.............. 7 8 6
------- ------- -------
Cash and cash equivalents at end of year.......... $ 8 $ 6 $ 5
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 89
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Business: Del Monte Foods Company ("DMFC") and its wholly owned
subsidiary, Del Monte Corporation ("DMC"), (DMFC together with DMC, "the
Company") purchased the Del Monte processed foods division of RJR Nabisco, Inc.
effective January 9, 1990 ("the Acquisition"). The Company operates in one
business segment: the manufacturing and marketing of processed foods, primarily
canned vegetables, fruits and tomato products. The Company primarily sells its
products under the Del Monte brand to a variety of food retailers, supermarkets
and mass merchandising stores. The Company holds the rights to the Del Monte
brand in the United States.
Basis of Accounting: Pursuant to the Agreement and Plan of Merger, dated
February 21, 1997, and amended and restated as of April 14, 1997 (the "Merger
Agreement"), entered into among TPG Partners, L.P., a Delaware partnership
("TPG"), TPG Shield Acquisition Corporation, a Maryland corporation ("Shield"),
and DMFC, Shield merged with and into DMFC (the "Merger"), with DMFC being the
surviving corporation. By virtue of the Merger, shares of DMFC's preferred stock
having an implied value of approximately $14 held by certain of DMFC's
stockholders, who remained investors, were cancelled and were converted into the
right to receive common stock of the surviving corporation. All other shares of
DMFC stock were cancelled and were converted into the right to receive cash
consideration as set forth in the Merger Agreement. In the Merger, the common
stock and preferred stock of Shield was converted into shares of new DMFC common
stock and preferred stock, respectively. The Merger was accounted for as a
leveraged recapitalization for accounting purposes (the "Recapitalization");
accordingly, all assets and liabilities are stated at historical cost. In
connection with the Merger, DMC repaid substantially all of its funded debt
obligations existing immediately before the closing of the Merger.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates: Certain amounts reported in the consolidated financial
statements are based on management estimates. The ultimate resolution of these
items may differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. The
carrying amount reported in the balance sheet for cash and cash equivalents
approximates its fair value.
Restricted Cash: Restricted cash at June 30, 1996 represents a portion of
the proceeds from the Company's sale of its 50.1% interest in Del Monte Pacific
Resources Limited ("Del Monte Philippines"), a joint venture operating primarily
in the Philippines, which were deposited into the Specific Proceeds Collateral
Account until agreement was reached with the Term Loan lenders as to final
application of the funds (see Note B). These funds were used to repurchase
outstanding PIK Notes in September 1996.
Inventories: Inventories are stated at the lower of cost or market. The
cost of substantially all inventories is determined using the LIFO method. The
Company has established various LIFO pools that have measurement dates
coinciding with the natural business cycles of the Company's major inventory
items.
Inflation has had a minimal impact on production costs since the Company
adopted the LIFO method as of July 1, 1991. Accordingly, there is no significant
difference between LIFO inventory costs and current costs.
Property, Plant and Equipment and Depreciation: Property, plant and
equipment are stated at cost and depreciated over their estimated useful lives,
principally by the straight-line method. Maintenance and repairs are expensed as
incurred. Significant expenditures that increase useful lives are capitalized.
F-7
<PAGE> 90
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The principal estimated useful lives are: land improvements -- 10 to 30
years; building and leasehold improvements -- 10 to 30 years; machinery and
equipment -- 7 to 15 years. Depreciation of plant and equipment and leasehold
amortization was $34, $26 and $24 for the years ended June 30, 1995, 1996 and
1997, respectively.
Cost of Products Sold: Cost of products sold includes raw material, labor
and overhead.
Research and Development: Research and development costs are included as a
component of "Selling, advertising, administrative and general expense."
Research and development costs charged to operations were $6, $6 and $5 for the
years ended June 30, 1995, 1996 and 1997, respectively.
Foreign Currency Translation: For the Company's operations in countries
where the functional currency is other than the U.S. dollar, asset and liability
accounts were translated at the rate in effect at the balance sheet date, and
revenue and expense accounts were translated at the average rates during the
period. Translation adjustments were reflected as a separate component of
stockholders' equity.
Interest Rate Contracts: To manage interest rate exposure, the Company
uses interest-rate swap agreements. These agreements involve the receipt of
fixed rate amounts in exchange for floating rate interest payments over the life
of the agreement without an exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets.
Fair Value of Financial Instruments: The carrying amount of the Company's
financial instruments, which primarily include cash, accounts receivable,
accounts payable, and accrued expenses, approximates fair value due to the
relatively short maturity of such instruments.
The carrying amounts of the Company's borrowings under its short-term
revolving credit agreement and long-term debt instruments, excluding the
Subordinated Notes, approximate their fair value. At June 30, 1997, the fair
value of the Subordinated Notes was $161, as estimated based on quoted market
prices from dealers.
The fair value of the interest rate swap agreements at June 30, 1997 was
$(1). The fair value of interest rate swap agreements are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
credit worthiness of the counterparties.
Minority Interest: Minority interest represents the minority shareholders'
proportionate share of the earnings of Del Monte Philippines, a consolidated
subsidiary.
Change in Accounting Principle: Effective July 1, 1995, the Company
adopted the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The statement requires that
assets held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has identified certain events as possible indicators
that an asset's carrying value may not be recoverable, including the elimination
of or a significant reduction in a product line. Future cash flows will be
estimated based on current levels of production, market sales price and
operating costs adjusted for expected trends. The statement also requires that
all long-lived assets, for which management has committed to a plan to dispose,
be reported at the lower of carrying amount or fair value. During fiscal 1996, a
review of assets to be disposed of resulted in identification of certain assets
(farm lands and plants no longer in use) whose carrying value exceeded their
present fair value, and a loss of $7 was recorded. The Company does not
depreciate long-lived assets held for sale.
F-8
<PAGE> 91
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Reclassification: Beginning in the fourth quarter of fiscal 1997, certain
merchandising allowances, which previously were included as a cost of products
sold, have been reclassified to selling expense. Such merchandising allowances
totaled $106, $100 and $143 in the fiscal years ended June 30, 1995, 1996, and
1997, respectively. In addition, certain military distributor allowances, which
previously were treated as a reduction in net sales, have been reclassified to
selling expense. Such military distributor allowances amounted to $1, $1 and $2
in fiscal years ended June 30, 1995, 1996 and 1997, respectively. All financial
information has been restated to conform to this presentation.
NOTE B -- DIVESTED ASSETS
Del Monte Latin America. On August 27, 1996, the Company signed a stock
purchase agreement to sell its Latin America subsidiaries to an affiliate of
Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"). This agreement was
amended and restated on October 25, 1996 for the sale of only the Company's
Mexican subsidiary, Productos Del Monte, S.A. de C.V. ("PDM") to an affiliate of
Hicks Muse for $38 which was completed on October 28, 1996. The sale of the
Central America and Caribbean subsidiaries to an affiliate of Donald W.
Dickerson, Inc. for $12 was completed on November 13, 1996. The sales price for
PDM is subject to adjustment based on the final balance sheet. The amount of any
adjustment to the purchase price is currently in dispute but is not expected to
be material. In addition, the purchasers have alleged, among other things, that
the Company breached the purchase agreement because the financial statements of
the Mexican subsidiary did not fairly present its financial condition and
results of operations in accordance with U.S. generally accepted accounting
principles. The Company does not believe that this claim will have a material
adverse effect on the Company's financial position or results of operations (see
Note H). The combined proceeds of both sales of $50, reduced by $2 of related
transaction expenses, resulted in a loss of $5.
The following results of the Latin American operations are included in the
Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales............................................... $65 $55 $17
Costs and expenses...................................... 62 50 17
--- --- ---
Income from operations before income taxes.............. 3 5 --
Provision for income taxes.............................. 1 1 --
--- --- ---
Income from Latin American operations................... $ 2 $ 4 $--
=== === ===
</TABLE>
Del Monte Philippines. On March 29, 1996, the Company sold its 50.1%
interest in Del Monte Philippines, a joint venture operating primarily in the
Philippines, for $100 net of $2 of related transaction expenses. This sale
resulted in a gain of $52, reduced by taxes of $6. Of the net gain of $46, $16
was deferred and $30 was recognized in fiscal 1996. The purchase price included
a premium paid to the Company as consideration for signing an eight-year supply
agreement whereby the Company must source substantially all of its pineapple
requirements from Del Monte Philippines over the agreement term. The gain
associated with the value of the premium was deferred and will be amortized over
the term of the agreement.
F-9
<PAGE> 92
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following results of the Del Monte Philippines operations are included
in the Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------
1995 1996
---- ----
<S> <C> <C>
Net sales................................................... $142 $102
Costs and expenses.......................................... 141 97
---- ----
Income from operations before income taxes.................. 1 5
Provision for income taxes.................................. -- 2
---- ----
Income from operations...................................... $ 1 $ 3
==== ====
</TABLE>
All of the net proceeds from the sale of Del Monte Philippines were
temporarily applied to the revolving credit facility. In April 1996, $13 of
Senior Secured Notes were prepaid along with a $1 prepayment premium recorded as
an extraordinary loss. In addition, $30 was placed in the Specific Proceeds
Collateral Account until final agreement was reached with the Term Loan lenders
as to the application of funds. These funds were used in the September 1996
exchange offer.
Pudding Business. On November 27, 1995, the Company sold its Pudding
Business, including the capital assets and inventory on hand, to Kraft Foods,
Inc. ("Kraft") for $89, net of $4 of related transaction expenses. The sale
resulted in the recognition of a $71 gain, reduced by $2 of taxes.
The following results of the Pudding Business are included in the
Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------
1995 1996
---- ----
<S> <C> <C>
Net sales................................................... $47 $15
Costs and expenses.......................................... 33 11
--- ---
Income from operations...................................... $14 $ 4
=== ===
</TABLE>
The net proceeds received from the Pudding Business sale were used to
prepay $54 of the term debt and $25 of the Senior Secured Notes. In conjunction
with the prepayment, the Company recorded an extraordinary loss for the early
retirement of debt. The extraordinary loss consists of a $4 prepayment premium
and a $5 write-off of capitalized debt issue costs related to the early
retirement of debt.
F-10
<PAGE> 93
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Trade Accounts Receivable:
Trade..................................................... $ 99 $ 68
Allowance for doubtful accounts........................... (1) (1)
---- ----
Total trade accounts receivable................... $ 98 $ 67
==== ====
Inventories:
Finished product.......................................... $198 $239
Raw materials and supplies................................ 12 13
Other, principally packaging material..................... 94 87
---- ----
Total inventories................................. $304 $339
==== ====
Property, Plant and Equipment:
Land and land improvements................................ $ 44 $ 37
Buildings and leasehold improvements...................... 98 93
Machinery and equipment................................... 240 233
Construction in progress.................................. 9 10
---- ----
391 373
Accumulated depreciation.................................. (144) (151)
---- ----
Property, plant and equipment, net................ $247 $222
==== ====
Other Assets:
Deferred debt issue costs................................. $ 26 $ 19
Other..................................................... 10 4
---- ----
36 23
Accumulated amortization.................................. (6) --
---- ----
Total other assets................................ $ 30 $ 23
==== ====
Accounts Payable and Accrued Expenses:
Accounts payable -- trade................................. $ 76 $ 79
Marketing and advertising................................. 39 59
Payroll and employee benefits............................. 18 17
Current portion of accrued pension liability.............. 13 12
Current portion of other noncurrent liabilities........... 22 19
Other..................................................... 34 36
---- ----
Total accounts payable and accrued expenses....... $202 $222
==== ====
Other Noncurrent Liabilities:
Accrued postretirement benefits........................... $140 $145
Accrued pension liability................................. 48 26
Self-insurance liabilities................................ 12 15
Other..................................................... 50 29
---- ----
Total other noncurrent liabilities................ $250 $215
==== ====
</TABLE>
F-11
<PAGE> 94
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE D -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings under revolving credit agreements at June 30, 1996
and 1997 were $43 and $82, respectively. Unused amounts under the revolving
credit agreements at June 30, 1996 and 1997 totaled $328 and $242, respectively.
On April 18, 1997, the Company completed a recapitalization transaction in
which $301 of proceeds from the transaction were used to repay the outstanding
balances of the then-existing $400 revolving credit facility, term loan, and
Senior Subordinated Guaranteed Pay-in-Kind Notes. Concurrent with the
Recapitalization, the Company entered into a credit agreement with respect to
the Term Loan Facility (the "Term Loan") and the Revolving Credit Facility (the
"Revolver"). The Term Loan provides for term loans in the aggregate amount of
$380, consisting of Term Loan A of $200 and Term Loan B of $180. The Revolver
provides for revolving loans in an aggregate amount of up to $350, including a
$70 Letter of Credit subfacility. The Revolving Credit Facility will expire in
fiscal 2003, Term Loan A will mature in fiscal 2003, and Term Loan B will mature
in fiscal 2005.
The interest rates applicable to amounts outstanding under Term Loan A and
the Revolving Credit Facility are, at the Company's option, either (i) the base
rate (the higher of .50% above the Federal Funds Rate and the bank's reference
rate) plus 1.25% or (ii) the reserve adjusted offshore rate plus 2.25% (8.25% at
June 30, 1997). Interest rates on Term Loan B are, at the Company's option,
either (i) the base rate plus 2.00% or (ii) the offshore rate plus 3.00% (8.875%
at June 30, 1997).
The Company is required to pay the lenders under the Revolving Credit
Facility a commitment fee of 0.50% on the unused portion of such facility. The
Company is also required to pay the lenders under the Revolving Credit Facility
letter of credit fees of 1.75% per year for commercial letters of credit and
2.25% per year for all other letters of credit, as well as an additional fee in
the amount of 0.25% per year to the bank issuing such letters of credit. Upon
attainment of certain leverage ratios, the base rate margin, offshore rate
margin, as well as the commitment fees and letter of credit fees will be
adjusted. At June 30, 1997, a balance of $26 was outstanding on these letters of
credit.
In addition, on April 18, 1997, the Company issued senior subordinated
notes (the "Unregistered Notes") with an aggregate principal amount of $150 and
received gross proceeds of $147. The Unregistered Notes accrue interest at
12.25% per year, payable semiannually in cash on each April 15 and October 15.
These Unregistered Notes are guaranteed by DMFC and mature on April 15, 2007.
The Unregistered Notes are redeemable at the option of the Company on or after
April 15, 2002 at a premium to par that initially is 106.313% and that decreases
to par on April 15, 2006 and thereafter. On or prior to April 15, 2000, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of notes originally issued with the net cash proceeds of one or more public
equity offerings at a redemption price equal to 112.625% of the principal amount
thereof, plus accrued and unpaid interest to the date of redemption; provided
that at least 65% of the aggregate principal amount of notes originally issued
remains outstanding immediately after any such redemption. The Unregistered
Notes were issued with registration rights requiring the Company to exchange the
Unregistered Notes for new notes (the "Subordinated Notes") registered under the
Securities Act of 1933, as amended. The form and terms of the Subordinated Notes
are substantially the same as the Unregistered Notes, except that there is no
restriction on the transfer thereof. The Company filed a registration statement
on Form S-4 with respect to the Unregistered Notes on June 12, 1997, which
became effective on June 24, 1997. The exchange of the Unregistered Notes for
the Subordinated Notes was completed on July 31, 1997.
In connection with the Recapitalization, the Company incurred expenses
totaling $85 of which $25 were included in selling, advertising, administrative
and general expense, $22 were charged to other expense and $38 were accounted
for as an extraordinary loss. The extraordinary loss consisted of previously
capitalized debt
F-12
<PAGE> 95
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
issue costs of approximately $19 and a 1996 PIK Note premium and a term loan
make-whole aggregating $19. In addition, in conjunction with the Bank Financing,
$19 of debt issue costs were capitalized.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Term Loan................................................... $ 68 $380
Subordinated Debt........................................... 243
Subordinated Notes.......................................... 147
Senior Secured Notes........................................ 13
Other....................................................... 6 1
---- ----
330 528
Less Current Portion........................................ 7 2
---- ----
$323 $526
==== ====
</TABLE>
At June 30, 1997, scheduled maturities of long-term debt in each of the
next five fiscal years and thereafter will be as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2
1999........................................................ 32
2000........................................................ 36
2001........................................................ 42
2002........................................................ 47
Thereafter.................................................. 372
----
531
Less discount............................................... 3
----
$528
====
</TABLE>
The Term Loan and Revolver are collateralized by security interests in
certain of the Company's assets. At June 30, 1997, total assets that are not
pledged to secure the Debt are less than 10% of the Company's total consolidated
assets. At June 30, 1997, assets totaling $639 were pledged as collateral for
approximately $462 of short-term borrowings and long-term debt.
The Subordinated Notes, Term Loan and Revolver (collectively "the Debt")
agreements contain restrictive covenants with which the Company must comply.
These restrictive covenants, in some circumstances, limit the incurrence of
additional indebtedness, payment of dividends, transactions with affiliates,
asset sales, mergers, acquisitions, prepayment of other indebtedness, liens and
encumbrances. In addition, the Company is required to meet certain financial
tests, including minimum levels of consolidated EBITDA (as defined in the credit
agreement), minimum fixed charge coverage, minimum adjusted net worth and
maximum leverage ratios. The Company is in compliance with all of the Debt
covenants at June 30, 1997.
In June 1995, the Company refinanced its then-existing revolving credit
agreement, term loan and Senior Secured Floating Rate Notes. In conjunction with
the refinancing, capitalized debt issue costs of $7 were charged to fiscal 1995
income and were accounted for as an extraordinary item.
At June 30, 1996, a balance of $29 was outstanding on letters of credit.
Letter of credit fees were 2.25% per year for commercial letters of credit and
2.75% per year for all other letters of credit with an additional fee of 0.50%
to the bank issuing such letters of credit. The Company paid a commitment fee to
maintain the lines of credit equal to 0.50% of the unused balance.
F-13
<PAGE> 96
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
At June 30, 1996, the then-existing term loan consisted of three
components. A $31 amortizing component was due in quarterly installments with an
interest rate of LIBOR plus 3.25%. The second component of this loan of $30 and
the third component of $7 were non-amortizing with interest fixed at 11.11% and
LIBOR plus 4.75%, respectively. At June 30, 1996, the interest rate on the $31
component was 8.75% and on the $7 component was 10.25%.
The Senior Secured Notes carried an interest rate of 18%, 14% payable in
cash and 4% payable in-kind in Secondary Notes, at the Company's option.
Interest payments were due quarterly.
Subordinated Debt consisted of Subordinated Guaranteed Payment-in-Kind
Notes ("PIK Notes"). Interest accrued at 12.25% per year and was generally
payable through the issuance of additional PIK Notes. The payment of such
interest in additional PIK Notes since issuance resulted in an increase in the
principal amount outstanding of such indebtedness.
In August 1996, the Company offered to redeem (the "Exchange Offer") a
portion of its outstanding PIK Notes for a cash payment and exchange the
remaining PIK Notes for new Senior Subordinated Guaranteed Pay-in-Kind Notes due
2002 (the "1996 PIK Notes"). On September 11, 1996, the Company repurchased PIK
Notes in an aggregate amount of $102 for a cash payment of $100 and,
concurrently, exchanged essentially all remaining PIK Notes for 1996 PIK Notes
in an aggregate amount of $156. In addition, the $13 Senior Secured Notes
outstanding were repaid. Funding for the Exchange Offer was accomplished through
the application of $30 from the Specific Proceeds Collateral Account held by the
then-existing term lenders, additional borrowing in an aggregate amount of $55
under the then-existing term loan, and borrowing of approximately $36 from the
then-existing revolving credit facility. In conjunction with the Exchange Offer,
capitalized debt issue costs of approximately $4, net of a discount on the PIK
Notes, have been charged to net income in fiscal 1997 and accounted for as an
extraordinary loss.
The Company made cash interest payments of $44, $30 and $24 for the years
ended June 30, 1995, 1996 and 1997, respectively.
As required by the Company's Debt agreements, the Company has entered into
interest-rate swap agreements which effectively converts $235 notional principal
amount of floating rate debt to a fixed rate basis for a three-year period
beginning May 22, 1997, thus reducing the impact of interest-rate changes on
future income. The Company paid a fixed rate of 6.375% and received a weighted
average rate of 5.875%. The incremental effect on interest expense for 1997 was
insignificant. The agreements also include a provision establishing the rate the
Company will pay as 7.50% if the three-month LIBOR rate sets at or above 7.50%
during the term of the agreements. The Company will continue paying 7.50% until
the three-month LIBOR again sets below 7.50% at which time the fixed rate of
6.375% will again become effective. The Company is exposed to credit loss in the
event of nonperformance by the other parties to the interest rate swap
agreements. However, the Company does not anticipate nonperformance by the
counterparties.
NOTE E -- STOCKHOLDERS' EQUITY AND REDEEMABLE STOCK
On February 21, 1997, Del Monte Foods Company entered into a
recapitalization agreement and plan of merger, which was amended and restated as
of April 14, 1997, with affiliates of Texas Pacific Group. Under this agreement,
Shield, a corporation affiliated with TPG was to be merged with and into DMFC,
with DMFC being the surviving corporation. The Merger became effective on April
18, 1997. By virtue of the Merger, shares of DMFC's outstanding preferred stock
having a value implied by the Merger consideration of approximately $14, held by
certain of DMFC's pre-recapitalization stockholders who remained investors
pursuant to the Recapitalization, were cancelled, and were converted into the
right to receive new DMFC common stock. All other shares of DMFC stock were
cancelled and were converted into the right to receive
F-14
<PAGE> 97
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
cash consideration, as set forth in the Merger Agreement. In the Merger, the
common and preferred stock of Shield were converted into new shares of common
stock and preferred stock, respectively, of DMFC.
Immediately following the consummation of the Recapitalization, the charter
of DMFC authorized DMFC to issue capital stock consisting of 1,000,000 shares of
new common stock (the "Common Stock"), $.01 par value, and 1,000,000 shares of
new preferred stock (the "Preferred Stock"), $.01 par value. The Company issued
and has outstanding 140,000 shares of Common Stock, and 35,000 shares of
Preferred Stock. TPG and certain of its affiliates or partners hold 109,248
shares of DMFC's Common Stock, continuing shareholders of DMFC hold 14,252
shares of such stock, and other investors hold 16,500 shares. TPG and certain of
its affiliates hold 17,500 outstanding shares of Series A Preferred Stock, and
TCW Capital Investment Corporation holds 17,500 outstanding shares of Series B
Preferred Stock.
The Preferred Stock accumulates dividends at the annual rate of 14% of the
liquidation value, payable quarterly. These dividends are payable in cash or
additional shares of Preferred Stock, at the option of the Company, subject to
availability of funds and the terms of its loan agreements, or through a
corresponding increase in the liquidation value of such stock. The Preferred
Stock has a liquidation preference of $1,000 per share and may be redeemed at
the option of the Company at a redemption price equal to the liquidation
preference plus accumulated and unpaid dividends (the "Redemption Price"). The
Company is required to redeem all outstanding shares of Preferred Stock on or
prior to April 17, 2008 at the Redemption Price, or upon a change of control of
the Company at 101% of the Redemption Price. The initial purchasers of Preferred
Stock for consideration of $35 received 35,000 shares of Preferred Stock and
warrants (exercisable after October 17, 1997) to purchase, at a nominal exercise
price, shares of DMFC Common Stock representing 2% of the outstanding shares of
DMFC Common Stock. A value of $3 was placed on the warrants, and such amount is
reflected as paid-in-capital within stockholders' equity. The remaining $32 is
reflected as redeemable preferred stock.
The two series of preferred stock have no voting rights except the right to
elect one director to the Board for each series, resulting in the authorized
number of directors to be increased, in cases where dividends are in arrears for
six quarters or shares have not been redeemed within ten days of a redemption
date.
Stockholders' equity at June 30, 1996 included the following classes of
common stock, $.01 par value per share:
<TABLE>
<CAPTION>
SHARES ISSUED AND
CLASS SHARES AUTHORIZED OUTSTANDING
----- ----------------- -----------------
<S> <C> <C>
A.......................................... 1,000,000 198,468
B.......................................... 150,000
E.......................................... 550,000 25,000
--------- -------
1,700,000 223,468
========= =======
</TABLE>
Redeemable common and redeemable preferred stock at June 30, 1996 consisted
of the following:
Redeemable non-voting common stock ($.01 par value per share):
<TABLE>
<CAPTION>
SHARES ISSUED AND
CLASS SHARES AUTHORIZED OUTSTANDING
----- ----------------- -----------------
<S> <C> <C>
C.......................................... 550,000 6,903
D.......................................... 550,000 102,483
F.......................................... 550,000 50,000
--------- -------
1,650,000 159,386
========= =======
</TABLE>
F-15
<PAGE> 98
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Redeemable preferred stock ($.01 par value per share):
<TABLE>
<CAPTION>
SHARES ISSUED AND
SERIES SHARES AUTHORIZED OUTSTANDING
------ ----------------- -----------------
<S> <C> <C>
A Cumulative (issuable in subseries A1 and
A2)........................................ 16,523,000 8,336,795
B Cumulative................................. 3,616,000 1,602,845
C Cumulative................................. 2,900,000 1,522,353
D Cumulative................................. 1,454,000 1,356,955
E Cumulative................................. 5,000,000 3,328,002
F Cumulative................................. 3,000,000 1,153,091
---------- ----------
32,493,000 17,300,041
========== ==========
</TABLE>
The Company declared dividends for the following series of redeemable
preferred stock:
<TABLE>
<CAPTION>
DIVIDEND RATE PER SHARE
YEAR ENDED JUNE 30,
-----------------------
SERIES 1995 1996 1997
------ ----- ----- -----
<S> <C> <C> <C>
A1................................................ $3.80 $3.81 $1.92
B................................................. $3.87 $3.87 $1.95
D................................................. $3.93 $3.94 $1.98
E................................................. $3.93 $3.94 $1.98
</TABLE>
These dividends were paid in like-kind redeemable preferred stock at the
rate of .04 shares for each $.001 dividend declared. Resulting issuance of
additional shares and related par values were:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Additional shares...................... 1,564,117 1,824,999 1,027,406
Total par value........................ $ 0.016 $ 0.018 $ 0.010
</TABLE>
In the Recapitalization, all of the redeemable preferred stock issued prior
to April 18, 1997 was either cancelled and converted into the right to receive
new DMFC common stock or cancelled and converted into the right to receive cash
consideration as set forth in the Merger Agreement.
NOTE F -- RETIREMENT BENEFITS
The Company sponsors three non-contributory defined benefit pension plans
covering substantially all full-time employees. Plans covering most hourly
employees provide pension benefits that are based on the employee's length of
service and final average compensation before retirement. Plans covering
salaried employees provide for individual accounts which offer lump sum or
annuity payment options, with benefits based on accumulated compensation and
interest credits made monthly throughout the career of each participant. Assets
of the plans consist primarily of equity securities and corporate and government
bonds.
It has been the Company's policy to fund the Company's retirement plans in
an amount consistent with the funding requirements of federal law and
regulations and not to exceed an amount that would be deductible for federal
income tax purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future. Del Monte's defined benefit retirement plans have been determined to be
underfunded under federal ERISA guidelines. In connection with the
Recapitalization, the Company entered into an agreement with the U.S. Pension
Benefit Guaranty Corporation dated April 7, 1997 whereby the Company will
contribute a total of $55 to its defined benefit pension plans through calendar
2001, with $15 contributed within 30 days after the consummation of the
Recapitaliza-
F-16
<PAGE> 99
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
tion. The contributions to be made in 1999, 2000 and 2001 will be secured by a
$20 letter of credit to be obtained by the Company by August 31, 1998.
The following table sets forth the pension plans' funding status and
amounts recognized on the Company's balance sheet:
<TABLE>
<CAPTION>
JUNE 30,
--------------
1996 1997
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(265) $(269)
===== =====
Accumulated benefit obligation.............................. $(270) $(274)
===== =====
Projected benefit obligation for services rendered to
date...................................................... $(277) $(279)
Plan assets at fair value................................... 245 276
----- -----
Projected benefit obligation in excess of plan assets....... (32) (3)
Unrecognized net actuarial gain............................. (27) (34)
Unrecognized prior service income........................... (2) (1)
----- -----
Accrued pension cost recognized in the consolidated balance
sheet..................................................... $ (61) $ (38)
===== =====
</TABLE>
The components of net periodic pension cost for the years ended June 30,
1995, 1996 and 1997 for all defined benefit plans are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1995 1996 1997
---- -------- ----
<S> <C> <C> <C>
Service cost for benefits earned during period.............. $ 4 $ 4 $ 3
Interest cost on projected benefit obligation............... 22 21 21
Actual return on plan assets................................ (31) (32) (35)
Net amortization and deferral............................... 11 11 13
---- ---- ----
Net periodic pension cost................................... $ 6 $ 4 $ 2
==== ==== ====
</TABLE>
Significant rate assumptions used in determining net periodic pension cost
and related pension obligations are as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate used in determining projected benefit
obligation................................................ 7.75% 8.0% 7.75%
Rate of increase in compensation levels..................... 5.0 5.0 5.0
Long-term rate of return on assets.......................... 9.0 9.0 9.0
</TABLE>
In addition, the Company participates in several multi-employer pension
plans which provide defined benefits to certain of its union employees. The
contributions to multi-employer plans for each of the years ended June 30, 1995,
1996 and 1997 were $4. The Company also sponsors defined contribution plans
covering substantially all employees. Company contributions to the plans are
based on employee contributions or compensation. Contributions under such plans
totaled $3, $2, and $1 for the years ended June 30, 1995, 1996, and 1997,
respectively.
The Company provided retirement benefits under various arrangements to
substantially all employees in foreign locations who were not covered under the
above plans. Generally, benefits under these arrangements were based on years of
service and levels of salary. The majority of the Company's foreign plans were
commonly referred to as termination indemnities. The plans provided employees
with retirement benefits in
F-17
<PAGE> 100
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
accordance with programs mandated by the governments of the countries in which
such employees worked. The expense and related liabilities associated with these
arrangements were recorded by the Company based on established formulas, with
funding generally occurring when employees ceased active service.
The Company sponsors several unfunded defined benefit postretirement plans
providing certain medical, dental and life insurance benefits to eligible
retired, salaried, non-union hourly and union employees. Benefits, eligibility
and cost-sharing provisions vary by plan and employee group.
Net periodic postretirement benefit cost for the fiscal years 1995, 1996
and 1997 included the following components:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $ 2 $ 2 $ 1
Interest cost............................................... 9 9 9
Amortization of prior service cost.......................... (1)
Amortization of actuarial losses (gains).................... (3) (3)
Curtailment gain............................................ (4)
--- --- ---
Net periodic postretirement benefit cost.................... $11 $ 4 $ 6
=== === ===
</TABLE>
The Company amortizes unrecognized gains and losses at the end of the
fiscal year over the expected remaining service of active employees. The
curtailment gain results from a reduction in personnel in fiscal 1996. The
following table sets forth the plans' combined status reconciled with the amount
included in the consolidated balance sheet:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees.......................................... $ 85 $ 80
Fully eligible active plan participants................... 16 11
Other active plan participants............................ 18 13
---- ----
119 104
Unrecognized prior service cost........................... 10
Unrecognized gain......................................... 30 38
---- ----
Accrued postretirement benefit cost....................... $149 $152
==== ====
</TABLE>
For fiscal years 1996 and 1997, the weighted average annual assumed rate of
increase in the health care cost trend is 13.33% and 12.42%, respectively, and
is assumed to decrease gradually to 6.0% in the year 2004. The health care cost
trend rate assumption has a significant effect on the amounts reported. An
increase in the assumed health care cost trend by 1% in each year would increase
the accumulated postretirement benefit obligation as of June 30, 1997 by $10 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $1.
The discount rate used in determining the accumulated postretirement
benefit obligation as of June 30, 1997 was 7.75%. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation as of
June 30, 1996 was 8.32%.
F-18
<PAGE> 101
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE G -- PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income (loss) before minority interest and taxes:
Domestic.................................................. $2 $ 90 $(56)
Foreign................................................... 6 12 1
-- ---- ----
$8 $102 $(55)
== ==== ====
Income tax provision (benefit)
Current:
Federal................................................ $-- $ 5 $ --
Foreign and state...................................... 1 6 --
-- ---- ----
Total Current.......................................... 1 11 --
-- ---- ----
Deferred:
Federal................................................ -- -- --
Foreign and state...................................... 1 -- --
-- ---- ----
Total Deferred......................................... 1 -- --
-- ---- ----
$2 $ 11 $ --
== ==== ====
</TABLE>
Pre-tax income for foreign operations includes income of all operations
located outside the United States, some of which are currently subject to U.S.
taxing jurisdictions.
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-------------
1996 1997
---- -----
<S> <C> <C>
Deferred tax assets:
Post employment benefits.................................. $ 53 $ 53
Pension expense........................................... 24 16
Deferred gain............................................. 6 5
Workers' compensation..................................... 7 8
Leases and patents........................................ 5 4
Other..................................................... 20 24
Net operating loss and tax credit carry forward........... 16 33
---- -----
Gross deferred tax assets.............................. 131 143
Valuation allowance.................................... (98) (113)
---- -----
Net deferred tax assets................................ 33 30
Deferred tax liabilities:
Depreciation.............................................. 30 30
Other..................................................... 3 --
---- -----
Gross deferred liabilities............................. 33 30
---- -----
Net deferred tax asset................................. $ -- $ --
==== =====
</TABLE>
F-19
<PAGE> 102
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The net change in the valuation allowance for the years ended June 30, 1996
and 1997 was a decrease of $27 and an increase of $15, respectively.
The differences between the provision for income taxes and income taxes
computed at the statutory U.S. federal income tax rates are explained as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes (benefit) computed at the statutory U.S.
federal income tax rates.................................. $2 $36 $(19)
Taxes on foreign income at rates different than U.S. federal
income tax rates.......................................... (1)
State taxes, net of federal benefit......................... 3
Net operating losses for which no benefit has been
recognized................................................ 19
Realization of prior years' net operating losses and tax
credits................................................... (27)
-- --- ----
Provision for income taxes.................................. $2 $11 $ --
== === ====
</TABLE>
As of June 30, 1997, the Company had operating loss carryforwards for tax
purposes available from domestic operations totaling $84 which will expire
between 2008 and 2012.
Extraordinary losses from refinancing of debt and early debt retirement and
the cumulative effect of change in accounting principle did not have any tax
effect due to the Company's current tax position.
The Company made income tax payments of $3, $5 and $4 for the years ended
June 30, 1995, 1996 and 1997, respectively.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment, agricultural lands, and
office and plant facilities. At June 30, 1997, the aggregate minimum rental
payments required under operating leases that have initial or remaining terms in
excess of one year are as follows:
<TABLE>
<S> <C>
1998........................................................ $14
1999........................................................ 13
2000........................................................ 12
2001........................................................ 9
2002........................................................ 6
Thereafter.................................................. 41
---
$95
===
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of $7
due through 2016 under noncancelable subleases.
Rent expense was $32, $28, and $32 for fiscal years ended June 30, 1995,
1996, and 1997, respectively. Rent expense includes contingent rentals on
certain equipment based on usage.
The Company has entered into noncancelable agreements with growers, with
terms ranging from two to ten years, to purchase certain quantities of raw
products. Total purchases under these agreements were $68, $54, and $114 for the
years ended June 30, 1995, 1996, and 1997, respectively. The Company also has
commitments to purchase certain finished goods.
F-20
<PAGE> 103
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
At June 30, 1997, aggregate future payments under such purchase commitments
(priced at the June 30, 1997 estimated cost) are estimated as follows:
<TABLE>
<S> <C>
1998........................................................ $ 68
1999........................................................ 56
2000........................................................ 44
2001........................................................ 33
2002........................................................ 26
Thereafter.................................................. 60
----
$287
====
</TABLE>
In addition, the Company expects to purchase $46 in fiscal 1998 under the
supply agreement for pineapple products entered into in conjunction with the
sale of the Del Monte Philippines operations (see Note B).
Effective August 13, 1993, DMC sold its dried fruit and snack operations to
Yorkshire Dried Fruits and Nuts, Inc., ("YDFNI"). In connection with this asset
sale, DMC entered into certain agreements with YDFNI which, among other things,
grant YDFNI the right to use certain Del Monte trademarks. Under these
agreements, as a service to, and for the benefit of YDFNI, DMC purchased and
resold certain of the former DMC dried fruit and snack products. This resale
agreement was terminated by the Company as of June 30, 1997.
Effective December 21, 1993, DMC sold substantially all of the assets and
certain related liabilities of its can manufacturing operations in the United
States to Silgan Containers Corporation ("Silgan"). In connection with the sale
to Silgan, DMC entered into a ten-year supply agreement under which Silgan,
effective immediately after the sale, began supplying substantially all of DMC's
metal container requirements for foods and beverages in the United States.
Purchases under the agreement in fiscal 1997 amounted to $134. The Company
believes the supply agreement provides it with a long term supply of cans at
competitive prices that adjust over time for normal manufacturing cost increases
or decreases.
In May 1992, DMC entered into an exclusive supply agreement (the
"Agreement") with Pacific Coast Producers ("PCP"), a canned fruit and tomato
processor, to purchase substantially all of PCP's tomato and fruit production
commencing July 1, 1992. PCP continued to own and operate its production
facilities, as well as purchase raw products via its established grower network.
The Agreement was to expire in June 1998 with optional successive five-year
extensions. Total payments under the Agreement for the twelve months ended June
30, 1995 were $186.
The Federal Trade Commission ("FTC") conducted an investigation to
determine whether the supply arrangement was in violation of certain U.S.
antitrust laws. In January 1995, the Company and PCP agreed to terminate their
supply and purchase option agreements in settlement of the FTC investigation. In
response to the Company's actions, the FTC issued a final consent order on April
18, 1995. A consent agreement does not constitute an admission of any violation
of law. The option and supply agreements were terminated in late fiscal 1995. As
a condition of the termination, the Company was required to make a termination
payment of $4 to PCP.
On November 1, 1992, DMC entered into an agreement with Electronic Data
Systems Corporation ("EDS") to provide services and administration to the
Company in support of its information services functions for all domestic
operations. Payments under the terms of the agreement are based on scheduled
monthly base charges subject to various adjustments such as system usage and
inflation. Total payments for the twelve months ended June 30, 1995, 1996, and
1997 were $16, $16, and $18, respectively. The agreement expires in November
2002 with optional successive one year extensions.
F-21
<PAGE> 104
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
At June 30, 1997, base charge payments under the agreement are as follows:
<TABLE>
<S> <C>
1998........................................................ $14
1999........................................................ 14
2000........................................................ 13
2001........................................................ 13
2002........................................................ 13
Thereafter.................................................. 6
---
$73
===
</TABLE>
Del Monte has a concentration of labor supply in employees working under
union collective bargaining agreements, which represent approximately 75% of its
hourly and seasonal work force. Of these represented employees, 7% of employees
are under agreements that will expire in 1998.
The Company is defending various claims and legal actions that arise from
its normal course of business, including certain environmental actions. While it
is not feasible to predict or determine the ultimate outcome of these matters,
in the opinion of management none of these actions, individually or in the
aggregate, will have a material effect on the Company's results of operations,
cash flow, liquidity or financial position.
On March 25, 1997, the entities that purchased the Company's Mexican
subsidiary in October 1996 commenced an action in Texas state court alleging,
among other things, that the Company breached the agreement with respect to the
purchase because the financial statements of the Mexican subsidiary did not
fairly present its financial condition and results of operations in accordance
with U.S. generally accepted accounting principles. The purchasers have claimed
damages in excess of $10 as a result of these alleged breaches. In connection
with this action, $8 of the cash proceeds from the Recapitalization which were
payable to shareholders and certain members of senior management of DMFC have
been held in escrow and will be applied to fund the Company's costs and expenses
in defending the action, with any remaining amounts available to pay up to 80%
of any ultimate liability of the Company to the purchasers. Separately, the
purchasers claim that they are entitled to receive from the Company as a
purchase price adjustment an additional approximately $2 pursuant to provisions
of the purchase agreement. The Company does not believe that these claims, in
the aggregate, will have a material adverse effect on the Company's financial
position or results of operations.
NOTE I -- FOREIGN OPERATIONS AND GEOGRAPHIC DATA
The Company's earnings have historically been derived in part from foreign
operations. As of November 1996, all of these operations had been sold.
Transfers between geographic areas have been accounted for as intercompany
sales, and transfer prices have been based generally on negotiated contracts.
F-22
<PAGE> 105
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table shows certain financial information relating to the
Company's operations in various geographic areas:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net Sales:
United States.......................................... $1,331 $1,147 $1,203
Philippines............................................ 180 142
Latin America.......................................... 65 55 17
Transfer between geographic areas...................... (49) (39) (3)
------ ------ ------
Total net sales................................ $1,527 $1,305 $1,217
====== ====== ======
Operating income (loss):
United States.......................................... $ 64 $ 65 $ 73
Philippines............................................ 11 12
Latin America.......................................... 5 5
------ ------ ------
Total operating income......................... $ 80 $ 82 $ 73
====== ====== ======
Assets:
United States.......................................... $ 754 $ 701 $ 667
Philippines............................................ 164
Latin America.......................................... 42 35
------ ------ ------
Total assets................................... $ 960 $ 736 $ 667
====== ====== ======
Liabilities of the Company's operations located in
foreign countries...................................... $ 128 $ 7 $ --
====== ====== ======
</TABLE>
NOTE J -- DEL MONTE CORPORATION
DMC is directly- and wholly-owned by DMFC. In the fiscal years ended June
30, 1996 and 1997, DMC and DMC's subsidiaries accounted for 100% of the
consolidated revenues and net earnings of the Company. In the fiscal year ended
June 30, 1995, DMC and DMC's subsidiaries accounted for all of the consolidated
revenues and net earnings of the Company except for proceeds recorded by DMFC
from a $30 letter of credit related to the termination of an Agreement and Plan
of Merger (see Note K). As of June 30, 1996 and 1997, the Company's sole asset,
other than intercompany receivables from DMC, was the stock of DMC. The Company
had no subsidiaries other than DMC and DMC's subsidiaries, and had no direct
liabilities other than intercompany payables to DMC. The Company is separately
liable under various guarantees of indebtedness of DMC, which guarantees of
indebtedness are in most cases full and unconditional.
NOTE K -- TERMINATION OF AGREEMENT AND PLAN OF MERGER
On June 27, 1994 the Company entered into an Agreement and Plan of Merger
with Grupo Empacador de Mexico, S.A. de C.V., and CCP Acquisition Company of
Maryland, Inc. (the "Purchasers"). The Purchasers were formed by an investor
group led by Mr. Carlos Cabal Peniche for the purpose of effecting an
acquisition (the "Proposed Acquisition") of the Company. The Agreement and Plan
of Merger provided that the Company was entitled to terminate the Agreement and
Plan of Merger if the effective date of the Proposed Acquisition failed to occur
on or prior to September 19, 1994. The effective date of the Proposed
Acquisition did not occur on or prior to such date and, on September 21, 1994,
the Company terminated the Agreement and Plan of Merger in accordance with its
terms.
F-23
<PAGE> 106
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Pursuant to the Agreement and Plan of Merger, the Purchasers caused a $30
letter of credit (the "Letter of Credit") to be issued by Banco Union, S.A., a
Mexican bank affiliated with Mr. Cabal, and confirmed by Midland Bank plc, New
York Branch, in favor of the Company. Under the terms of the Agreement and Plan
of Merger, the Company was entitled to draw under the Letter of Credit if the
effective date of the Proposed Acquisition failed to occur on or prior to
September 19, 1994. Because the Proposed Acquisition did not close by September
19, 1994, on September 20, 1994 the Company drew $30 under the Letter of Credit.
This amount, net of $4 of related transaction expenses, is included in "Other
(income) expense". The cash was applied to the repayment of indebtedness then
outstanding under the Company's revolving credit agreement.
NOTE L -- RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, the Company entered into a
ten-year agreement (the "Management Advisory Agreement") with TPG pursuant to
which TPG is entitled to receive an annual fee from the Company for management
advisory services equal to the greater of $500,000 and 0.05% of the budgeted
consolidated net sales of the Company. In addition, the Company has agreed to
indemnify TPG, its affiliates and shareholders, and their respective directors,
officers, agents, employees and affiliates from and against fees and expenses,
arising out of or in connection with the services rendered by TPG thereunder.
The Management Advisory Agreement makes available the resources of TPG
concerning a variety of financial and operational matters. The services that
will be provided by TPG cannot otherwise be obtained by the Company without the
addition of personnel or the engagement of outside professional advisors. In
management's opinion, the fees provided for under the Management Advisory
Agreement reasonably reflect the benefits to be received by the Company.
In connection with the Recapitalization, the Company also entered into an
agreement (the "Transaction Advisory Agreement") with TPG pursuant to which TPG
received a cash financial advisory fee of approximately $8.4 million upon the
closing of the Recapitalization as compensation for its services as financial
advisor for the Recapitalization. TPG also is entitled to receive fees up to
1.5% of the "transaction value" for each subsequent transaction in which the
Company is involved. The term "transaction value" means the total value of any
subsequent transaction, including, without limitation, the aggregate amount of
the funds required to complete the subsequent transaction (excluding any fees
payable pursuant to the Transaction Advisory Agreement and fees, if any paid to
any other person or entity for financial advisory, investment banking, brokerage
or any other similar services rendered in connection with such transaction)
including the amount of indebtedness, preferred stock or similar items assumed
(or remaining outstanding). In management's opinion, the fees provided for under
the Transaction Advisory Agreement reasonably reflect the benefits to be
received by the Company.
F-24
<PAGE> 107
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Del Monte Foods Company
We have audited the accompanying consolidated balance sheet of Del Monte
Foods Company and subsidiaries as of June 30, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended June 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Del Monte Foods Company and subsidiaries at June 30, 1996, and the consolidated
results of their operations and their cash flows for the years ended June 30,
1996 and 1995 in conformity with generally accepted accounting principles.
In the fiscal year ended June 30, 1996, Del Monte Foods Company changed its
method of accounting for impairment of long-lived assets and for long-lived
assets to be disposed of.
ERNST & YOUNG LLP
August 29, 1996
San Francisco, California
F-25
<PAGE> 108
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9 $ 12
Trade accounts receivable, net of allowance............... 90 87
Other receivables......................................... 4 3
Inventories............................................... 479 600
Prepaid expenses and other current assets................. 4 9
----- ------
Total current assets.............................. 586 711
Property, plant and equipment, net.......................... 231 291
Intangible assets, net...................................... -- 26
Other assets................................................ 31 25
----- ------
Total assets...................................... $ 848 $1,053
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 277 $ 317
Short-term borrowings..................................... 120 153
Current portion of long-term debt......................... 16 17
----- ------
Total current liabilities......................... 413 487
Long-term debt.............................................. 252 686
Other noncurrent liabilities................................ 241 216
Redeemable common stock ($.01 par value per share, 1,650,000 2
shares authorized; issued and outstanding: 159,386 at
December 31, 1996)........................................
Redeemable preferred stock ($.01 par value per share, 213
32,493,000 shares authorized; issued and outstanding:
18,327,449 at December 31, 1996, $625 aggregate
liquidation preference)...................................
Redeemable preferred stock ($.01 par value per share, 32
1,000,000 shares authorized; issued and outstanding:
37,254 at December 31, 1997, aggregate liquidation
preference: $39)..........................................
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 1,700,000 shares
authorized; issued and outstanding: 223,468 at December
31, 1996)..............................................
Common stock ($.01 par value per share, 1,000,000 shares
authorized; issued and outstanding: 181,560 at December
31, 1997)..............................................
Paid-in capital........................................... 3 170
Retained earnings (deficit)............................... (276) (538)
----- ------
Total stockholders' equity (deficit).............. (273) (368)
----- ------
Total liabilities and stockholders' equity........ $ 848 $1,053
===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE> 109
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
----------------
1996 1997
----- -----
<S> <C> <C>
Net sales................................................... $628 $620
Cost of products sold....................................... 430 413
---- ----
Gross profit........................................... 198 207
Selling, advertising, administrative and general expenses... 156 162
---- ----
Operating income....................................... 42 45
Interest expense............................................ 26 36
Loss on sale of divested assets............................. 5 --
Other expense............................................... -- 6
---- ----
Income before income taxes and extraordinary item........... 11 3
Provision for income taxes.................................. 2 --
---- ----
Income before extraordinary item....................... 9 3
Extraordinary loss from the early retirement of debt........ 4 --
---- ----
Net income............................................. $ 5 $ 3
==== ====
</TABLE>
See Notes to Consolidated Financial Statements.
F-27
<PAGE> 110
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
----------------
1996 1997
----- -----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 5 $ 3
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization.......................... 15 15
Extraordinary loss from the early retirement of debt... 4
Gain on sale of assets................................. (1)
Loss on sale of divested assets........................ 5
Changes in operating assets and liabilities:
Accounts receivable.................................... -- (21)
Inventories............................................ (188) (156)
Prepaid expenses, other current assets and other
assets................................................ 7 5
Accounts payable and accrued expenses.................. 82 80
Other non-current liabilities.......................... 5 --
----- -----
Net cash used in operating activities............. (65) (75)
INVESTING ACTIVITIES:
Capital expenditures...................................... (5) (6)
Proceeds from the sale of operations and assets........... 49 5
Acquisition of businesses................................. -- (197)
----- -----
Net cash provided by (used in) investing
activities....................................... 44 (198)
FINANCING ACTIVITIES:
Short-term borrowings..................................... 710 228
Payments on short-term borrowings......................... (633) (157)
Proceeds from long-term borrowings........................ 55 176
Principal payments on long-term borrowings................ (131) (1)
Deferred debt issuance costs.............................. (7) (7)
Issuance of stock......................................... -- 41
Specific Proceeds Collateral Account...................... 30 --
----- -----
Net cash provided by financing activities......... 24 280
----- -----
Net change in cash and cash equivalents........... 3 7
Cash and cash equivalents at beginning of period............ 6 5
----- -----
Cash and cash equivalents at end of period........ $ 9 $ 12
===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
F-28
<PAGE> 111
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NOTE A -- BASIS OF FINANCIAL STATEMENTS
Basis of Presentation: The accompanying consolidated financial statements
at December 31, 1997 and for the six-month periods ended December 31, 1996 and
1997, are unaudited, but are prepared in accordance with generally accepted
accounting principles for interim financial information and include all
adjustments (consisting only of normal recurring entries) which, in the opinion
of management, are necessary for a fair presentation of financial position,
results of operations and cash flows. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements as of and for the year ended June 30, 1997, and notes thereto.
NOTE B -- INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Finished product................................... $441 $547
Raw materials and supplies......................... 5 9
Other, principally packaging material.............. 33 44
---- ----
$479 $600
==== ====
</TABLE>
During the six months ended December 31, 1996 and 1997, respectively,
inflation had a minimal impact on production costs. As a result, the effect of
accounting for these inventories by the LIFO method has had no material effect
on inventories at December 31, 1996 and December 31, 1997 or on results of
operations for the six-months ended December 31, 1996 and 1997, respectively.
NOTE C -- STOCKHOLDERS' EQUITY
Preferred Stock
On October 13, 1997, the Company authorized a new series of cumulative
redeemable preferred stock, Series C, and issuance of shares of such new series
of preferred stock in exchange for all of the issued and outstanding shares of
cumulative redeemable preferred stock, Series A and B, held by preferred stock
shareholders. The Series A and B preferred stock were retired upon completion of
this exchange.
The terms of the Series C preferred stock are substantially identical to
those of the Series A and B stock with the exception of a call premium and right
of holders to require redemption upon a change in control. The Series C
preferred stock will be redeemable at the option of the Company at a redemption
price ranging from 103% of the liquidation preference, if redeemed prior to
October 1998, to 100% of the liquidation preference, if redeemed after October
2000. The Series A and B preferred stock was redeemable by the Company at par.
In the event of a change of control of the Company, the holders of the Series C
preferred stock will have the right to require the Company to repurchase shares
of such stock at 101% of the liquidation preference. Under the terms of the
Series A and B preferred stock, shares of such stock were mandatorily redeemable
(i.e., the holder did not have the option of continuing to hold such shares) at
101% of the liquidation preference.
On January 16, 1998, TPG Partners L.P. ("TPG") and certain of its
affiliates sold approximately 93% of their Preferred Stock holdings to
unaffiliated investors.
Employee Stock Purchase Plan
Effective August 4, 1997, the Del Monte Foods Company Employee Stock
Purchase Plan was established under which certain key employees are eligible to
participate. A total of 5,000 shares of Common
F-29
<PAGE> 112
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Stock of the Company are reserved for issuance under the Employee Stock Purchase
Plan. During December 1997, 1,560 shares of the Company's common stock were
purchased by and issued to eligible employees.
Stock Option Plan
On August 4, 1997, the Company adopted the 1997 Stock Incentive Plan which
allows the granting of options to certain key employees of the Company. Options
may be granted to participants with respect to 9,508 shares of the Company's
Common Stock. Options may be granted as incentive stock options or as non-
qualified options for purposes of the Internal Revenue Code. Options terminate
ten years from the date of grant. Two different vesting schedules have been
approved under the 1997 Stock Incentive Plan. The first provides for annual
vesting on a proportionate basis over five years and the second provides for
monthly vesting on a proportionate basis over four years. Pursuant to this plan,
options for 8,274 shares were granted to eligible employees in December 1997.
The per share exercise price of the options granted in December 1997 was $1,000,
which was determined to be the fair market value of said shares.
The Company accounts for its stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25 and
related interpretations. Accordingly, compensation cost is measured as the
excess, if any, of the fair value of the Company's stock at the date of the
grant over the price the employee must pay to acquire the stock.
Earnings Per Share
As of December 31, 1997, the Company was not required to adopt Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" as its
publicly traded securities included only debt securities. Since the Company is
in process of filing documentation in preparation for the sale of securities in
a public market, the Company intends to adopt the provisions of SFAS No. 128.
NOTE D -- CONTADINA ACQUISITION
On November 12, 1997, the Company entered into an asset purchase agreement
to acquire the Contadina canned tomato businesses, including the Contadina
trademark worldwide, capital assets and inventory from Nestle USA, Inc. and
Contadina Services, Inc. (the "Contadina Acquisition") for a total purchase
price of $197, comprised of a base price of $177 and an estimated net working
capital adjustment of $20. The purchase price is subject to adjustment based on
the final calculation of net working capital as of the closing date. The
transaction closed on December 19, 1997.
The Company funded the acquisition through the issuance of senior discount
notes (the "Initial Notes") with an aggregate principal amount at maturity of
$230, which resulted in gross proceeds of $126. These Initial Notes accrue
interest at 12.50% payable on each June 15 and December 15, which will be
accreted through December 15, 2002, after which time interest will be paid in
cash until maturity. The Initial Notes mature on December 15, 2007. An
additional source of funding was provided through an equity contribution of $40
from the Company's majority shareholder, Texas Pacific Group and certain other
investors. Also, the Company amended its bank financing agreements to permit
additional funding which was drawn in an amount of $50. Amortization of the
additional Term B loan amount is incremental to the scheduled amortization of
the existing Term B loan. Such additional amortization will begin on a quarterly
basis in the second quarter of fiscal 1999 in the amount of $0.5 on an annual
basis with such amortization increasing in the fourth quarter of fiscal 2004,
through the third quarter of fiscal 2005, to approximately $12 per quarter.
These debt agreements contain restrictive covenants, the most restrictive of
which currently is minimum EBITDA (as defined).
F-30
<PAGE> 113
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The Contadina Acquisition has been reflected in the balance sheet at
December 31, 1997. The transaction has been accounted for using the purchase
method of accounting. The total purchase price has been allocated to the
tangible and intangible assets and liabilities acquired based on preliminary
estimates of their respective fair values. Accordingly, adjustments will be made
based upon final determination of the purchase price adjustments and completion
of the valuations that are in progress. The results of operations of the
acquired business for the period from the closing of the acquisition to period
end and any other expenses of the transaction are reflected in the statements of
operations for the three and six month periods ended December 31, 1997, and did
not significantly effect the results of operations of the Company for those
periods. The Company filed a Current Report on Form 8-K on January 5, 1998
reporting this acquisition. An amendment to the Form 8-K will be filed not later
than March 4, 1998 which will contain the financial information required by Rule
3-05 of Regulation S-X.
NOTE E -- SUBSEQUENT EVENT
In January 1998, management announced a four-year plan to consolidate its
California manufacturing operations in order to enhance the efficiency of fruit
and tomato processing operations and allow the Company to better meet the
competitive challenges of the market. In 1999, tomato production currently
taking place at the Modesto plant is expected to be transferred to the Company's
newly acquired facility in Hanford. The Modesto location would then be converted
to a fruit processing plant allowing production currently processed at the San
Jose plant to be transferred to Modesto. At the end of the 2000 production
season, the Company is expected to close its Stockton fruit plant and transfer
production from that plant to Modesto. Considerations of plant age and location
were primary factors in the decision to close the eighty year-old San Jose plant
and transfer production closer to the growing areas. None of the Company's other
plants will be directly affected by these decisions.
The Company is currently analyzing the impact of such plans and will record
a restructuring charge as soon as this analysis has been completed, if
appropriate.
F-31
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Del Monte Foods Company
We have audited the accompanying combined balance sheets of Contadina (a
division of Nestle USA, Inc.) as of December 18, 1997 and December 31, 1996, and
the related statements of operations, divisional equity, and cash flows for the
period January 1, 1997 through December 18, 1997 and for the year ended December
31, 1996. These financial statements are the responsibility of Del Monte Foods
Company management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Contadina (a division of
Nestle USA, Inc.) as of December 18, 1997 and December 31, 1996, and the results
of its operations and its cash flows for the period January 1, 1997 through
December 18, 1997 and for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
March 16, 1998
Los Angeles, California
F-32
<PAGE> 115
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED BALANCE SHEETS
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Trade accounts receivable................................. $ 10 $ 17
Other receivables......................................... 3 --
Inventories............................................... 92 98
---- ----
TOTAL CURRENT ASSETS.............................. 105 115
Property, plant and equipment............................... 94 90
Goodwill.................................................... 32 31
---- ----
TOTAL ASSETS...................................... $231 $236
==== ====
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 10 $ 13
Payable to Nestle USA, Inc................................ 17 52
---- ----
TOTAL CURRENT LIABILITIES......................... 27 65
Divisional equity........................................... 204 171
---- ----
TOTAL LIABILITIES AND DIVISIONAL EQUITY........... $231 $236
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-33
<PAGE> 116
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED STATEMENTS OF OPERATIONS AND
DIVISIONAL EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Net sales................................................... $160 $162
Cost of products sold....................................... 151 163
---- ----
Gross profit (loss).................................... 9 (1)
Selling, advertising, administrative and general expense.... 20 26
---- ----
OPERATING LOSS.................................... (11) (27)
Interest expense............................................ 6 6
---- ----
NET LOSS BEFORE INCOME TAXES...................... (17) (33)
DIVISIONAL EQUITY, BEGINNING OF PERIOD...................... 221 204
---- ----
DIVISIONAL EQUITY, END OF PERIOD............................ $204 $171
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-34
<PAGE> 117
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1 THROUGH
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(17) $(33)
Adjustments to reconcile net loss to net cash flows used
in operating activities:
Depreciation and amortization.......................... 12 13
Changes in operating assets and liabilities:
Accounts receivable.................................... 9 (4)
Inventories............................................ (16) (6)
Accounts payable and accrued expenses.................. 4 3
---- ----
NET CASH USED IN OPERATING ACTIVITIES............. (8) (27)
INVESTING ACTIVITIES:
Capital expenditures...................................... (10) (8)
Proceeds from sale of assets.............................. 1 --
---- ----
NET CASH USED IN INVESTING ACTIVITIES............. (9) (8)
FINANCING ACTIVITIES: Net borrowings from Nestle USA,
Inc....................................................... 17 35
---- ----
NET CHANGE IN CASH AND CASH EQUIVALENTS........... -- --
Cash and cash equivalents at beginning of period............ -- --
---- ----
CASH AND CASH EQUIVALENTS
AT END OF PERIOD................................ $ -- $ --
==== ====
</TABLE>
See Notes to Combined Financial Statements.
F-35
<PAGE> 118
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 18, 1997
(IN MILLIONS)
NOTE A -- ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
General: The accompanying combined financial statements include the
accounts of Contadina Services, Inc., a wholly-owned subsidiary of Nestle USA,
Inc. ("Nestle") and other divisional accounts related to the Contadina canned
business within the culinary division of Nestle ("Contadina") on a carve-out
basis, excluding the effects of product lines not acquired (see Note E).
Contadina operates in one business segment which manufactures and markets
branded, private label, industrial and foodservice processed tomato products
from manufacturing facilities in Hanford, California and Woodland, California.
Contadina's products are distributed throughout the United States.
Contadina does not maintain stand-alone corporate treasury, legal, tax and
other similar corporate support functions. Therefore, corporate general and
administrative expense and interest expense, as well as certain other expenses
(see Note D), are allocated to Contadina from Nestle generally on a proportional
basis. Allocations and estimates, as described in Note D, are based on
assumptions that Del Monte Foods Company management believes are reasonable. It
is impracticable to determine whether such costs are comparable to those which
would have been incurred on a stand-alone basis. Long-term debt and income taxes
are not allocated by Nestle.
All purchases of inventory, payroll, capital and other expenditures are
funded through Contadina's intercompany account with Nestle. Remittances from
sales to customers are collected by Nestle and are accounted for through the
intercompany account. Accordingly, Contadina has no cash on a stand-alone basis.
Trade receivables and payables do represent the amounts due from/to
customers/suppliers at the dates presented.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, plant and equipment and depreciation: Property, plant and
equipment are stated at cost and depreciated over their estimated useful lives,
principally by the straight-line method. Maintenance and repairs are expensed as
incurred. Significant expenditures that increase useful lives are capitalized.
The ranges of estimated useful lives for computing depreciation are:
buildings -- 30 years; leasehold improvements -- the shorter of useful life or
life of lease; and machinery and equipment -- 5 to 17 years. Depreciation of
plant and equipment and building and leasehold improvements amortization was $11
for the year ended December 31, 1996 and $12 for the period ended December 18,
1997.
Goodwill: Goodwill represents the excess purchase price over fair value of
acquired assets and liabilities. Goodwill is amortized on a straight-line basis
over 40 years.
Fair Value of Financial Instruments: The carrying amount of the Company's
financial instruments, which include trade accounts receivable, accounts
payable, and accrued expenses, approximates fair value due to the relatively
short maturity of such instruments. The carrying amount of the payable to Nestle
USA, Inc. approximates fair value due to the regular settlement of this account.
Cost of Products Sold: Cost of products sold includes raw material, labor,
and overhead.
Royalties: Under a royalty agreement with Nestle S.A. (parent of Nestle
and legal entity which owns the Contadina trademarks), royalties are charged for
the license of the Contadina trademarks at a rate of 3% of net sales. Royalty
expense under this agreement was $5 for both the year ended December 31, 1996
and the period ended December 18, 1997.
F-36
<PAGE> 119
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
Divisional Equity: Divisional equity includes the combined historical
legal capital of Contadina Services, Inc. and profit and losses of Contadina
subsequent to December 31, 1995 on a carve-out basis. Pre-1996 results of
operations for the acquired product line are not available. Transactions with
Nestle for all other intercompany transactions are included in and settled
through the intercompany account payable to Nestle.
Use of Estimates: Certain amounts reported in the financial statements are
based on management estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities as of December 31, 1996 and December 18, 1997, and the reported
amounts of income and expenses for the year ended December 31, 1996 and the
period ended December 18, 1997. The ultimate resolution of these items may
differ from those estimates.
Change in Accounting Principle: Effective January 1, 1996, Contadina
adopted the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The statement requires that
assets held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Contadina evaluates impairment based upon undiscounted future cash
flows. If such cash flows indicate that long-lived assets may not be
recoverable, the loss is measured by discounting cash flows to present value.
The statement also requires that all long-lived assets, for which management has
committed to a plan to dispose, be reported at the lower of carrying amount or
fair value. Contadina does not depreciate long-lived assets held for sale. There
was no material effect upon the adoption of this statement.
F-37
<PAGE> 120
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
NOTE C -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1996 1997
------------ ------------
<S> <C> <C>
Trade Accounts Receivable:
Trade..................................................... $ 10 $ 17
Allowance for doubtful accounts........................... -- --
---- ----
TOTAL TRADE ACCOUNTS RECEIVABLE................... $ 10 $ 17
==== ====
Inventories:
Finished product.......................................... $ 60 $ 69
Raw materials and supplies................................ 35 32
Other, principally packaging material..................... 2 2
Reserves.................................................. (5) (5)
---- ----
TOTAL INVENTORIES................................. $ 92 $ 98
==== ====
Property, Plant and Equipment:
Land and land improvements................................ $ 8 $ 4
Buildings................................................. 36 40
Machinery and equipment................................... 110 125
Construction in progress.................................. 10 3
---- ----
164 172
Accumulated amortization.................................. (70) (82)
---- ----
PROPERTY, PLANT AND EQUIPMENT, NET................ $ 94 $ 90
==== ====
Goodwill:
Goodwill.................................................. $ 44 $ 44
Accumulated amortization.................................. (12) (13)
---- ----
GOODWILL, NET..................................... $ 32 $ 31
==== ====
Accounts payable and accrued expenses:
Accounts payable.......................................... $ 6 $ 2
Payroll................................................... 1 1
Marketing................................................. 1 8
Other..................................................... 2 2
---- ----
TOTAL ACCOUNTS PAYABLE AND ACCRUED EXPENSES....... $ 10 $ 13
==== ====
</TABLE>
NOTE D -- CORPORATE ALLOCATIONS AND RELATED PARTY INFORMATION
Goodwill is associated with the acquisition of Carnation Foods in 1985, the
then-parent of Contadina, and was not recorded in the individual business units'
accounts. As such, goodwill relating to Contadina has been allocated based on a
percentage derived from the tax basis goodwill specifically identified to
Contadina in relation to total tax basis goodwill. This relative percentage was
then applied to aggregate goodwill to determine book basis goodwill attributable
to Contadina. This allocation basis was determined to be reasonable by Del Monte
Foods Company management.
Since invoicing is centralized at Nestle for all business units, customer
discounts and unapplied cash related to trade receivables are allocated based on
Contadina relative sales dollars on a customer invoice as a percentage of the
total sales dollars on the customer invoice. Cash discounts are allocated to
Contadina based
F-38
<PAGE> 121
CONTADINA
(A DIVISION OF NESTLE USA, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS)
on Contadina receivables as a percent of total consolidated Nestle receivables.
A specific reserve for doubtful accounts is not maintained on a business unit
basis. Therefore, a reserve for doubtful accounts was established for Contadina
through an allocation of the corporate reserve based on the percentage of
Contadina's outstanding receivables to the total Nestle outstanding accounts
receivable balance.
Variable distribution costs are allocated based on the applied usage rate
for the respective products. Fixed distribution costs are allocated on an
historical average cost per case basis. Allocated distribution costs included in
cost of products sold for the year ended December 31, 1996 were $5 and for the
period ended December 18, 1997 were $7. Marketing and sales force expense is
allocated based on relative Contadina sales dollars to total Nestle sales
dollars. The majority of warehousing costs reported are actual costs related to
Contadina's two facilities; however, a component of warehousing cost also
includes costs allocated from Nestle based on historical average inventory
stored at the distribution center.
General and administrative expenses are, for the most part, allocated by
function. Allocated selling, marketing, general and administrative expenses
amounted to $12 for the year ended December 31, 1996 and to $20 for the period
ended December 18, 1997. Benefit costs are allocated at a rate of 40% of gross
wages which is representative of total benefit costs (including pension,
postretirement benefits, bonus, 401(k) matching contribution and vacation) to
total compensation. Interest expense is charged to Contadina based on the end-
of-month working capital balance at an intercompany rate equal to 7% for all
periods.
Contadina's sales of product to Nestle were $6 for both the year ended
December 31, 1996 and the period ended December 18, 1997.
NOTE E -- SALE OF CONTADINA
On December 19, 1997, Del Monte Foods Company acquired the Contadina canned
tomato businesses, including the Contadina trademark worldwide, capital assets
and inventory from Nestle and Contadina Services, Inc., for a total purchase
price of $197, comprised of a base price of $177 and an estimated net working
capital adjustment of $20. The purchase price is subject to adjustment based on
the final calculation of net working capital as of the closing date. In
accordance with the asset purchase agreement, dated November 12, 1997, by and
among Del Monte Foods Company, Del Monte Corporation ("DMC") and Nestle USA,
Inc., Nestle has provided its calculation of the net working capital which would
result in a payment to DMC of approximately $2. DMC has until April 18, 1998 to
review this calculation and determine if it has an objection to the calculation.
F-39
<PAGE> 122
[DEL MONTE LOGO]
<PAGE> 123
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued March 19, 1998
Shares
DEL MONTE FOODS COMPANY
COMMON STOCK
[DEL MONTE LOGO]
------------------------
OF THE SHARES OF COMMON STOCK OFFERED HEREBY, SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES
AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THIS OFFERING,
THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES OF COMMON STOCK OF THE COMPANY.
IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL
BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A DISCUSSION OF THE
FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "DLM."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR
RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- ------------
<S> <C> <C> <C>
Per Share.............................................. $ $ $
Total(3)............................................... $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses of the offering payable by the Company
estimated at $ .
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, solely for the purpose of
covering overallotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to the approval of
certain legal matters by Brown & Wood LLP, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1998 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y. against payment therefor in immediately available funds.
MORGAN STANLEY DEAN WITTER
BA ROBERTSON STEPHENS INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
BT ALEXS BROWN INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
International
, 1998
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock being registered, other than underwriting discounts and
commissions.
<TABLE>
<S> <C>
SEC registration fee........................................ $73,750
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Printing and engraving expenses............................. *
Registrar and transfer agent's fee.......................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Following the reincorporation of Del Monte, it is expected that the
Certificate of Incorporation of the Registrant will provide that the Registrant
will indemnify each of its directors and officers to the fullest extent
permitted by the General Corporation Law of the State of Delaware (the "DGCL")
and may indemnify certain other persons as authorized by the DGCL. Section 145
of the DGCL provides as follows:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE. --
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or
II-1
<PAGE> 125
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person in any such capacity or arising out of such person's status as such
whether or not the corporation would have the power to indemnify such person
against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director,
II-2
<PAGE> 126
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Registrant also carries liability insurance covering officers and
directors.
Pursuant to the proposed form of Underwriting Agreement, the Underwriters
have agreed to indemnify the directors and officers of the Registrant in certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the recapitalization of the Company on April 18, 1997,
the predecessor of the Company issued and sold an aggregate of (i) 140,000
shares of its common stock; (ii) warrants to purchase an additional 2,857.14
shares of such common stock; and (iii) 35,000 shares of its preferred stock,
series A and B, each series par value $.01 per share, in each case directly to
affiliates of Texas Pacific Group and a limited group of private institutional
and individual investors in a private placement in accordance with Section 4(2)
under the Securities Act of 1933, as amended (the "Securities Act"). The
consideration received for such shares of common stock was $140 million. The
consideration received for such preferred stock and such warrants was $35
million. Such common stock and preferred stock were converted by operation of
law into shares of the common stock, par value $.01 per share, and preferred
stock, series A and B, respectively, of the Company upon the merger of such
predecessor with and into the Company. The Company expressly assumed its
predecessor's obligations under such warrants, which thereupon became
convertible into shares of common stock of the Company.
On April 18, 1997, Del Monte Corporation, a wholly owned subsidiary of the
Company, issued and sold at par $150 million of its 12 1/4% Senior Subordinated
Notes due 2007, which are unconditionally guaranteed by the Company. The Notes
were sold in a private placement in accordance with Section 4(2) of the
Securities Act made to BT Securities Corporation, BancAmerica Securities, Inc.
and Bear, Stearns & Co. Inc., which acted as initial purchasers, for resale to
"qualified institutional buyers" within the meaning of Rule 144A under the
Securities Act and in offshore transactions to non-U.S. persons in compliance
with Regulation S under the Securities Act. The Company received none of the
proceeds from such sale.
On October 15, 1997, the Company issued 37,253.388 shares of its preferred
stock, series C, par value $.01 per share, in exchange for all outstanding
shares of its preferred stock, series A and B, which shares of preferred stock,
series A and B, were then canceled and returned to authorized but unissued
shares of the Company's preferred stock. Such exchange was effected in
accordance with Section 3(a)(9) of the Securities Act.
On December 17, 1997, the Company issued and sold at a discount $230
million of its 12 1/2% Senior Discount Notes Due 2007 in a private placement in
accordance with Section 4(2) under the Securities Act made to Bear, Stearns &
Co. Inc., BancAmerica Robertson Stephens and BT Alex. Brown Incorporated, which
acted as initial purchasers, for resale to "qualified institutional buyers"
within the meaning of Rule 144A under the Securities Act and in offshore
transactions to non-U.S. persons in compliance with Regulation S under the
Securities Act. The consideration received by the Company upon the sale of such
Notes was approximately $125 million.
II-3
<PAGE> 127
On December 19, 1997, the Company issued 40,000 shares of common stock
directly to affiliates of Texas Pacific Group and a limited number of
institutional investors in a private placement in accordance with Section 4(2)
under the Securities Act. The consideration received by the Company for such
common stock was $40 million.
ITEM 16. EXHIBITS.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 Underwriting Agreement
*1.2 International Underwriting Agreement
2.1 Asset Purchase Agreement, dated as of November 12, 1997,
among Nestle USA, Inc., Contadina Services, Inc., Del Monte
Corporation and Del Monte Foods Company (the "Asset Purchase
Agreement") (incorporated by reference to Exhibit 10.1 to
Report on Form 8-K filed January 5, 1998)
2.2 Agreement and Plan of Merger, dated as of February 21, 1997,
amended and restated as of April 14, 1997, among TPG
Partners, L.P., TPG Shield Acquisition Corporation and Del
Monte Foods Company (the "Agreement and Plan of Merger")
(incorporated by reference to Exhibit 2.1 to Registration
Statement on Form S-4 No. 333-29079, filed June 14, 1997
(the "DMC Registration Statement"))
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Agreement and Plan of Merger.
3.1 Articles of Amendment and Restatement of TPG Shield
Acquisition Corporation, filed April 17, 1997 (included as
Exhibit A of the Articles of Merger filed as Exhibit 3.3)
3.2 Articles Supplementary of TPG Shield Acquisition
Corporation, filed April 18, 1997 (included as Exhibit A of
the Articles of Merger filed as Exhibit 3.3)
3.3 Articles of Merger between TPG Acquisition Corporation and
Del Monte Foods Company, filed April 18, 1997 (incorporated
by reference to Exhibit 3.6 to the DMC Registration
Statement)
3.4 By-laws of Del Monte Foods Company, as amended (incorporated
by reference to Exhibit 4.5 to Registration Statement on
Form S-8 filed November 24, 1997)
3.5 Articles Supplementary to the Charter of Del Monte Foods
Company, filed October 15, 1997 (incorporated by reference
to Exhibit 3 to the Quarterly Report for the quarter ended
September 30, 1997 on Form 10-Q filed November 14, 1997)
*3.6 Certificate of Incorporation of Del Monte Foods Company
*3.7 Bylaws of Del Monte Foods Company
*3.8 Certificate of Designations filed April , 1998
*3.9 Certificate of Merger between Del Monte Foods Company and
Del Monte Foods Merger Company filed April , 1998
*3.10 Articles of Merger between Del Monte Foods Company and Del
Monte Foods Merger Company filed April , 1998
*4.1 Specimen Certificate of Common Stock of Del Monte Foods
Company
4.2 Stockholders' Agreement, dated as of April 18, 1997, among
Del Monte Foods Company and its Stockholders (incorporated
by reference to Exhibit 3.6 to the DMC Registration
Statement)
</TABLE>
II-4
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of
Item 601 of Regulation S-K, the Registrant hereby undertakes
to furnish to the Commission upon request copies of the
instruments pursuant to which various entities hold
long-term debt of the Company or its parent or subsidiaries,
none of which instruments govern indebtedness exceeding 10
percent of the total assets of the Company and its parent or
subsidiaries on a consolidated basis
4.3 Form of Stockholders' Agreement among Del Monte Foods
Company and its employee stockholders (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form
S-8 filed November 24, 1997)
*4.4 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors
*4.5 Form of Stockholders' Agreement between Del Monte Foods
Company and its Employee Directors -- Directors' Fee
Arrangement
*5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton
*10.1 Indenture, dated as of December 17, 1997, among Del Monte
Foods Company, as issuer, and Marine Midland Bank, as
trustee, relating to the Notes (the "Indenture")
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Indenture.
*10.2 Registration Rights Agreement, dated as of December 17,
1997, by and among Del Monte Foods Company and the Initial
Purchasers listed therein, relating to the Notes (the
"Registration Rights Agreement")
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Registration Rights Agreement.
*10.3 Amended and Restated Credit Agreement, dated as of December
17, 1997, among Del Monte Corporation, Bank of America
National Trust and Savings Association, as Administrative
Agent, and the other financial institutions parties thereto
(the "Amended Credit Agreement")
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Amended Credit Agreement.
*10.4 Amended and Restated Parent Guaranty, dated December 17,
1997, executed by Del Monte Foods Company, with respect to
the obligations under the Amended Credit Agreement
*10.5 Security Agreement, dated April 18, 1997, between Del Monte
Corporation and Del Monte Foods Company and Bank of America
National Trust and Savings Association
10.6 Pledge Agreement, dated April 18, 1997, between Del Monte
Corporation and Bank of America National Trust and Savings
Association (incorporated by reference to Exhibit 4.7 to the
DMC Registration Statement)
10.7 Parent Pledge Agreement, dated April 18, 1997, between Del
Monte Foods Company and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit
4.8 to the DMC Registration Statement)
10.8 Indenture, dated as of April 18, 1997, among Del Monte
Corporation, as issuer, Del Monte Foods Company, as
guarantor, and Marine Midland Bank, as trustee, relating to
the 12 1/4% Senior Subordinated Notes Due 2007 (incorporated
by reference to Exhibit 4.2 to the DMC Registration
Statement)
</TABLE>
II-5
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.9 Registration Rights Agreement, dated as of April 18, 1997,
by and among Del Monte Corporation and the Purchasers listed
therein, relating to the 12 1/4% Senior Subordinated Notes
Due 2007 (incorporated by reference to Exhibit 4.9 to the
DMC Registration Statement)
10.10 Transaction Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.1 to the DMC
Registration Statement)
10.11 Management Advisory Agreement, dated as of April 18, 1997,
between Del Monte Corporation and TPG Partners, L.P.
(incorporated by reference to Exhibit 10.2 to the DMC
Registration Statement)
10.12 Retention Agreement between Del Monte Corporation and David
L. Meyers, dated November 1, 1991 (incorporated by reference
to Exhibit 10.3 to the DMC Registration Statement)
10.13 Retention Agreement between Del Monte Corporation and Glynn
M. Phillips, dated October 5, 1994 (incorporated by
reference to Exhibit 10.4 to the DMC Registration Statement)
10.14 Retention Agreement between Del Monte Corporation and Thomas
E. Gibbons, dated January 1, 1992 (incorporated by reference
to Exhibit 10.5 to the DMC Registration Statement)
10.15 Del Monte Foods Annual Incentive Award Plan and 1997 Plan
Year Amendments (incorporated by reference to Exhibit 10.8
to the DMC Registration Statement)
10.16 Additional Benefits Plan of Del Monte Corporation, as
amended and restated effective January 1, 1996 (incorporated
by reference to Exhibit 10.9 to the DMC Registration
Statement)
10.17 Supplemental Benefits Plan of Del Monte Corporation,
effective as of January 1, 1990, as amended as of January 1,
1992 and May 30, 1996 (incorporated by reference to Exhibit
10.10 to the DMC Registration Statement)
10.18 Del Monte Foods Company Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8 filed November 24, 1997)
10.19 Del Monte Foods Company 1997 Stock Incentive Plan
(incorporated by reference to Exhibit 4.2 to Registration
Statement on Form S-8 filed November 24, 1997)
10.20 Agreement for Information Technology Services between Del
Monte Corporation and Electronic Data Systems Corporation,
dated November 1, 1992, as amended as of September 1, 1993
and as of September 15, 1993 (incorporated by reference to
Exhibit 10.11 to the DMC Registration Statement)
10.21 Supply Agreement between Del Monte Corporation and Silgan
Containers Corporation, dated as of September 3, 1993, as
amended as of December 21, 1993 (incorporated by reference
to Exhibit 10.12 to the DMC Registration Statement)
*10.22 Retention Agreement between Del Monte Corporation and
William J. Spain, dated January 1, 1992
*10.23 Del Monte Foods Company Non-Employee Directors and
Independent Contractors 1997 Stock Incentive Plan
*21.1 Subsidiaries of Del Monte Foods Company
*23.1 Consent of Ernst & Young LLP, Independent Accountants
*23.2 Consent of KPMG Peat Marwick LLP, Independent Accountants
*23.3 Consent of KPMG Peat Marwick LLP, Independent Accountants
</TABLE>
II-6
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*23.4 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibit 5.1)
</TABLE>
- ---------------
* To be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(b)(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on March 19, 1998.
DEL MONTE FOODS COMPANY
By: /s/ RICHARD G. WOLFORD
------------------------------------
Richard G. Wolford
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Richard G. Wolford, David L. Meyers and Wesley
J. Smith, and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (unless revoked in writing) to sign any and all amendments (including
post-effective amendments thereto) to this Registration Statement to which this
power of attorney is attached, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting to such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on March 19, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD G. WOLFORD Chief Executive Officer (Principal Executive
- ----------------------------------------------------- Officer) and Director
Richard G. Wolford
/s/ DAVID L. MEYERS Executive Vice President, Administration and
- ----------------------------------------------------- Chief Financial Officer (Principal Financial
David L. Meyers Officer)
/s/ RICHARD L. FRENCH Vice President and Chief Accounting Officer
- ----------------------------------------------------- (Principal Accounting Officer)
Richard L. French
/s/ RICHARD W. BOYCE Chairman of the Board and Director
- -----------------------------------------------------
Richard W. Boyce
/s/ TIMOTHY G. BRUER Director
- -----------------------------------------------------
Timothy G. Bruer
/s/ AL CAREY Director
- -----------------------------------------------------
Al Carey
/s/ PATRICK FOLEY Director
- -----------------------------------------------------
Patrick Foley
</TABLE>
S-1
<PAGE> 132
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ BRIAN E. HAYCOX Director
- -----------------------------------------------------
Brian E. Haycox
/s/ JEFFREY A. SHAW Director
- -----------------------------------------------------
Jeffrey A. Shaw
/s/ WESLEY J. SMITH Chief Operating Officer and Director
- -----------------------------------------------------
Wesley J. Smith
/s/ DENISE M. O'LEARY Director
- -----------------------------------------------------
Denise M. O'Leary
/s/ WILLIAM S. PRICE, III Director
- -----------------------------------------------------
William S. Price, III
</TABLE>
S-2
