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NOTE 4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT Short-term borrowings consisted of a note payable to banks outside the United States of $0.2 at June 30, 2000 and a revolving credit agreement with $153.3 outstanding at June 30, 2000 and $15.7 at June 30, 1999. Unused amounts under the revolving credit agreement at June 30, 2000 and 1999 totaled $169.6 and $308.1, respectively. Unused lines of credit outside the United States at June 30, 2000 totaled $0.2. 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 provided for additional borrowing capacity (up to $100.0) under either the Revolver or Term B Loan. Under this provision, the Company increased its Term B borrowings by $100.0 in August 2000. The proceeds of this borrowing were used to reduce the Revolver balance. 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 ($4.3 net of tax benefit of $0.9) 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. In February 1999, Del Monte used $57.4 of the net proceeds of the public equity offering to redeem a portion of its senior discount notes, including $1.5 of accrued interest and $6.4 of redemption premium and to redeem all preferred stock outstanding (see Note 5). Del Monte contributed the remainder of the net proceeds to DMC, its principal subsidiary. DMC used the contribution to prepay $63.3 of its indebtedness under its bank term loans, to redeem $61.8 of its senior subordinated notes, including $0.9 of accelerated amortization of original issue discount, $2.7 of accrued interest and $6.6 of redemption premium, and to repay $1.6 of indebtedness under the revolving credit facility. In connection with the repayment of debt, $5.5 of previously capitalized debt issue costs were charged to income and accounted for as an extraordinary item, as well as a total of $13.7 of premiums on debt and stock redemption resulting in total extraordinary item charges of $19.2. In December 1997 in conjunction with the Contadina Acquisition, Del Monte issued $230.0 of 12 1/2% senior discount notes (“Del Monte Notes”) and received proceeds of $125.5. The Del Monte Notes accrue interest on each June 15 and December 15, which accretes through December 15, 2002, after which time interest is to be paid in cash until maturity. The Del Monte Notes mature on December 15, 2007. The Del Monte Notes are redeemable in whole or in part at the option of Del Monte on or after December 15, 2002 at a price that initially is 106.250% of par and that decreases to par, if redeemed on December 15, 2006 or thereafter. In connection with the financing related to the Contadina Acquisition, $6.9 of deferred debt issuance costs were capitalized. Deferred debt issuance costs are amortized on a straight-line basis over the life of the related debt issuance. On April 18, 1997, Del Monte entered into a credit agreement with respect to the Term Loan and the Revolver. The Revolver provides for revolving loans in an aggregate amount of up to $350.0, including a $70.0 letter of credit subfacility. The Revolver will expire in fiscal 2003. The Term Loan has two separate facilities, Term Loan A which matures in fiscal 2003, and Term Loan B which matures in fiscal 2005. In connection with the Contadina Acquisition, Del Monte amended its bank financing agreements and related debt covenants to permit additional funding under the existing Term Loan B which was drawn in an amount of $50.0. The interest rates currently applicable to amounts outstanding under Term Loan A and the Revolver are, at Del Monte’s option, either the base rate (the higher of 0.50% above the Federal Funds Rate or the bank’s reference rate) plus 0.25% or the reserve adjusted offshore rate plus 1.25% (8.30% at June 30, 2000). Interest rates on Term Loan B are, at Del Monte’s option, either the base rate plus 2.00% or the offshore rate plus 3.00% (9.78% at June 30, 2000). Del Monte is required to pay the lenders under the Revolver a commitment fee of 0.35% on the unused portion of such facility. Del Monte is also required to pay the lenders under the Revolver letter of credit fees of 0.75% per year for commercial letters of credit and 1.25% per year for all other letters of credit, as well as an additional fee of 0.25% per year to the bank issuing such letters of credit. At June 30, 2000, a balance of $34.5 was outstanding on these letters of credit. In April 1997, DMC issued senior subordinated notes (the “DMC Notes”) with an aggregate principal amount of $150.0 and received gross proceeds of $146.9. The DMC Notes accrue interest at 12 1/4% 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. The DMC Notes are redeemable at the option of Del Monte 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. Long-term debt consisted of the following:
At June 30, 2000, scheduled maturities of long-term debt in each of the next five fiscal years and thereafter were as follows:
The Term Loan and Revolver, with a combined balance of $455.9 at June 30, 2000, are collateralized by security interests in substantially all of Del Monte’s assets. The DMC Notes, the Del Monte Notes, Term Loan and Revolver (collectively “the Debt”) agreements contain restrictive covenants with which Del Monte 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, Del Monte is required to meet certain financial tests, including minimum fixed charge coverage, minimum adjusted net worth and maximum leverage ratios. Del Monte was in compliance with all of the Debt covenants at June 30, 2000. Del Monte made cash interest payments of $52.7, $63.0 and $70.6 for the years ended June 30, 2000, 1999 and 1998. Del Monte has entered into interest-rate cap agreements, with a combined cost of $0.3, limiting Del Monte’s exposure on its floating rate debt to interest rate increases, thus reducing the impact of interest-rate increases on future income. Del Monte currently has interest rate caps on both the Term Loan and the Revolver. The notional amount of the Term Loan interest rate cap represents the full unamortized debt balance, excluding the $100.0 August 2000 Term B borrowing, during the term of the cap agreement. The notional amount of the Revolver interest rate cap represents approximately 60% of the expected monthly outstanding balance. The notional principal amount of floating rate debt covered by the interest rate cap agreements effectively converts this floating rate debt to a fixed-rate basis when the LIBOR rate sets above 8.0%. Both agreements are for a twelve-month period and will terminate June 30, 2001. The agreements involve the payment of fixed rate amounts in exchange for receipt of floating rate interest payments if the three-month LIBOR rate for the Term Loan or the one-month LIBOR rate for the Revolver set above 8.0% over the life of the agreements without an exchange of the underlying principal amount. The differential to be received is accrued as interest rates increase above 8.0% and is recognized as an adjustment to interest expense related to the debt. Del Monte is exposed to credit loss in the event of nonperformance by the other parties to the interest rate cap agreements. However, Del Monte does not anticipate nonperformance by the counterparties. Previous to entering into these interest rate cap agreements, the Company had two swap agreements both of which were no longer in effect by June 30, 2000. These agreements effectively converted $260.0 of notional principal amount of floating rate debt to a fixed-rate basis. The incremental effect of all interest rate hedges on interest expense for the year ended June 30, 2000 was $1.3. |
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