EX-99.4 7 0007.txt UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Exhibit 99.4 INTERNATIONAL HOME FOODS, INC. CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ (unaudited) (unaudited) Net sales $ 530,645 $ 512,574 $ 1,092,019 $ 1,026,760 Cost of sales 270,478 272,115 563,611 552,477 ------------ ------------ ------------ ------------ Gross profit 260,167 240,459 528,408 474,283 Marketing expenses 120,029 111,508 248,627 221,247 Selling, general, and administrative expenses 68,860 61,995 140,401 122,954 ------------ ------------ ------------ ------------ Income from operations 71,278 66,956 139,380 130,082 ------------ ------------ ------------ ------------ Interest expense 24,266 24,609 49,340 50,360 Other (income) expense, net 315 (423) 559 (598) Gain on sale of business -- -- -- (15,779) ------------ ------------ ------------ ------------ Income before provision for income taxes 46,697 42,770 89,481 96,099 Provision for income taxes 17,745 16,681 34,003 37,479 ------------ ------------ ------------ ------------ Net income $ 28,952 $ 26,089 $ 55,478 $ 58,620 ============ ============ ============ ============ Basic earnings per share: Net income $ 0.39 $ 0.36 $ 0.75 $ 0.80 ------------ ------------ ------------ ------------ Shares used in computing basic earnings per share 74,081,914 73,427,938 74,000,144 73,365,602 ------------ ------------ ------------ ------------ Diluted earnings per share: Net income $ 0.38 $ 0.34 $ 0.73 $ 0.77 ------------ ------------ ------------ ------------ Shares used in computing diluted earnings per share 76,170,434 75,781,554 76,099,571 75,792,114 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. INTERNATIONAL HOME FOODS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) (UNAUDITED) June 30, December 31, ASSETS 2000 1999 ----------- ----------- Current Assets: Cash and cash equivalents $ 15,394 $ 14,310 Accounts receivable, net of allowances 173,803 180,671 Inventories 275,319 282,911 Prepaid expenses and other current assets 34,983 34,345 Deferred income taxes 17,154 16,113 ----------- ----------- Total current assets 516,653 528,350 Property, plant and equipment, net 315,988 306,042 Intangible assets, net 430,996 432,732 Deferred income taxes 245,673 262,563 Other assets 18,052 19,686 ----------- ----------- Total assets $ 1,527,362 $ 1,549,373 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 83,249 $ 73,084 Revolving credit facility 85,176 78,536 Accounts payable 51,970 69,669 Book overdrafts 18,659 22,457 Accrued compensation and benefits 23,235 22,288 Accrued advertising and promotion 38,938 39,550 Accrued interest 7,113 10,278 Other accrued liabilities 27,612 38,967 ----------- ----------- Total current liabilities 335,952 354,829 Long-term debt 962,671 1,024,378 Post-retirement benefits obligation 28,610 27,216 Other non-current liabilities 176 898 ----------- ----------- Total liabilities 1,327,409 1,407,321 ----------- ----------- Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock - par value $0.01 per share; authorized, 100,000,000 shares; no shares issued or outstanding $ -- $ -- Common stock - par value $0.01 per share; authorized, 300,000,000 shares; issued 78,624,484 and 78,218,034 shares 786 782 Additional paid-in capital 66,396 62,475 Treasury stock, at cost 4,400,000 shares (57,200) (57,200) Retained earnings 193,405 137,927 Accumulated other comprehensive loss (3,434) (1,932) ----------- ----------- Total stockholders' equity 199,953 142,052 ----------- ----------- Total liabilities and stockholders' equity $ 1,527,362 $ 1,549,373 =========== ===========
See accompanying notes to consolidated financial statements. INTERNATIONAL HOME FOODS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) Six Months Ended June 30, 2000 1999 --------- --------- OPERATING ACTIVITIES: Net income $ 55,478 $ 58,620 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,857 21,099 Deferred income taxes 15,849 21,705 Stock option compensation -- 85 Gain on sale of business -- (15,779) Changes in assets and liabilities, net of acquisitions and divestiture: Decrease (increase) in accounts receivable 6,868 (19,267) Decrease (increase) in inventories 7,431 (11,664) Increase in other current assets (638) (14,357) (Decrease) increase in accounts payable (17,699) 13,809 Decrease in accrued liabilities (14,185) (4,464) Increase in non-current assets (1,937) (1,527) Increase in non-current liabilities 672 2,134 --------- --------- Net cash provided by operating activities 72,696 50,394 --------- --------- INVESTING ACTIVITIES: Purchases of plant and equipment, net (23,086) (23,354) Payments for acquired businesses, net of cash acquired (4,067) (38,103) Proceeds from sale of business -- 30,000 --------- --------- Net cash used in investing activities (27,153) (31,457) --------- --------- FINANCING ACTIVITIES: Increase (decrease) in book overdrafts (3,798) 7,922 Repayment of long-term debt (51,542) (40,889) Borrowings from revolving credit facility 133,100 45,024 Repayment of borrowings from revolving credit facility (125,505) (31,322) Proceeds from exercise of stock options 3,925 2,078 --------- --------- Net cash used in financing activities (43,820) (17,187) --------- --------- Effect of changes in the exchange rate on cash (639) 1,062 --------- --------- Increase in cash and cash equivalents 1,084 2,812 Cash and cash equivalents at beginning of period 14,310 17,201 --------- --------- Cash and cash equivalents at end of period $ 15,394 $ 20,013 ========= ========= Cash paid during the period for: Interest $ 50,861 $ 56,459 Income taxes $ 18,377 $ 16,880
See accompanying notes to consolidated financial statements. INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 1. ACCOUNTING POLICIES Interim Financial Statements In the opinion of International Home Foods, Inc. ("the Company"), the accompanying consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position as of June 30, 2000 and the results of operations for the three and six months ended June 30, 2000 and 1999 and cash flows for the six months ended June 30, 2000 and 1999. The results of operations for the three and six month periods are not necessarily indicative of the results to be expected for the full year. The December 31, 1999 consolidated balance sheet was derived from the Company's audited financial statements but does not include all disclosures required by generally accepted accounting principles. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1999 Annual Report on Form 10-K. Use of Estimates The accompanying financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates made by management. Actual results could differ from these estimates. Estimates are used when accounting for potential bad debts, inventory obsolescence and spoilage, trade and promotion allowances, coupon redemptions, depreciation and amortization, stock option compensation, deferred income taxes and tax valuation allowances, pension and post-retirement benefits, restructuring charges and contingencies, among other items. Reclassifications Certain 1999 amounts have been reclassified to conform with the 2000 presentation. 2. INVENTORIES Inventories consist of: June 30, December 31, 2000 1999 ------------ ------------ Raw materials $ 67,259 $ 65,483 Work in progress 10,253 8,841 Finished goods 197,807 208,587 ------------ ------------ Total $ 275,319 $ 282,911 ============ ============
INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 3. COMPREHENSIVE INCOME Comprehensive income is as follows: Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- (unaudited) (unaudited) Net income $ 28,952 $ 26,089 $ 55,478 $ 58,620 Foreign currency translation Amount before taxes $ (3,275) $ 565 $ (1,809) $ 476 Income tax (expense) benefit 926 (63) 307 197 -------- -------- -------- -------- Other comprehensive income $ (2,349) $ 502 $ (1,502) $ 673 -------- -------- -------- -------- Total comprehensive income $ 26,603 $ 26,591 $ 53,976 $ 59,293 ======== ======== ======== ========
The following amounts are included in Accumulated other comprehensive loss at June 30, 2000 and December 31, 1999: June 30, December 31, 2000 1999 -------- ------------ Minimum pension liability $ (29) $ (29) Foreign currency translation (3,405) (1,903) ------- ------- Accumulated other comprehensive loss $(3,434) $(1,932) ======= ======= 4. BUSINESS SEGMENT INFORMATION The Company manufactures and markets a diversified portfolio of shelf-stable food products including entrees, side dishes, snacks, canned fish, canned meats as well as refrigerated surimi. The Company sells its products primarily in the United States, Canada and Mexico, and is not dependent on any single or major group of customers for its sales. The Company has three reportable business segments - Branded Products, Seafood and Private Label and Foodservice. Branded Products is defined as U.S. grocery sales for the following products: Chef Boyardee(R), Canned Meats (Libby's(R) and Dennison's(R)), Southwest brands (Ro*Tel(R), Luck's(R) and Ranch Style(R)), Specialty and Snack brands (PAM(R), Gulden's(R), Maypo(R), Wheatena(R), Maltex(R), G. Washington's(R), Crunch 'n Munch(R), Jiffy pop(R) and Campfire(R)). Seafood includes all sales for the Bumble Bee(R), Orleans(R), Libby's, Clover Leaf(R), Paramount(R) and Louis Kemp(R) brands of seafood products as well as private label and foodservice seafood sales. Private Label and Foodservice includes all private label canned pasta, cooking spray, fruit snacks, ready-to-eat cereals, wholesome snack bars, pie crust and personal care products and the sales to foodservice distributors. The All Other category is comprised of sales to the military, contract sales to Nestle, sales of Polaner(R) products and international sales which includes branded, private label and foodservice sales in Canada, Mexico, Puerto Rico, and other export sales. The Company sold its Polaner fruit spreads and spices business on February 5, 1999 (Note 6). INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) Business Segment Information, (Continued) The Company sells the products in each of its segments primarily to grocery wholesalers and distributors, grocery stores and supermarkets, convenience stores, drug and mass merchants and warehouse clubs. The Company evaluates segment performance based upon segment operating income (earnings before interest expense, net other [income] expense, and income taxes excluding unusual or infrequently occurring items, restructuring charge and stock compensation expense [income]). Certain centrally incurred costs (Corporate), are not allocated to the operating segments. The Company allocates certain charges, including depreciation, amortization, agent and broker commissions, storage, packing and shipping charges, and administrative costs for salaries, insurance and employee benefits, to its Branded Products segment, and to its Private Label and Foodservice segment based on a percentage of net sales. For the Three Months Ended For the Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Net Sales: Branded Products $ 213,993 $ 209,726 $ 434,607 $ 415,755 Seafood 169,869 153,843 357,296 313,808 Private Label and Foodservice 75,747 71,034 155,037 149,596 ---------- ---------- ---------- ---------- Subtotal - Reportable Segments 459,609 434,603 946,940 879,159 All Other 71,036 77,971 145,079 147,601 ---------- ---------- ---------- ---------- Total $ 530,645 $ 512,574 $1,092,019 $1,026,760 ========== ========== ========== ========== 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Segment Operating Income: Branded Products $ 41,249 $ 38,672 $ 82,588 $ 78,473 Seafood 10,731 9,571 23,764 19,405 Private Label and Foodservice 14,323 9,822 28,162 20,215 ---------- ---------- ---------- ---------- Subtotal - Reportable Segments 66,303 58,065 134,514 118,093 All Other 7,605 8,008 13,127 13,758 ---------- ---------- ---------- ---------- Total $ 73,908 $ 66,073 $ 147,641 $ 131,851 ========== ========== ========== ========== Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Reconciliation to Consolidated Results Segment Operating Income $ 73,908 $ 66,073 $147,641 $131,851 Less: Stock compensation expense -- 59 -- 85 Unallocated (income) expense 2,630 (942) 8,261 1,684 -------- -------- -------- -------- Total consolidated income from operations $ 71,278 $ 66,956 $139,380 $130,082 ======== ======== ======== ========
INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 5. ACQUISITIONS On July 19, 1999, the Company, through its subsidiary Bumble Bee Seafoods, Inc., acquired the manufacturing, sales distribution and marketing operations of Louis Kemp from Tyson Foods, Inc. for $68,792, including transaction fees. The Company financed this acquisition with borrowings under its Senior Bank Facilities. Louis Kemp manufactures and sells refrigerated and frozen surimi products. Surimi-based products are made from North Pacific ocean pollack and whiting fish meats. These products are primarily sold under the tradename Louis Kemp and other tradenames such as Captain Jac(R), SeaFest(R) and Pacific Mate(R). On January 19, 1999, the Company, through its subsidiary Bumble Bee Seafoods, Inc., acquired the Clover Leaf and Paramount canned seafood brands and business of British Columbia Packers ("Clover Leaf/Paramount brands") from George Weston Ltd. of Canada for a total purchase price of $40,394, including transaction fees. The acquisition was funded with borrowings under the Company's Senior Bank Facilities and cash on hand. The excess of cost over fair value of net assets acquired for the above acquisitions is amortized over 40 years for identifiable intangibles and for goodwill. These acquisitions have been accounted for using the purchase method of accounting, and the operating results of the acquired companies have been included in the consolidated financial statements from the dates of acquisition. The information below includes non-cash investing and financing activities supplemental to the consolidated statements of cash flows. A summary of the excess of cost over fair value of net assets acquired resulting from purchase price allocations for the 1999 acquisitions is as follows: CLOVER LEAF/ LOUIS PARAMOUNT KEMP BRANDS ------------ ------------ Cost of acquisition, including transaction fees $ 68,792 $ 40,394 Less acquired assets: Current assets 10,094 38,962 Property, plant and equipment 18,111 1,180 Other assets -- -- Add: liabilities assumed 1,016 9,411 ------------ ------------ Excess of cost over net assets acquired, including identifiable intangibles $ 41,603 $ 9,663 ============ ============ INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) Acquisitions, (Continued) The following unaudited pro forma consolidated results of operations have been prepared as if the acquisitions of Clover Leaf/Paramount and Louis Kemp and divestiture of Polaner had occurred as of the beginning of 1999 and reflect proforma adjustments for goodwill, interest expense and tax expense: For the Six Months Ended June 30, 1999 --------------------------------------------- IHF(1) Acquisitions(2) Total ---------- --------------- ---------- Net sales $1,021,768 $ 63,276 $1,085,044 Operating income $ 129,792 $ 369 $ 130,161 Net income $ 48,706 $ (1,175) $ 47,531 Earnings per share: Basic $ 0.66 $ (0.01) $ 0.65 Diluted $ 0.64 $ (0.01) $ 0.63
(1) Excludes operations of and gain on sale of Polaner (See Note 6). (2) Amounts include Louis Kemp and Clover Leaf/Paramount brands. The unaudited pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisitions been in effect for the period presented, nor do they purport to be indicative of the results that will be obtained in the future. 6. SALE OF BUSINESS On February 5, 1999 the Company sold its Polaner fruit spreads and spices business to B&G Foods, Inc. for approximately $30.0 million in cash, resulting in a gain of $15.8 million ($9.6 million, net of tax or $0.13 per diluted share). 7. RELATED PARTY TRANSACTIONS Effective November 1, 1996, the Company entered into a 10-year monitoring and oversight agreement with an affiliate of its largest stockholder. The agreement provides for an annual fee of the greater of $1,000 or 0.1% of the budgeted consolidated net sales of the Company for the current year. In addition, effective November 1, 1996, the Company entered into a financial advisory agreement with the affiliate under which the affiliate will be entitled to a fee of 1.5% of the transaction value, as defined, for each add-on transaction, as defined. The Company incurred monitoring and oversight fees of $579 and $487 for the three months ended June 30, 2000 and 1999 and $1,158 and $974 for the six months ended June 30, 2000 and 1999, respectively. In addition, the Company incurred financial advisory fees of $0 for the three and six months ended June 30, 2000. The Company incurred financial advisory fees of $0 and $546 for the three and six months ended June 30, 1999, respectively. INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 8. GUARANTOR FINANCIAL DATA The Company's Senior Subordinated Notes are fully and unconditionally guaranteed by each of the Company's subsidiary guarantors on a joint and several basis. The Company has not presented separate financial statements and other disclosures concerning each of the subsidiary guarantors because management has determined that such information is not material to the holders of the Senior Subordinated Notes. The financial information for 2000 reflects the corporate re-organization, resulting from the Company's tax restructuring, effective January 1, 2000. Certain intercompany sales transactions between the parent and guarantor subsidiaries have been eliminated. Presented below is consolidating financial information including summarized combined financial information of the subsidiary guarantors: JUNE 30, 2000 Non- (unaudited) Guaranteeing Guaranteeing Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Current assets $ 31,593 $ 401,388 $ 83,672 $ -- $ 516,653 Non-current assets 1,107,843 693,981 10,329 (801,444) 1,010,709 Current liabilities 169,222 153,085 13,645 -- 335,952 Non-current liabilities 986,656 45,071 28,727 (68,997) 991,457 DECEMBER 31, 1999 (unaudited) Current assets $ 132,979 $ 304,110 $ 91,261 $ -- $ 528,350 Non-current assets 1,091,493 670,803 808 (742,081) 1,021,023 Current liabilities 200,671 132,201 21,957 -- 354,829 Non-current liabilities 1,041,449 5,195 33,109 (27,261) 1,052,492
FOR THE THREE MONTHS ENDED JUNE 30, 2000 Non- (unaudited) Guaranteeing Guaranteeing Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ 249,277 $ 477,961 $ 52,875 $ (249,468) $ 530,645 Gross profit 147,254 249,926 27,004 (164,017) 260,167 Net income (loss) 9,620 20,020 (688) -- 28,952 FOR THE THREE MONTHS ENDED JUNE 30, 1999 (unaudited) Net sales $ 218,861 $ 236,982 $ 56,731 $ -- $ 512,574 Gross profit 131,288 90,033 19,138 -- 240,459 Net income (loss) (1,879) 25,381 2,587 -- 26,089
INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) Guarantor Financial Data, (Continued) FOR THE SIX MONTHS ENDED JUNE 30, 2000 Non- (unaudited) Guaranteeing Guaranteeing Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ 514,927 $ 992,202 $ 100,008 $ (515,118) $ 1,092,019 Gross profit 302,246 518,737 44,306 (336,881) 528,408 Net income 24,247 31,069 162 -- 55,478 Net cash provided by (used) in operating activities 12,816 59,985 (105) -- 72,696 Net cash provided by (used) in investing activities 157 (26,573) (737) -- (27,153) Net cash provided by (used) in financing activities 28,326 (67,896) (4,250) -- (43,820) FOR THE SIX MONTHS ENDED JUNE 30, 1999 (unaudited) Net sales $ 439,532 $ 488,236 $ 98,992 $ -- $ 1,026,760 Gross profit 260,141 182,249 31,893 -- 474,283 Net income (loss) 12,869 41,754(1) 3,997 -- 58,620(1) Net cash provided by (used) in operating activities 44,955 15,623 (10,184) -- 50,394 Net cash provided by (used) in investing activities (2,735) 6,476 (35,198) -- (31,457) Net cash provided by (used) in financing activities (47,876) (15,365) 46,054 -- (17,187)
The 1999 amounts have been restated from amounts previously reported. Amounts are not intended to report results as if the subsidiaries were separate stand-alone entities. (1) Includes an after-tax gain of $9.6 million ($15.8 million pre-tax) from sale of the Polaner fruit spread and spice business. INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 9. IMPACT OF RECENT ACCOUNTING STANDARDS In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition", which provides guidelines in applying generally accepted accounting principles to selected revenue recognition issues. The SAB is effective in the fourth fiscal quarter of fiscal years beginning after December 15, 1999, or as of October 1, 2000 in the Company's case. The Company does not expect this statement to have a material impact on its financial statements. In May 2000 and July 2000, the Emerging Issues Task Force ("EITF") issued guidance on how to classify certain revenues and costs in a company's financial statements. EITF No. 00-10 "Accounting for Shipping and Handling Revenues and Costs" requires that companies classify all amounts billed to customers related to shipping and handling cost as revenue. This statement will be effective in the fourth quarter of 2000 and is not expected to have any effect on the financial statements. EITF No. 00-14 "Accounting for Coupons, Rebates and Discounts" requires that manufacturing companies classify these costs as a reduction in net sales rather than as a marketing expense. This statement will also be effective in the fourth quarter of 2000 and is not expected to have a material effect on the financial statements. It will result in a reduction of marketing expense and net sales but will be neutral to overall net income. In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", was issued to establish standards for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. This statement requires all derivatives to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be designated, reassessed and documented pursuant to the provisions of SFAS 133. SFAS 133, as amended by SFAS 137, "Deferral of the effective date of SFAS 133", is effective for fiscal years beginning after June 15, 2000. The Company is currently evaluating the effect this statement will have on its financial statements. 10. EARNINGS PER SHARE The table below summarizes the numerator and denominator for the basic and diluted earnings per share calculations (in thousands, except per share amounts). For the Three Months Ended For the Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Numerator: Net income available to common shares $ 28,952 $ 26,089 $ 55,478 $ 58,620 Denominator: Average number of shares outstanding 74,082 73,428 74,000 73,366 Effect of dilutive stock options 2,088 2,354 2,100 2,426 ---------- ---------- ---------- ---------- Total number of shares outstanding 76,170 75,782 76,100 75,792 Basic earnings per share $ 0.39 $ 0.36 $ 0.75 $ 0.80 Diluted earnings per share $ 0.38 $ 0.34 $ 0.73 $ 0.77
INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 11. RESTRUCTURING In September 1998, in conjunction with management's plan to reduce costs and improve operational efficiencies, the Company recorded a restructuring charge of $118.1 million ($75.3 million after tax). The principal actions in the restructuring plan involved the closure of the Vacaville, California and Clearfield, Utah production facilities and the related impact of the transfer of production to other facilities, mainly Milton, Pennsylvania, and the write-down of goodwill associated with the Campfire crisp rice snack bar brand and the Polaner fruit spreads brand. The Polaner business was subsequently sold (Note 6). At June 30, 2000, $2.5 million of restructuring charges remained in other accrued liabilities. This amount is comprised of multi-employer pension plan settlements and certain other employee benefit related costs. Payments totalling $8.6 million have been made to date, including $0.5 million and $0.7 million for the three months and six months ended June 30, 2000, respectively. 12. FINANCIAL INSTRUMENTS The Company currently does not use derivative financial instruments for trading or speculative purposes, nor is the Company a party to leveraged derivatives. In accordance with the Senior Bank Facilities, the Company is required to enter into interest rate protection agreements to the extent necessary to provide that, when combined with the Company's Senior Subordinated Notes, at least 50% of the Company's aggregate indebtedness, excluding the revolving credit facility, is subject to either fixed interest rates or interest rate protection. At June 30, 2000, more than 50% of the Company's aggregate indebtedness, excluding the revolving credit facility, is subject to such protection. Under these agreements the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts based on agreed upon notional principal amounts. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. In accordance with the interest rate agreements, the measurement of 3 month LIBOR and 6 month LIBOR, respectively, occurs on the first day of each calculation period. For interest rate instruments that effectively hedge interest rate exposures, the net cash amounts paid or received on the agreements are accrued as incurred and recognized as an adjustment to interest expense. The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreements. All counterparties are at least A rated by Moody's and Standard & Poor's. Accordingly, the Company does not anticipate non-performance by the counterparties. INTERNATIONAL HOME FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Financial Instruments, (Continued) As of June 30, 2000, the Company had the following interest rate instruments in effect for which the fair value of these instruments is based on the current settlement cost (dollar amounts are in millions): NOTIONAL FAIR AMOUNT VALUE PERIOD 3 MONTH LIBOR RATES 6 MONTH LIBOR RATE COMPANY PAYS COMPANY RECEIVES -------- ----- --------------- ------------------- ------------------ ------------------- ---------------- $600 $6.4 5/00-5/04 4.75% or less N/A 5.65% 3 month LIBOR >4.75% to <5.65% N/A 3 month LIBOR 3 month LIBOR 5.65% to <7.00% N/A 5.65% 3 month LIBOR 7.00% or greater N/A 3 month LIBOR 3 month LIBOR $200 $(1.4) 8/98-11/01 N/A 5.20% or less 10.23% 10.375% N/A >5.20% to <6.23% 6 month LIBOR + 4% 10.375% N/A 6.23% to <6.75% 10.23% 10.375% N/A 6.75% or greater 6 month LIBOR + 4% 10.375% $150 $ 0.3 10/98-10/01 <3.76% N/A 3.76% 3 month LIBOR 3.76% to 5.75% N/A 3 month LIBOR 3 month LIBOR >5.75% N/A 5.75% 3 month LIBOR $225 - 10/99-10/00 N/A <5.30% 5.30% 6 month LIBOR N/A 5.30% to 8.00% 6 month LIBOR 6 month LIBOR N/A >8.00% 8.00% 6 month LIBOR ---- $5.3 ====
13. OTHER EVENTS On June 23, 2000, ConAgra signed a definitive agreement to acquire International Home Foods, in a transaction valued at approximately $2.9 billion, including the assumption of $1.3 billion in debt. International Home Foods shareholders will receive $22 per share, half of which will be paid in cash and half of which will be paid in ConAgra stock. The stock portion of the consideration will be determined by dividing $11 by an average of ConAgra stock price for a fixed period prior to the closing, but will be no more than .61111 shares nor less than .50 shares for each International Home Foods share. The sale, which is subject to approval by International Home Foods shareholders, regulatory approvals, and other customary closing conditions, is expected to close in the third quarter of calendar 2000. A special meeting of shareholders is scheduled for August 22, 2000 to vote on the proposed merger. A Registration Statement on Form S-4 has been filed with the Securities and Exchange Commission in connection with the proposed merger. It contains a proxy statement/ prospectus with information about ConAgra, International Home Foods, the sale, and about persons soliciting proxies in the sale, including officers and directors of International Home Foods, and their interest in the sale. C.Dean Metropoulos, International Home Foods chairman and chief executive officer and certain investment partnerships controlled by Hicks, Muse, Tate & Furst Incorporated, holders of an aggregate of approximately 43% of the International Home Foods shares, have entered into agreements to vote for the merger.