UNITED STATES
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 October 31, 2004
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 001-14335
DEL MONTE FOODS COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 13-3542950 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
One Market @ The Landmark, San Francisco, California 94105
(Address of Principal Executive Offices including Zip Code)
(415) 247-3000
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of November 26, 2004, there were 210,793,092 shares of Del Monte Foods Company Common Stock, par value $0.01 per share, outstanding.
| PART I. |
3 | |||
| ITEM 1. |
FINANCIAL STATEMENTS | 3 | ||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 | ||
| ITEM 3. |
28 | |||
| ITEM 4. |
30 | |||
| PART II. |
31 | |||
| ITEM 1. |
31 | |||
| ITEM 2. |
32 | |||
| ITEM 3. |
32 | |||
| ITEM 4. |
32 | |||
| ITEM 5. |
33 | |||
| ITEM 6. |
33 | |||
| 34 | ||||
2
| PART I. | FINANCIAL INFORMATION |
| ITEM 1. | FINANCIAL STATEMENTS |
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
| October 31, 2004 |
May 2, 2004 |
|||||||
| ASSETS | ||||||||
| Cash and cash equivalents |
$ | 10.8 | $ | 36.3 | ||||
| Trade accounts receivable, net of allowance |
240.9 | 222.3 | ||||||
| Inventories |
1,172.2 | 823.5 | ||||||
| Deferred tax assets |
8.4 | 8.3 | ||||||
| Prepaid expenses and other current assets |
111.2 | 132.8 | ||||||
| Assets of discontinued operations |
2.6 | 2.5 | ||||||
| TOTAL CURRENT ASSETS |
1,546.1 | 1,225.7 | ||||||
| Property, plant and equipment, net |
811.1 | 820.9 | ||||||
| Goodwill |
770.5 | 770.9 | ||||||
| Intangible assets, net |
583.2 | 585.1 | ||||||
| Other assets, net |
55.4 | 57.1 | ||||||
| TOTAL ASSETS |
$ | 3,766.3 | $ | 3,459.7 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Accounts payable and accrued expenses |
$ | 542.3 | $ | 427.2 | ||||
| Short-term borrowings |
142.0 | 0.8 | ||||||
| Current portion of long-term debt |
6.3 | 6.3 | ||||||
| TOTAL CURRENT LIABILITIES |
690.6 | 434.3 | ||||||
| Long-term debt |
1,365.8 | 1,369.5 | ||||||
| Deferred tax liabilities |
224.0 | 226.2 | ||||||
| Other non-current liabilities |
297.1 | 300.8 | ||||||
| TOTAL LIABILITIES |
2,577.5 | 2,330.8 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock ($0.01 par value per share, shares authorized: 500,000,000; issued and outstanding: 210,739,673 at October 31, 2004 and 209,691,132 at May 2, 2004) |
$ | 2.1 | $ | 2.1 | ||||
| Additional paid-in capital |
953.6 | 943.6 | ||||||
| Accumulated other comprehensive loss |
(1.9 | ) | (1.7 | ) | ||||
| Retained earnings |
235.0 | 184.9 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY |
1,188.8 | 1,128.9 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 3,766.3 | $ | 3,459.7 | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
| Three Months Ended |
Six Months Ended | ||||||||||||||
| October 31, 2004 |
October 26, 2003 |
October 31, 2004 |
October 26, 2003 | ||||||||||||
| Net sales |
$ | 846.6 | $ | 791.6 | $ | 1,472.6 | $ | 1,402.9 | |||||||
| Cost of products sold |
624.2 | 580.6 | 1,103.4 | 1,037.2 | |||||||||||
| Gross profit |
222.4 | 211.0 | 369.2 | 365.7 | |||||||||||
| Selling, general and administrative expense |
128.7 | 119.5 | 235.0 | 222.7 | |||||||||||
| Operating income |
93.7 | 91.5 | 134.2 | 143.0 | |||||||||||
| Interest expense |
25.9 | 30.9 | 50.5 | 60.9 | |||||||||||
| Other income (expense) |
(0.5 | ) | 2.4 | (2.5 | ) | 1.6 | |||||||||
| Income from continuing operations before income taxes |
67.3 | 63.0 | 81.2 | 83.7 | |||||||||||
| Provision for income taxes |
25.5 | 22.3 | 30.8 | 29.5 | |||||||||||
| Income from continuing operations |
41.8 | 40.7 | 50.4 | 54.2 | |||||||||||
| Income (loss) from discontinued operations before income taxes |
(0.6 | ) | (0.3 | ) | (0.7 | ) | 1.5 | ||||||||
| Provision (benefit) for income taxes |
(0.4 | ) | 0.2 | (0.4 | ) | 1.2 | |||||||||
| Income (loss) from discontinued operations |
(0.2 | ) | (0.5 | ) | (0.3 | ) | 0.3 | ||||||||
| Net income |
$ | 41.6 | $ | 40.2 | $ | 50.1 | $ | 54.5 | |||||||
| Earnings per common share |
|||||||||||||||
| Basic: |
|||||||||||||||
| Continuing operations |
$ | 0.20 | $ | 0.19 | $ | 0.24 | $ | 0.26 | |||||||
| Discontinued operations |
— | — | — | — | |||||||||||
| Total |
$ | 0.20 | $ | 0.19 | $ | 0.24 | $ | 0.26 | |||||||
| Diluted: |
|||||||||||||||
| Continuing operations |
$ | 0.20 | $ | 0.19 | $ | 0.24 | $ | 0.26 | |||||||
| Discontinued operations |
— | — | — | — | |||||||||||
| Total |
$ | 0.20 | $ | 0.19 | $ | 0.24 | $ | 0.26 | |||||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Six Months Ended |
||||||||
| October 31, 2004 |
October 26, 2003 |
|||||||
| OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 50.1 | $ | 54.5 | ||||
| (Income) loss from discontinued operations |
0.3 | (0.3 | ) | |||||
| Income from continuing operations |
50.4 | 54.2 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
45.3 | 43.0 | ||||||
| Deferred taxes |
(2.3 | ) | 3.3 | |||||
| Stock compensation expense |
3.5 | 1.5 | ||||||
| Other non-cash items, net |
1.7 | 1.1 | ||||||
| Changes in operating assets and liabilities |
(236.8 | ) | (218.4 | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES |
(138.2 | ) | (115.3 | ) | ||||
| INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
(28.1 | ) | (42.8 | ) | ||||
| Proceeds from disposal of assets |
2.5 | — | ||||||
| Acquisition |
(7.2 | ) | — | |||||
| Other items, net |
— | 0.1 | ||||||
| NET CASH USED IN INVESTING ACTIVITIES |
(32.8 | ) | (42.7 | ) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Proceeds from short-term borrowings |
267.4 | 186.8 | ||||||
| Payments on short-term borrowings |
(126.2 | ) | (58.3 | ) | ||||
| Principal payments on long-term debt |
(3.0 | ) | (3.6 | ) | ||||
| Issuance of common stock |
5.7 | 0.6 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES |
143.9 | 125.5 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
1.9 | 1.5 | ||||||
| NET CASH PROVIDED BY (USED) IN DISCONTINUED OPERATIONS |
(0.3 | ) | 1.9 | |||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS |
(25.5 | ) | (29.1 | ) | ||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
36.3 | 42.7 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 10.8 | $ | 13.6 | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
DEL MONTE FOODS COMPANY AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended October 31, 2004
(In millions, except share and per share data)
Note 1. Business and Basis of Presentation
Del Monte Foods Company and its consolidated subsidiaries (“Del Monte”, or the “Company”) is one of the country’s largest producers, distributors and marketers of premium quality, branded and private label food and pet products for the U.S. retail market. The Company’s leading food brands include Del Monte, StarKist, Contadina, S&W and College Inn. In addition, the Company has pet food and pet snacks including 9Lives, Kibbles ‘n Bits, Pup-Peroni, Snausages, Pounce and other brand names. The majority of its products are sold nationwide in all channels serving retail markets, mass merchandisers, the U.S. military, certain export markets, the foodservice industry and food processors.
For reporting purposes, the Company’s businesses are aggregated into two reportable segments: Consumer Products and Pet Products. The Consumer Products reportable segment includes the Del Monte Brands, StarKist Seafood and Private Label Soup operating segments, which manufacture, market and sell shelf-stable products, including fruit, vegetable, tomato, broth, infant feeding, tuna and soup products. The Pet Products reportable segment includes the Pet Products operating segment, which manufactures, markets and sells dry and wet pet food and pet snacks. During the second quarter of fiscal 2005, the StarKist Brands operating segment was split into the StarKist Seafood and Private Label Soup operating segments due to changes in management responsibilities related to these product groupings. This operating segment change did not affect the Company’s reportable segments.
The Company operates on a 52 or 53-week fiscal year ending on the Sunday closest to April 30. The results of operations for the three months ended October 31, 2004 and October 26, 2003 each reflect periods that contain 13 weeks. The results of operations for the six months ended October 31, 2004 and October