<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 33-36374-01
DEL MONTE FOODS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 13-3542950
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE MARKET, SAN FRANCISCO, CALIFORNIA 94105
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (415) 247-3000
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of April 30, 2000, 52,219,792 shares of Common Stock,
par value $0.01 per share, were outstanding.
<PAGE> 2
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2000 and June 30, 1999 1
Consolidated Statements of Operations
Three and Nine Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share Data)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6.0 $ 6.9
Trade accounts receivable, net of allowance 148.0 139.0
Inventories 476.1 343.0
Prepaid expenses and other current assets 12.5 12.6
-------- --------
TOTAL CURRENT ASSETS 642.6 501.5
Property, plant and equipment, net 325.8 312.5
Intangibles 42.0 43.2
Other assets 12.9 14.8
-------- --------
TOTAL ASSETS $1,023.3 $ 872.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 277.8 $ 267.1
Short-term borrowings 172.0 15.7
Current portion of long-term debt 34.5 31.4
-------- --------
TOTAL CURRENT LIABILITIES 484.3 314.2
Long-term debt 445.4 496.3
Other noncurrent liabilities 172.8 179.9
-------- --------
TOTAL LIABILITIES 1,102.5 990.4
-------- --------
Stockholders' equity (deficit):
Common stock ($.01 par value per share, 500,000,000 shares authorized;
issued and outstanding: 52,217,182 at March 31, 2000 and 52,171,537 at 0.5 0.5
June 30, 1999)
Paid-in capital 399.6 399.4
Retained earnings (deficit) (479.3) (518.3)
-------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (79.2) (118.4)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,023.3 $ 872.0
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE> 4
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Millions, Except Share Data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
---------------------- ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 353.3 $ 389.5 $ 1,142.4 $ 1,134.6
Cost of products sold 224.3 254.9 720.3 755.2
Selling, administrative and general expenses 92.6 100.3 304.4 287.4
Special charges related to plant consolidation 2.4 2.5 9.8 14.8
Acquisition expense -- 0.2 -- 0.9
--------- --------- --------- ---------
OPERATING INCOME 34.0 31.6 107.9 76.3
Interest expense 16.6 19.6 51.2 62.7
Other expense (income) 0.2 (0.2) 0.2 1.9
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 17.2 12.2 56.5 11.7
Provision for income taxes 4.0 0.1 13.6 0.2
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 13.2 12.1 42.9 11.5
Extraordinary loss from early debt retirement,
net of tax benefit 3.9 19.2 3.9 19.2
--------- --------- --------- ---------
NET INCOME (LOSS) $ 9.3 $ (7.1) $ 39.0 $ (7.7)
========= ========= ========= =========
Basic net income (loss) per common share $ 0.18 $ (0.17) $ 0.75 $ (0.29)
========= ========= ========= =========
Diluted net income (loss) per common share $ 0.18 $ (0.17) $ 0.73 $ (0.29)
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 5
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Millions)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 39.0 $ (7.7)
Adjustments to reconcile net income (loss) to net cash flows
(used in) operating activities:
Depreciation and amortization 30.4 36.0
Extraordinary loss from early retirement of debt 3.9 19.2
Loss on disposal of assets 0.8 4.2
Changes in operating assets and liabilities:
Accounts receivable (9.0) (42.1)
Inventories (133.1) (65.0)
Prepaid expenses and other assets (0.5) 10.1
Accounts payable and accrued expenses 12.0 47.7
Other non-current liabilities (0.9) 0.6
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (57.4) 3.0
------- -------
INVESTING ACTIVITIES:
Capital expenditures (31.6) (29.3)
Acquisition of plant (11.0) --
Acquisition of business -- (31.8)
Proceeds from sale of assets 1.6 0.4
------- -------
NET CASH USED IN INVESTING ACTIVITIES (41.0) (60.7)
------- -------
FINANCING ACTIVITIES:
Short-term borrowings 424.2 434.5
Payments on short-term borrowings (267.9) (357.9)
Principal payments on long-term borrowings (54.5) (190.4)
Deferred debt issuance costs (0.8) --
Prepayment premium (3.7) (13.7)
Preferred stock redemption -- (35.0)
Preferred stock dividends -- (10.0)
Proceeds of public equity offering -- 250.0
Equity offering costs -- (20.2)
Issuance of common stock 0.2 --
Other -- 0.3
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 97.5 57.6
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (0.9) (0.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6.9 6.9
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6.0 $ 6.8
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 6
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(In Millions, Except Share Data)
NOTE 1 -- BASIS OF FINANCIAL STATEMENTS
Business and Basis of Presentation: Del Monte Foods Company ("Del
Monte") and its wholly-owned subsidiary, Del Monte Corporation ("DMC"), (Del
Monte together with DMC, "the Company") operate in one business segment: the
manufacturing and marketing of processed foods, primarily canned vegetables,
fruit and tomato products.
In the second quarter of fiscal 2000, the financial statements were
reformatted to extend dollars in millions out to one decimal place. All prior
periods have been conformed to the current presentation. Minor rounding
differences may result in prior periods due to this change in presentation.
The accompanying consolidated financial statements at March 31, 2000 and
for the three-month and nine-month periods ended March 31, 2000 and 1999, 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, 1999, and notes thereto, included in the
Annual Report on Form 10-K.
Depreciation and amortization: Depreciation and amortization for the
three and nine months ended March 31, 2000 and 1999 consisted of depreciation of
plant and equipment and leasehold amortization (including acceleration of
depreciation resulting from the adjustment of certain assets' remaining useful
lives to match the period of use prior to plant closure), amortization of
deferred debt issuance costs including original issue discount and amortization
of intangible assets.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
--------------- ----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Depreciation of plant and equipment and
leasehold amortization (excluding accelerated
depreciation) $ 6.7 $ 8.0 $23.1 $24.2
Accelerated depreciation 0.5 1.4 3.7 8.1
Amortization of deferred debt issuance costs 0.7 0.7 2.2 2.6
Amortization of intangibles 0.5 0.3 1.4 1.1
----- ----- ----- -----
Depreciation and amortization $ 8.4 $10.4 $30.4 $36.0
===== ===== ===== =====
</TABLE>
Reclassifications: Certain prior year balances have been reclassified
to conform to current year presentation.
4
<PAGE> 7
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
March 31, 2000
(In Millions, Except Share Data)
NOTE 2 -- INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------- -------
<S> <C> <C>
Finished product $ 384.3 $ 219.1
Raw materials and supplies 13.5 17.7
Other, principally packaging material 78.3 106.2
------- -------
$ 476.1 $ 343.0
======= =======
</TABLE>
During the three and nine months ended March 31, 2000 and 1999
respectively, and the twelve months ended June 30, 1999, 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
March 31, 2000 and June 30, 1999, or on results of operations for the three and
nine months ended March 31, 2000 and 1999, respectively.
NOTE 3 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
--------------------------------- ---------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Numerator:
Net income before extraordinary item $ 13.2 $ 12.1 $ 42.9 $ 11.5
Preferred stock dividends -- (0.6) -- (3.6)
Extraordinary item, net of tax benefit (3.9) (19.2) (3.9) (19.2)
-------------- -------------- -------------- --------------
Numerator for basic earnings (loss) per share -
income (loss) attributable to common shares $ 9.3 $ (7.7) $ 39.0 $ (11.3)
============== ============== ============== ==============
Denominator:
Denominator for basic earnings per share -
weighted average shares 52,197,397 44,757,090 52,183,751 38,583,239
Basic income per common share before
extraordinary item $ 0.25 $ 0.26 $ 0.82 $ 0.20
Extraordinary loss per common share (0.07) (0.43) (0.07) (0.49)
-------------- -------------- -------------- --------------
Basic income (loss) per common share $ 0.18 $ (0.17) $ 0.75 $ (0.29)
============== ============== ============== ==============
</TABLE>
5
<PAGE> 8
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
March 31, 2000
(In Millions, Except Share Data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DILUTED EARNINGS PER SHARE
Numerator:
Net income before extraordinary item $ 13.2 $ 12.1 $ 42.9 $ 11.5
Preferred stock dividends -- (0.6) -- (3.6)
Extraordinary item, net of tax benefit (3.9) (19.2) (3.9) (19.2)
-------------- -------------- -------------- --------------
Numerator for diluted earnings (loss) per share -
income (loss) attributable to common shares $ 9.3 $ (7.7) $ 39.0 $ (11.3)
============== ============== ============== ==============
Denominator:
Denominator for diluted earnings per share -
weighted average shares 53,004,443 44,757,090 53,147,206 38,583,239
Diluted income per common share before
extraordinary item $ 0.25 $ 0.26 $ 0.80 $ 0.20
Extraordinary loss per common share (0.07) (0.43) (0.07) (0.49)
-------------- -------------- -------------- --------------
Diluted income (loss) per common share $ 0.18 $ (0.17) $ 0.73 $ (0.29)
============== ============== ============== ==============
</TABLE>
For the three months and nine months ended March 31, 2000, differences
between the denominator for basic earnings per share and the denominator for
diluted earnings per share was due to the effect of dilutive stock options. For
the three and nine months ended March 31, 1999, the effect of outstanding stock
options was not included in the computation of diluted earnings per share as the
result was antidilutive due to a net operating loss.
NOTE 4 -- PLANT CONSOLIDATION
In fiscal 1998, management committed to a plan to consolidate processing
operations. In connection with this plan, the Company established an accrual of
$6.6 in fiscal 1998 relating to severance and benefit costs for employees to be
terminated. At March 31, 2000, a balance of $4.8 remained in this accrual. For
the nine months ended March 31, 2000, cash expenditure reductions to this
accrual totaled $1.8.
NOTE 5 --- COMPREHENSIVE INCOME
The Company has no items of other comprehensive income in any period
presented. Therefore, net income (loss) as presented in the Consolidated
Statements of Operations equals comprehensive income.
NOTE 6 -- INCOME TAXES
Income tax expense was calculated using an effective tax rate, which is
the Company's best estimate of the effective tax rate expected to be applicable
for the full year. The rate so determined has been computed taking into
consideration the utilization of net operating loss carryforwards and the
applicable limitations on their use under the tax laws, but excludes
consideration of changes to the valuation allowance based on a reassessment of
the realizability of the deferred tax assets in future years.
6
<PAGE> 9
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
March 31, 2000
(In Millions, Except Share Data)
NOTE 7 -- LONG-TERM DEBT
On January 14, 2000, the Company amended its senior credit agreement
with respect to its revolving credit facility (the "Revolver") and term loan
facility (Term A Loan and Term B Loan, collectively the "Term Loan"). The
amendment provides for additional borrowing capacity (up to $100.0) under either
the Revolver or Term B Loan. The amendment also adjusted certain financial
covenants to reflect changes in the Company's recent financial performance. The
amendment did not change the Revolver's expiration date, the Term Loan maturity
dates or the terms of the Pricing Schedule.
The amendment allowed the prepayment of up to $35.0 of senior
subordinated notes. During February 2000, the Company repurchased $31.0 of these
notes. In conjunction with this early debt prepayment, an extraordinary loss of
$5.2 ($3.9 net of tax benefit of $1.3) was recorded. This extraordinary loss
consisted of $3.7 of prepayment premiums and a $1.5 write-off of capitalized
deferred debt issue costs and original issue discount.
NOTE 8 -- NEW ACCOUNTING STANDARDS
Recently Adopted Accounting Pronouncements
Effective July 1, 1999, the Company adopted Statement of Position
("SOP") No. 98-1 "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use." This SOP provides guidance with respect to the
recognition, measurement and disclosure of costs of computer software developed
or obtained for internal use.
Recently Issued Accounting Pronouncements
In fiscal 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 (as amended by SFAS No. 137) is required to be adopted for all
fiscal quarters and fiscal years beginning after June 15, 2000 and relates to
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. The Company is currently reviewing the effect of
adoption of this statement on its financial statements.
7
<PAGE> 10
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 2000 VS. THREE AND NINE MONTHS ENDED MARCH
31, 1999
Net Sales. Consolidated net sales decreased by $36.2 million, or 9.3%
for the three months ended March 31, 2000 compared to the prior year period,
primarily due to a decline in foodservice sales and the impact of Y2K purchasing
prior to January 1, 2000. The decline in foodservice sales resulted from
continued implementation of the Company's strategy to shift emphasis to sales of
higher margin products, expand penetration of high growth distribution channels
and reduce emphasis on lower margin commodity items. In addition, the Company
believes that Y2K altered normal buying patterns. The Company believes that
consumers increased pantry loading throughout the fall resulting in third
quarter category sales declines based on ACNeilsen consumer data. The Company
also believes that some sales prior to calendar year-end were due to customers
building inventories to prepare for any unforeseen Y2K problems. However, no
significant Y2K problems were experienced. The decrease in consumption combined
with higher than normal customer inventories resulted in reduced sales in the
quarter. The declines due to foodservice and Y2K were somewhat offset by growth
from new products. For the 13-week period ended April 1, 2000, Del Monte's
market share for Del Monte branded vegetables, fruit and tomato solids, based on
case volume, was 21.9%, 35.3% and 17.6%, respectively, versus 18.6%, 33.5% and
17.3%, respectively, in the previous year period.
Consolidated net sales increased by $7.8 million, or less than 1%, for
the nine months ended March 31, 2000, compared to the prior year periods.
Significant growth was experienced in core products and new products and
packaging in the club and mass merchandisers channel, together with core product
growth in the retail grocery channel. These increases were offset in part by a
planned decrease in foodservice sales. For the nine-month period in the current
year, Del Monte's market share for Del Monte branded vegetables, fruit and
tomato solids, based on case volume, was 22.5%, 33.1% and 17.1%, respectively,
versus 21.1%, 32.7% and 16.5%, respectively, in the previous year period.
Cost of Products Sold. Cost of products sold as a percent of net sales
was 63.5% and 63.1% for the three and nine months ended March 31, 2000 and 65.4%
and 66.6% for the three and nine months ended March 31, 1999. Manufacturing
costs are favorable in the current year due to continued cost savings from
capital spending initiatives and other cost reductions. Also contributing to the
decrease in cost of products sold as a percent of net sales was a favorable
sales mix, due in part to the shift away from lower margin foodservice sales.
Selling, Administrative and General Expenses. Selling, administrative
and general expenses decreased by $7.7 million for the three-month period ended
March 31, 2000 versus the three-month period ended March 31, 1999. This decrease
was primarily due to lower volumes of retail products.
Selling, administrative and general expenses increased by $17.0 million
for the nine-month period ended March 31, 2000 versus the same period of the
prior year. This increase was due to selling and promotion costs associated with
higher volumes of retail products on a year-to-date basis, as well as increased
marketing spending for consumer programs in the nine-month period ended March
31, 2000.
Special Charges Related to Plant Consolidation. The Company incurred
charges representing accelerated depreciation of $0.5 million and $3.7 million
during the three and nine months ended March 31, 2000 and $1.4 million and $8.1
million during the three and nine months ended March 31, 1999. This acceleration
results from the effects of adjusting the remaining useful lives of certain
tomato and fruit processing plant assets to match the period of use prior to the
closures of these plants. With the December 1999 closure of the San Jose,
California plant, accelerated depreciation
8
<PAGE> 11
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
has decreased significantly in the current year. Also included in special
charges during the three and nine months ended March 31, 2000 were $1.9 million
and $6.1 million, respectively, of ongoing fixed costs and other period costs
incurred in connection with plant closures compared to $1.1 million and $6.7
million of such costs in the same three and nine-month periods of the prior
year.
Interest expense. Interest expense decreased by $3.0 million and $11.5
million for the three and nine-month periods ended March 31, 2000, respectively,
compared to the prior year due to lower debt balances. These lower debt balances
resulted from the application of the proceeds of the February 1999 public equity
offering. Interest expense has also decreased due to the repurchase of $31.0
million of 12 1/4% notes in February 2000 through the use of funds that carry a
lower interest rate.
Income before income taxes and extraordinary item. Income before income
taxes and extraordinary item for the three and nine months ended March 31, 2000
was $17.2 million and $56.5 million, respectively, compared to income before
income taxes and extraordinary item of $12.2 million and $11.7 million for the
three and nine months ended March 31, 1999, respectively. The increase in
earnings in the current year was primarily due to a favorable sales mix and
lower cost of products sold due to cost savings from capital spending
initiatives, as well as lower interest expense, and lower special charges
related to the plant consolidation plan. In addition, prior year earnings were
affected by the inventory step-up cost related to acquisitions and costs of the
public equity offering that was withdrawn in July 1998.
Provision for Income Taxes. Income tax expense increased in the current
year due to an increase in income before taxes and the impact of the annual
limitation on the use of net operating loss carryforwards under applicable tax
laws.
The Company's net deferred tax assets are currently fully reserved.
Management believes that in the fourth quarter of the current fiscal year, the
Company will have established a pattern of profitability such that the Company
will be able to realize a portion of its net deferred tax assets. The effect of
this realization will result in a credit to income tax expense, and a
corresponding increase to net income, currently estimated at approximately $50
to $60 million in the fourth quarter of the current fiscal year.
Extraordinary Item. In February 2000, the Company repurchased a portion
of the senior subordinated notes. In conjunction with this early debt
retirement, $3.7 million of prepayment premiums were incurred and $1.5 million
of previously capitalized debt issue costs and original issue discount were
written-off, resulting in an extraordinary item charge of $5.2 million ($3.9
million net of tax benefit of $1.3 million). In fiscal 1999, proceeds of the
February 1999 public equity offering were used to redeem preferred stock and a
portion of the outstanding subordinated notes and to repay senior debt. The
extraordinary item charge in fiscal 1999 consisted of the write-off of $5.5
million of previously capitalized debt issue costs related to the redeemed notes
and early debt retirement and $13.7 million of redemption premiums.
OTHER PERFORMANCE MEASURES
Adjusted EBITDA. The Company believes EBITDA, as adjusted, is a measure
widely-used by the financial community to evaluate the Company's operating
performance without certain non-cash expense items and its ability to provide
cash flows to service debt. The Company believes that this measure presents a
meaningful measure of operating cash flow (excluding the effects of working
capital changes and capital expenditures) by eliminating the effects of one-time
charges or credits. Adjusted EBITDA represents EBITDA (income before income
taxes and extraordinary item, and depreciation and amortization expense, plus
interest expense) before special charges and other one-time and non-cash
charges. Adjusted EBITDA should not be considered in isolation from, and is not
presented as an alternative measure of, operating income or cash flow from
operations (as determined in accordance with GAAP). Adjusted EBITDA as presented
may not be comparable to similarly titled measures reported by other companies.
9
<PAGE> 12
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
Adjusted EBITDA increased by 1.4% to $43.4 million in the current year
quarter as compared to $42.8 million for the three months ended March 31, 1999.
For the three months ended March 31, 2000, income before income taxes and
extraordinary item, plus interest expense was $33.8 million before adjusting for
special charges and non-cash charges of $9.6 million. The special charges and
non-cash charges consisted of special charges related to plant consolidation of
$2.4 million and depreciation and amortization of $7.2 million (excluding
accelerated depreciation of $0.5 million and amortization of deferred debt
issuance costs and original issue discount of $0.7 million).
Adjusted EBITDA increased by 18.1% in the current nine-month period to
$142.0 million as compared to $120.2 million for the nine months ended March 31,
1999. For the nine months ended March 31, 2000, income before income taxes and
extraordinary item, plus interest expense was $107.7 million before adjusting
for special charges and other one-time and non-cash charges of $34.3 million.
The special charges and other one-time and non-cash charges consisted of special
charges related to plant consolidation of $9.8 million and depreciation and
amortization of $24.5 million (excluding accelerated depreciation of $3.7
million and amortization of deferred debt issuance costs and original issue
discount of $2.2 million).
YEAR 2000
The Company completed the evaluation, modification and implementation of
key information technology ("IT") and non-IT systems for Year 2000 compliance in
calendar 1999. Testing and unforeseen issues resolution will be ongoing through
early calendar 2000. Due to the Company's production cycle, most non-IT
equipment will not be in full use until mid-calendar 2000. Therefore, testing on
this equipment and resolution of any unforeseen issues are expected to continue
through early calendar 2000. At this time, the Company has not experienced any
material Year 2000 compliance related issues.
FINANCIAL CONDITION -- 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 facility are
the Company's primary sources of liquidity.
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 working
capital requirements of the Company are seasonally affected by the growing cycle
of the vegetables, fruits 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's historical
net sales have exhibited seasonality, with net sales in the first fiscal quarter
affected by lower levels of promotional activity, the availability of fresh
produce and other factors. This situation impacts operating results as sales
volumes, revenues and profitability decline during this period. Historically,
the second and third fiscal quarters reflect increased sales of the Company's
products, and related increased cost of products sold and selling and
promotional expenses, during the holiday period extending from late November
through December, as well as sales associated with the Easter holiday. Quarterly
gross profit primarily reflects fluctuations in sales volumes and sales mix.
The increase in inventories at March 31, 2000 from June 30, 1999
reflects the seasonal inventory buildup and depletion. The increase in accounts
payable and accrued expenses from June 30, 1999 to March 31, 2000 primarily
reflects accrued expenses resulting from the peak production period.
To finance working capital requirements, the Company relies on its
revolving credit facility, which had a maximum availability of $350.0 million,
subject to an asset-based borrowing base. As of March 31, 2000, $172.0 million
was
10
<PAGE> 13
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
outstanding under the revolving credit facility, compared to $15.7 million at
June 30, 1999 reflecting the Company's need to finance its seasonal inventory
production and the recent early retirement of debt.
On January 14, 2000, the Company's credit agreement with respect to its
revolving credit facility and its term loan facility, consisting of Term A Loan
and Term B Loan, was amended to provide for additional borrowing capacity (up
to $100.0 million) under the revolving credit facility and/or Term B Loan. As
of March 31, 2000, none of this additional capacity had been utilized. The
amendment also allowed the prepayment of up to $35.0 million of senior notes.
During February 2000, the Company repurchased $31.0 million of these notes.
In conjunction with this early debt prepayment, an extraordinary loss of
$5.2 million was recorded ($3.9 million net of tax benefit of $1.3 million).
This extraordinary loss consisted of $3.7 million of prepayment premiums and a
$1.5 million write-off of capitalized deferred debt issue costs and original
issue discount.
As of March 31, 2000, the Company's short-term borrowings and long term
debt primarily consisted of a revolving credit facility, bank term loans, senior
subordinated notes and senior discount notes (collectively, the "Debt"). The
Debt agreements contain restrictive covenants, the most restrictive of which
currently is the fixed charge ratio. The Company was in compliance with all such
covenants for the third quarter of fiscal 2000.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This quarterly report contains forward-looking statements, including those
in the sections captioned "Financial Statements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Statements that
are not historical facts, including statements about the Company's beliefs or
expectations, are forward-looking statements. These statements are based on
plans, estimates and projections at the time the Company makes the statements,
and you should not place undue reliance on them. The Company does not undertake
to update any of these statements in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. The
Company cautions you that a number of important factors could cause actual
results to differ materially from those contained in any forward-looking
statement. These factors include, among others: general economic and business
conditions; weather conditions; crop yields; competition; raw material costs and
availability; the loss of significant customers; availability of qualified
personnel; market acceptance of new products; successful integration of acquired
businesses; consolidation of processing plants; changes in business strategy or
development plans; availability, terms and deployment of capital; Year 2000
issues; changes in, or the failure or inability to comply with, governmental
regulations, including, without limitation, environmental regulations; industry
trends, including without limitation, retailer consolidation; production
capacity constraints and other factors referenced in this quarterly report.
Del Monte had anticipated that sales for the second quarter would be
approximately one to two million cases higher than would otherwise have been
expected, primarily as a result of Y2K. The Company now believes that 1.5 to 2.0
million cases were shifted to the first half of fiscal 2000, which resulted in a
corresponding decrease in net sales for the third quarter ended March 31, 2000.
Please see the Company's Annual Report on Form 10-K for the year ended
June 30, 1999 filed with the Securities and Exchange Commission on September 7,
1999 for a more detailed discussion of factors that may affect future results.
11
<PAGE> 14
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the discussion of Del Monte Foods Company's
Financial Instruments and Risk Management Policies in "Management's Discussion
and Analysis of Operations and Financial Condition and Results of Operations" in
Del Monte's Annual Report on Form 10-K for the year ended June 30, 1999. As of
March 31, 2000, there were no material changes to the information presented.
12
<PAGE> 15
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. 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 and other employee claims, tort and other general
liability, for which the Company carries insurance or is self-insured, as well
as trademark, copyright and related litigation. While it is not feasible to
predict or determine the ultimate outcome of these matters, the Company believes
that none of these legal proceedings will have a material adverse effect on the
Company's financial position.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were required to be filed during the quarter for
which this report is filed.
13
<PAGE> 16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
DEL MONTE FOODS COMPANY
By: /s/ RICHARD G. WOLFORD Date: May 10, 2000
----------------------------------
Richard G. Wolford
President and Chief Executive Officer
By: /s/ DAVID L. MEYERS Date: May 10, 2000
-----------------------------------
David L. Meyers
Executive Vice President, Administration
and Chief Financial Officer
S-1
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF DEL MONTE FOODS COMPANY FOR THE QUARTER ENDED MARCH 31, 2000, AS
PRESENTED IN THE COMPANY'S FORM 10-Q FILED FOR SUCH PERIOD , AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 6,000,000
<SECURITIES> 0
<RECEIVABLES> 148,600,000
<ALLOWANCES> 600,000
<INVENTORY> 476,100,000
<CURRENT-ASSETS> 642,600,000
<PP&E> 537,700,000
<DEPRECIATION> 211,900,000
<TOTAL-ASSETS> 1,023,300,000
<CURRENT-LIABILITIES> 484,300,000
<BONDS> 0
0
0
<COMMON> 500,000
<OTHER-SE> (79,700,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,023,300,000
<SALES> 1,142,400,000
<TOTAL-REVENUES> 1,142,400,000
<CGS> 720,300,000
<TOTAL-COSTS> 720,300,000
<OTHER-EXPENSES> 3,700,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,200,000
<INCOME-PRETAX> 56,500,000
<INCOME-TAX> 13,600,000
<INCOME-CONTINUING> 42,900,000
<DISCONTINUED> 0
<EXTRAORDINARY> 3,900,000
<CHANGES> 0
<NET-INCOME> 39,000,000
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.73
</TABLE>
