-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IieCv6ssSU0qhcLiNEPcATDHqoZpYx18IU2P/DIMsvU3bh+Aq+JfO5bdAI9Kqfya CfSFe/X7AsjwVba0DhZARw== 0000051410-99-000002.txt : 19990113 0000051410-99-000002.hdr.sgml : 19990113 ACCESSION NUMBER: 0000051410-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL MULTIFOODS CORP CENTRAL INDEX KEY: 0000051410 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 410871880 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06699 FILM NUMBER: 99504731 BUSINESS ADDRESS: STREET 1: 200 EAST LAKE STREET CITY: WAYZATA STATE: MN ZIP: 55391 BUSINESS PHONE: 6123403300 MAIL ADDRESS: STREET 1: 200 EAST LAKE STREET CITY: WAYZATA STATE: MN ZIP: 55391 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL MILLING CO INC DATE OF NAME CHANGE: 19700217 10-Q 1 3RD QTR 10Q 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 November 30, 1998 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 1-6699 INTERNATIONAL MULTIFOODS CORPORATION (Exact name of registrant as specified in its charter) Delaware 41-0871880 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 East Lake Street, Wayzata, Minnesota 55391 (Address of principal executive offices) (Zip Code) (612) 594-3300 (Registrant's telephone number, including area code) (not applicable) (Former name, former address and former fiscal year, if changed since last report) 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 ----- ---- The number of shares outstanding of the registrant's Common Stock, par value $.10 per share, as of December 31, 1998 was 18,737,494. PART I. FINANCIAL INFORMATION INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Operations (unaudited) (in thousands, except per share amounts) THREE MONTHS ENDED NINE MONTHS ENDED ----------------------- ------------------------- Nov. 30, Nov. 30, Nov. 30, Nov. 30, 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Net sales $ 611,147 $ 593,633 $ 1,723,420 $ 1,700,101 Cost of materials and production (520,729) (499,469) (1,472,735) (1,444,842) Delivery and distribution (38,573) (38,453) (111,380) (110,527) - ------------------------------------------------------------------------------- Gross profit 51,845 55,711 139,305 144,732 Selling, general and administrative (34,318) (34,979) (101,771) (108,912) Unusual items - - (28,963) - - ------------------------------------------------------------------------------- Operating earnings 17,527 20,732 8,571 35,820 Interest, net (2,705) (757) (7,731) (5,409) Other income (expense), net 541 (242) 42 (101) - ------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 15,363 19,733 882 30,310 Income taxes (5,548) (6,650) (1,094) (10,214) - ------------------------------------------------------------------------------- Earnings (loss) from continuing operations 9,815 13,083 (212) 20,096 - ------------------------------------------------------------------------------- Discontinued operations: Operating loss, net of tax - (3,672) (14,068) (4,146) Net loss on disposition, after tax (7,244) - (122,098) - - ------------------------------------------------------------------------------- Loss from discontinued operations (7,244) (3,672) (136,166) (4,146) - ------------------------------------------------------------------------------- Net earnings (loss) $ 2,571 $ 9,411 $ (136,378) $ 15,950 =============================================================================== Basic earnings (loss) per share: Continuing operations $ .52 $ .70 $ (.01) $ 1.10 Discontinued operations (.38) (.19) (7.26) (.23) - ------------------------------------------------------------------------------- Total $ .14 $ .51 $ (7.27) $ .87 =============================================================================== Diluted earnings (loss) per share: Continuing operations $ .52 $ .69 $ (.01) $ 1.09 Discontinued operations (.38) (.19) (7.26) (.23) - ------------------------------------------------------------------------------- Total $ .14 $ .50 $ (7.27) $ .86 =============================================================================== Average shares of common stock outstanding: Basic 18,743 18,570 18,758 18,273 Diluted 18,770 18,865 18,758 18,516 - ------------------------------------------------------------------------------- Dividends per share of common stock $ .20 $ .20 $ .60 $ .60 - -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (in thousands) Condensed from audited financial (Unaudited) statements Nov. 30, Feb. 28, 1998 1998 - ------------------------------------------------------------------------ Assets - ------ Current assets: Cash and cash equivalents $ 13,767 $ 9,126 Trade accounts receivable, net 123,489 111,944 Inventories 166,742 156,335 Net current assets of discontinued operations - 62,962 Other current assets 69,362 53,379 - ----------------------------------------------------------------------- Total current assets 373,360 393,746 - ----------------------------------------------------------------------- Property, plant and equipment, net 156,933 169,982 Goodwill, net 82,595 84,911 Net noncurrent assets of discontinued operations 45,626 7,976 Other assets 36,552 36,194 - ----------------------------------------------------------------------- Total assets $695,066 $ 692,809 ======================================================================= Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities: Notes payable $ 36,357 $ 1,025 Current portion of long-term debt 3,000 24,500 Accounts payable 161,373 132,401 Net current liabilities of discontinued operations 3,596 - Other current liabilities 72,055 63,839 - ----------------------------------------------------------------------- Total current liabilities 276,381 221,765 - ----------------------------------------------------------------------- Long-term debt 121,199 120,951 Employee benefits and other liabilities 40,774 40,740 - ----------------------------------------------------------------------- Total liabilities 438,354 383,456 - ----------------------------------------------------------------------- Shareholders' equity: Common stock 2,184 2,184 Accumulated other comprehensive income: Foreign currency translation adjustments (15,357) (110,812) Minimum pension liability adjustment (3,499) (3,499) Other shareholders' equity 273,384 421,480 - ----------------------------------------------------------------------- Total shareholders' equity 256,712 309,353 - ----------------------------------------------------------------------- Commitments and contingencies - ----------------------------------------------------------------------- Total liabilities and shareholders' equity $695,066 $ 692,809 =======================================================================
See accompanying notes to consolidated condensed financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (unaudited) (in thousands) NINE MONTHS ENDED --------------------- Nov. 30, Nov. 30, 1998 1997 - --------------------------------------------------------------------------- Cash flows from operations: Earnings(loss) from continuing operations $ (212) $ 20,096 Adjustments to reconcile earnings (loss) from continuing operations to cash provided by (used for) operations: Depreciation and amortization 16,676 17,874 Deferred income tax expense (benefit) (9,561) 3,084 Provision for losses on (recoveries of) receivables 172 (45) Provision for unusual charges 28,963 - Changes in operating assets and liabilities: Accounts receivable (16,009) 46,655 Inventories (13,732) (3,694) Other current assets (5,490) 2,348 Accounts payable 30,881 (19,805) Other current liabilities (18,174) (5,615) Other, net (539) 3,490 - --------------------------------------------------------------------------- Cash provided by continuing operations 12,975 64,388 Cash provided by (used for) discontinued operations (28,092) 22,037 - --------------------------------------------------------------------------- Cash provided by(used for) all operations (15,117) 86,425 - --------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (16,043) (13,269) Proceeds from sale of investment 2,340 - Discontinued operations (4,832) (5,089) Proceeds from property disposals 1,593 331 - --------------------------------------------------------------------------- Cash used for investing activities (16,942) (18,027) - --------------------------------------------------------------------------- Cash flows from financing activities: Net increase(decrease) in notes payable 35,410 (14,331) Net decrease in long-term debt (20,302) (39,032) Dividends paid (11,252) (10,929) Proceeds from issuance of common stock 3,355 15,970 Purchase of treasury stock (4,617) (799) Discontinued operations 34,667 (18,805) Other, net (15) (16) - --------------------------------------------------------------------------- Cash provided by (used for) financing activities 37,246 (67,942) - --------------------------------------------------------------------------- (Increase)decrease in cash from discontinued operations (533) 3,017 - --------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (13) (41) - --------------------------------------------------------------------------- Net increase in cash and cash equivalents 4,641 3,432 Cash and cash equivalents at beginning of period 9,126 5,446 - --------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 13,767 $ 8,878 ===========================================================================
See accompanying notes to consolidated condensed financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (unaudited) (1) In the Company's opinion, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the notes to the consolidated condensed financial statements) necessary to present fairly its financial position as of November 30, 1998, and the results of its operations for the three and nine months ended November 30, 1998 and 1997, and cash flows for the nine months ended November 30, 1998 and 1997. These statements are condensed and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended February 28, 1998. The results of operations for the three and nine months ended November 30, 1998, are not necessarily indicative of the results to be expected for the full year. (2) New accounting pronouncement - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which must be adopted by the Company no later than March 1, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the consolidated balance sheet at their fair value. Changes in fair value will be recorded each period in earnings or other comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings will be reclassified as earnings in the periods in which earnings are affected by the hedged item. The Company has not yet determined the timing of adoption or the impact that adoption or subsequent application of SFAS No. 133 will have on its financial position and results of operations. (3) Discontinued operations - In August 1998, the Company decided to sell its Venezuela Foods business and, accordingly, has classified this business as discontinued operations in the consolidated financial statements. The Company recognized an estimated loss on disposition of $114.9 million in the second quarter. The loss was based on the terms set forth in a letter of intent with a prospective buyer. During the third quarter, the Company announced that the prospective buyer had decided not to proceed with the acquisition of the business. As a result, the Company recorded an additional loss of $7.2 million in the third quarter to reflect estimated operating losses through fiscal year 1999 and to adjust the estimated income taxes on the sale. The adjustment was necessary as the expected sale date and estimated future operating losses had changed from the assumptions used in the original loss provision. In estimating the loss from discontinued operations, considerable management judgment is necessary, and actual results could differ materially from current estimates. The estimated loss on disposition was $122.1 million (after taxes of $6.7 million), which consisted of $93.3 million for the recognition of the unrealized foreign currency translation loss in shareholders' equity, a provision of $17.4 million for operating losses until disposal and an $11.4 million estimated loss on disposal. The loss was based on an estimated sale price that approximated the net book value of the business. The $14.1 million fiscal 1999 operating loss of the Venezuela Foods business reflected in the Consolidated Statements of Operations are the results through July 31, 1998, the measurement date. The estimated operating loss from the measurement date to the anticipated sale date is reflected in the net loss on disposition. The operating results below are through November 30, 1998 and are exclusive of loss provisions related to the disposal. Three Months Ended Nine Months Ended -------------------- ------------------- Nov. 30, Nov. 30, Nov. 30, Nov. 30, (in thousands) 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Net sales $ 86,165 $83,170 $266,953 $273,101 Operating loss (8,948) (2,623) (24,340) (929) Interest, net 983 1,133 2,996 4,014 Net loss (10,629) (3,672) (27,841) (4,146) - ------------------------------------------------------------------------------- The net assets of the Venezuela Foods business were as follows: Nov. 30, Feb 28, (in thousands) 1998 1998 - ------------------------------------------------------------------------------- Cash and cash equivalents $ 1,542 $ 1,237 Trade accounts receivable, net 38,236 32,258 Inventories 80,796 109,654 Other current assets 6,610 10,471 Notes payable (73,215) - Current portion of long-term debt (587) (542) Accounts payable (51,426) (85,099) Other current liabilities (5,552) (5,017) - ------------------------------------------------------------------------------- Net current assets (liabilities) of discontinued operations $ (3,596) $ 62,962 =============================================================================== Property, plant and equipment, net $ 46,149 $ 50,585 Other assets 1,837 1,310 Long-term debt (840) (41,906) Employee benefits and other liabilities (1,520) (2,013) - ------------------------------------------------------------------------------- Net noncurrent assets of discontinued operations $ 45,626 $ 7,976 ===============================================================================
(4) Comprehensive income - In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." The Company adopted SFAS 130 in the first quarter of fiscal 1999. Comprehensive income is defined as the change in the equity of a business from all nonowner transactions and events. The Company's comprehensive income is as follows: Three Months Ended Nine Months Ended -------------------- ------------------ Nov. 30, Nov. 30, Nov. 30, Nov. 30, (in thousands) 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Net earnings (loss) $ 2,571 $ 9,411 $(136,378) $ 15,950 Foreign currency translation adjustments 9,526 (1,928) 95,455 (2,902) Reclassification adjustment due to foreign currency translation adjustment recognized (8,204) - (101,555) - - ------------------------------------------------------------------------------- Comprehensive income (loss) $ 3,893 $ 7,483 $(142,478) $ 13,048 ===============================================================================
(5) Unusual items - The Company's continuing operations recognized unusual items that resulted in pre-tax charges of $29 million ($18.7 million after-tax or $1.00 per share) and were comprised of the following: (in millions) Segment - ----------------------------------------------------------------------- Business consolidation plan $11.5 Multifoods Distribution Group Asset impairment and severance costs 7.2 North America Foods Receivable write-offs 10.3 Divested Business - ----------------------------------------------------------------------- Total $29.0 ================================== Management adopted a plan to consolidate its vending and foodservice operations into a single business. The plan involves reducing the number of distribution centers by nine, reducing the size of the work force by approximately 300 people and reducing the vehicle fleet size by up to 10 percent. The charge covers losses on lease commitments, employee termination benefits, costs incurred for outside consultants, and the write-down of leasehold improvements. The Company believes that the actions associated with the plan will be completed over a 24-month period ended June 2000. The Company recognized a charge of $7.2 million for the write-down of assets and the cost of work-force reductions associated with its Canadian frozen bakery business. The charge resulted from the inability to sell the business at a price acceptable to the Company and from the loss of a major customer in May 1998. In accordance with SFAS No. 121, the Company evaluated the carrying value of its long-lived assets as a result of these events and recognized a $5.8 million charge for asset impairment. In addition, a charge of $1.4 million primarily for employee termination benefits was recognized. The Company recognized an unusual charge of $10.3 million for the write-off of receivables from a major customer of its former food exporting business. The Company had negotiated an exit agreement with this customer in fiscal 1998, which provided for payments to the Company for amounts due under notes and accounts receivable. The agreement had been restructured on several occasions because of the customer's financial difficulties. As a result of uncertainties with respect to the customer's ability to meet its obligations, the Company recognized a $5 million charge in the fourth quarter of fiscal 1998. In June 1998, the Company was notified by the customer that it would not meet its obligations under the restructured exit agreement. The Company believes the customer's financial problems were caused by its difficulty in moving product into the Russian marketplace and were complicated by economic difficulties in Russia. Accordingly, the Company believes that remaining amounts due from the customer are not collectible. (6) Interest, net Three Months Ended Nine Months Ended --------------------- ------------------ Nov. 30, Nov. 30, Nov. 30, Nov. 30, (in thousands) 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Interest expense $ 2,880 $ 3,012 $ 8,239 $ 10,055 Capitalized interest (23) - (54) (9) Non-operating interest income (152) (2,255) (454) (4,637) - ------------------------------------------------------------------------------- Interest, net $ 2,705 $ 757 $ 7,731 $ 5,409 ===============================================================================
Cash payments for interest, net of amounts capitalized, were $9.4 million and $11.5 million for the nine months ended November 30, 1998 and 1997, respectively. (7) Income taxes - Cash payments for income taxes for the nine months ended November 30, 1998, were $11.1 million, while cash refunds for the nine months ended November 30, 1997, were $0.6 million. (8) Supplemental balance sheet information Nov. 30, Feb. 28, (in thousands) 1998 1998 - ----------------------------------------------------------------------- Trade accounts receivable, net: Trade $ 126,082 $ 116,261 Allowance for doubtful accounts (2,593) (4,317) - ---------------------------------------------------------------------- Total trade accounts receivable, net $ 123,489 $ 111,944 ====================================================================== Inventories: Raw materials, excluding grain $ 11,093 $ 8,234 Grain 4,555 6,258 Finished and in-process goods 145,557 137,569 Packages and supplies 5,537 4,274 - ---------------------------------------------------------------------- Total inventories $ 166,742 $ 156,335 ====================================================================== Property, plant and equipment, net: Land $ 11,513 $ 11,389 Buildings and improvements 78,796 80,173 Machinery and equipment 184,380 190,324 Transportation equipment 2,418 4,876 Improvements in progress 10,042 5,958 - ---------------------------------------------------------------------- 287,149 292,720 Accumulated depreciation (130,216) (122,738) - ---------------------------------------------------------------------- Total property, plant and equipment, net $ 156,933 $ 169,982 ====================================================================== (9) Segment information Operating Net Operating Unusual Earnings (in millions) Sales Costs Items (Loss) - ------------------------------------------------------------------------- Three Months Ended Nov. 30, 1998 Multifoods Distribution Group $ 483.8 $ (475.4) $ - $ 8.4 North America Foods 127.3 (115.9) - 11.4 Corporate Expenses - (2.2) - (2.2) - ------------------------------------------------------------------------- Total $ 611.1 $ (593.5) $ - $17.6 ========================================================================= Three Months Ended Nov. 30, 1997 Multifoods Distribution Group $ 456.8 $ (449.0) $ - $ 7.8 North America Foods 133.4 (119.4) - 14.0 Divested Business 3.4 (2.1) - 1.3 Corporate Expenses - (2.4) - (2.4) - ------------------------------------------------------------------------- Total $ 593.6 $ (572.9) $ - $20.7 ========================================================================= Nine Months Ended Nov. 30, 1998 Multifoods Distribution Group $1,380.6 $(1,360.2) $(11.5) $ 8.9 North America Foods 342.8 (319.9) (7.2) 15.7 Divested Business - .8 (10.3) (9.5) Corporate Expenses - (6.5) - (6.5) - ------------------------------------------------------------------------- Total $1,723.4 $(1,685.8) $(29.0) $ 8.6 ========================================================================= Nine Months Ended Nov. 30, 1997 Multifoods Distribution Group $1,325.7 $(1,309.3) $ - $16.4 North America Foods 365.6 (343.3) - 22.3 Divested Business 8.8 (4.8) - 4.0 Corporate Expenses - (6.9) - (6.9) - ------------------------------------------------------------------------- Total $1,700.1 $(1,664.3) $ - $35.8 =========================================================================
(10) Contingencies - In fiscal 1998, the Company was notified that approximately $6 million in Company-owned inventory was stolen from a ship in the port of St. Petersburg, Russia. The ship had been chartered by a major customer of the Company's former food exporting business. The Company believes, based on the facts known to date, that the loss is covered by insurance. If the loss from the theft of product is not covered by insurance, the Company would likely recognize a material charge to its results of operations. As of November 30, 1998, the Company had guaranteed and provided standby letters of credit totaling $78.4 million related to bank loans and trade obligations of its Venezuelan operations. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition (Unaudited) In August 1998, the Company announced its decision to sell its Venezuela Foods business. The decision was based on management's belief that shareholders would be best served by the more predictable financial results expected from the Company's remaining businesses. As a result, the Venezuela Foods business segment has been classified as discontinued operations in the consolidated financial statements and in the discussion below. Results of Operations: - ---------------------- Overview Net earnings for the third quarter of fiscal 1999 were $2.5 million, or 14 cents per diluted share, compared with net earnings of $9.4 million, or 50 cents per diluted share, a year ago. Net earnings for both periods were affected by losses from discontinued operations. For the nine months ended November 30, 1998, the Company recognized a net loss of $136.4 million, or $7.27 per diluted share, compared with net earnings of $15.9 million, or 86 cents per diluted share, a year ago. The current period included a $136.2 million loss from discontinued operations, which consisted of an estimated $122.1 million loss on disposition and $14.1 million of operating losses. The disposition loss included a $93.3 million non-cash charge for the recognition of unrealized foreign currency translation losses. The unrealized translation losses were previously classified in shareholders' equity. In addition, the current nine-month period included $18.7 million, or $1.00 per share, of after-tax unusual charges related to continuing operations. The Company expects that savings achieved in fiscal 1999 from actions associated with the unusual charges will be offset by one-time costs incurred to consolidate the distribution operations, as described below. The Company, however, expects these actions to improve operating earnings of continuing operations by $3 million to $5 million in fiscal 2000 and $9 million to $12 million in fiscal 2001. Further discussion of unusual charges follows in "Segment Results" and in Note 5 to the consolidated condensed financial statements. Continuing Operations Fiscal 1999 third-quarter earnings from continuing operations were $9.8 million, or 52 cents per share, compared with $13.1 million, or 69 cents per diluted share, a year ago. The decline was due to lower North America Foods operating earnings and the benefit of non-recurring items in the prior year. These non-recurring items included the operating profit of the Company's former food exporting business and interest income on tax refunds. In addition, last year's earnings benefited from a low effective tax rate. The decline in earnings was partially offset by higher operating earnings in Multifoods Distribution Group. The Company reported a loss from continuing operations of $0.2 million for the nine months ended November 30, 1998. Current year results included after-tax unusual charges of $18.7 million, or $1.00 per share. Excluding unusual charges, current period earnings were $18.5 million, or 99 cents per share, compared with $20.1 million, or $1.09 per diluted share, a year ago. Segment Results Multifoods Distribution Group: Net sales in the third quarter increased 6% to $483.8 million, primarily as a result of higher sales volumes. Sales increased in the independent vending and pizza customer segments. The increase also was due to higher foodservice prices that resulted from an increase in cheese costs. Operating earnings increased 8% to $8.4 million, primarily as a result of the higher sales volumes. Net sales for the nine-month period increased 4% to $1.38 billion as a result of the same factors as described above for the third quarter. Operating earnings before unusual items increased 24% to $20.4 million, compared with $16.4 million last year. Operating earnings increased because of the higher sales volumes and lower administrative costs. The increase was partially offset by higher delivery and distribution costs. Last year's results benefited from the purchase of coffee at favorable prices and from a reduction in bad debt expense. An unusual charge of $11.5 million during the current year was for actions associated with the Company's plan to consolidate its vending and foodservice distribution operations into a single business. The charge covers losses on lease commitments, employee termination benefits, costs incurred for outside consultants and the write-down of leasehold improvements. North America Foods: Net sales in the third quarter declined 5% to $127.3 million, primarily due to unfavorable currency translation, lower prices that resulted from a reduction in wheat costs and lower volumes in certain product lines. The volume declines occurred in consumer branded flour and commercial bakery ingredients in Canada. Operating earnings declined 19% to $11.4 million, as a result of the lower sales volumes and unfavorable currency translation. Net sales for the nine-month period decreased 6% to $342.8 million, as a result of essentially the same factors as described above for the third quarter. Operating earnings before unusual items increased 3% to $22.9 million, compared with $22.3 million last year. The increase was the result of a decline in selling and administrative costs that offset the affect of unfavorable currency translation and lower sales volumes in Canada. An unusual charge of $7.2 million for the current year was related to the write-down of assets and costs of work-force reductions associated with the Canadian frozen bakery business. Divested Business: The Company's Divested Business segment represents its food exporting business, which the Company exited in fiscal 1998. During the first quarter ended May 31, 1998, the segment recognized earnings of $0.8 million from a refund of customs tax paid in prior years. The segment also recognized an unusual charge of $10.3 million for the write-off of receivables from a major customer. Non-Operating Expense and Income Third-quarter net interest expense for continuing operations increased to $2.7 million, compared with $0.8 million last year. The increase was the result of interest income on U.S. federal income tax refunds recognized in the prior year. For the nine-month periods, net interest expense increased to $7.7 million, from $5.4 million last year. Interest expense for continuing operations excludes interest associated with debt obligations of the Company's discontinued Venezuela Foods business. Interest expense classified in discontinued operations for the nine months ended November 30, 1998 and 1997, were $3 million and $4 million, respectively. In the third quarter of fiscal 1999, the Company recognized a gain of $0.8 million from the sale of its investment in a Mexican animal feed business. Income Taxes For the nine-month periods, the Company's effective tax rate on earnings before unusual items was 38% in fiscal 1999, compared with 33.7% in fiscal 1998. The tax rate in fiscal 1998 was affected by a change in the expected utilization of net operating loss and capital loss carryforwards of the Company's Canadian business. Discontinued Operations In August 1998, the Company announced its decision to sell its Venezuela Foods business and recognized an estimated loss on disposition of $114.9 million. The loss was based on the terms set forth in a letter of intent with a prospective buyer. During the third quarter, the Company announced that the prospective buyer had decided not to proceed with the acquisition of the business. As a result, the Company recorded an additional loss of $7.2 million in the third quarter to reflect estimated operating losses through fiscal year 1999 and to adjust the estimated income taxes on the sale. The adjustment was necessary as the expected sale date and estimated future operating losses had changed from the assumptions used in the original loss provision. In estimating the loss from discontinued operations, considerable management judgment is necessary, and actual results could differ materially from current estimates. The estimated after tax disposition loss of $122.1 million consisted of $93.3 million for the recognition of the unrealized foreign currency translation loss in shareholders' equity, a provision of $17.4 million for operating losses until disposal and an $11.4 million estimated loss on disposal. The loss was based on an estimated sale price that approximated the net book value of the business. Net sales of the Venezuelan business were $86.2 million and $83.2 million for the three months ended November 30, 1998 and 1997, respectively. The sales increase was primarily the result of an increase in corn flour sales volumes and price increases in wheat flour. Excluding loss provisions related to the disposal, operating losses were $8.9 million and $2.6 million for the three months ended November 30, 1998 and 1997, respectively. The current year operating loss was primarily the result of a significant decline in gross profit margins. The decline resulted from difficult economic conditions that prevented the Company from raising prices to cover higher raw material and operating costs. Net sales for the nine months ended November 30, 1998, declined 2% to $267 million as a result of lower sales volumes. Excluding the loss provisions related to the sale, operating losses were $24.3 million. The operating loss included a charge of $8.5 million, which consisted of a $5.3 million asset write-down and $3.2 million for employee severance liabilities and costs associated with the departure of the business segment's former president. The operating results also were affected by the same factors as described above for the third quarter. Financial Condition: - -------------------- The Company's debt-to-total capitalization ratio increased to 38% at November 30, 1998, compared with 32% at February 28, 1998. The ratios for both periods exclude debt obligations of the Company's Venezuelan business that are expected to be assumed by a buyer and that have been classified as net assets of discontinued operations in the consolidated condensed balance sheet. Including debt obligations of continuing and discontinued operations, the debt-to-total capitalization ratio was 48%, compared with 38% at February 28, 1998. The increase in the debt- to-total capitalization ratio is the result of working capital requirements of continuing operations, the loss from discontinued operations and unusual charges. Based on current estimates management believes that the sale of the Venezuelan business will result in net proceeds of approximately $31 million, after payment of transaction costs and taxes. Actual net proceeds from the sale could differ materially from this estimate. The Company expects that the proceeds will initially be used to reduce debt. The Company is considering using the net proceeds in the future for acquisitions and general corporate purposes. The Company's $29 million unusual charge for continuing operations included $19.2 million of non-cash costs and $9.8 million of cash outlays that are expected to occur over a 24-month period ended June 2000. In addition, the Company estimates it will incur capital expenditures of $15 million to $20 million over the 24-month period associated with upgrading the remaining distribution warehouse facilities. The Company plans to use future cash flows from operations along with available external financing to fund these estimated cash outlays. Year 2000 The Company has completed a comprehensive inventory and review of its computer systems and identified the systems that could be affected by the "Year 2000" issue. An implementation plan addressing the issues has been developed, and a Year 2000 Project Committee has been established to oversee the implementation plan. The North America businesses have completed a comprehensive review of both computer systems and non-computer systems that could include some type of embedded technology. An implementation plan addressing these issues has been developed with a target date of June 30, 1999 for Year 2000 compliance for all computer and non-computer systems. Progress towards compliance has been made in accordance with this plan. The Company believes that upgrades to existing packaged software will resolve the Year 2000 issues in the critical computer systems. The successful upgrading of the packaged systems has been completed in the United States and Canada. The non-computer systems have been inventoried and evaluated, and the Company believes that there are no critical deficiencies in these systems. Testing of these systems will be completed by February 28, 1999. The upgrading of the packaged systems was driven by business needs as well as Year 2000 issues. This project did not displace any more critical projects because of its Year 2000 implications. Each of the Year 2000 plans includes an evaluation of critical vendors, suppliers and customers. Information is being solicited from these critical business partners and will be evaluated as it is received. The costs associated with the upgrading of the packaged systems and the testing of these systems are not expected to be material to the Company's results of operations. In Venezuela, the Company completed a comprehensive review of its existing business and financial systems. These systems were not Year 2000 compliant and the Company has chosen to replace these systems with packaged software that is Year 2000 compliant. The implementation began in June 1998 and is scheduled to be complete by June 30, 1999. The capital cost for the new business system is estimated to be $4.6 million. The Company is in the process of inventorying and assessing the non-computer systems, as well as evaluating critical relationships with vendors, suppliers and customers. The Company believes that with the upgrading of the packaged software in North America and with the replacement of the business and financial systems in Venezuela, the Year 2000 issue will not create significant operational problems. Based upon the assessment completed at this time, the Company does not anticipate any significant Year 2000 issues with non-computer systems. All Year 2000 projects are proceeding according to plan; however, if there are significant delays in their completion or if major suppliers or customers experience Year 2000 issues with their systems, the Year 2000 issue may have a material adverse effect on the operations of the Company. The Company has requested information from major customers and suppliers and continues to monitor the completion of the Year 2000 projects. After assessing the information received from customers and suppliers and evaluating the successful completion of the Year 2000 projects, the Company will develop an appropriate contingency plan. It is anticipated that this plan will be developed by June 30, 1999. Cautionary Statement Relevant to Forward-Looking Information This document contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, the Company and its representatives may from time-to-time make written and oral forward-looking statements. These forward- looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning the Company's operations and financial performance and condition. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. The Company cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others, the impact of competitive products and pricing; market conditions and weather patterns that may affect the costs of grain and other raw materials; changes in laws and regulations; the inability of the Company to either resolve the Company's "Year 2000" issues or to accurately estimate the cost associated with "Year 2000" compliance; economic and political conditions in Venezuela, including inflation, currency volatility, possible limitations on foreign investment, availability of local financing, exchangeability of currency, dividend repatriation and changes in existing tax laws; the Company's ability to complete a sale of the Venezuela Foods business; the inability of the Company to collect insurance proceeds related to the theft of inventory from the port of St. Petersburg, Russia; fluctuations in foreign exchange rates; the Company's ability to realize the earnings benefits from the integration of its distribution businesses; and other factors as may be discussed in the Company's report on Form 10-K for the year ended February 28, 1998, and other reports filed with the Securities and Exchange Commission. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11. Computation of Earnings Per Common Share. 12. Computation of Ratio of Earnings to Fixed Charges. 27. Financial Data Schedule. (b) Reports on Form 8-K During the quarter ended November 30, 1998, the Company filed a report on Form 8-K dated September 29, 1998 regarding discontinuation of discussions with Archer-Daniels-Midland Company and GRUMA, S.A. de C.V. related to the sale of the Company's Venezuela Foods business. SIGNATURE 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. INTERNATIONAL MULTIFOODS CORPORATION Date: January 11, 1999 By: /S/ William L. Trubeck ----------------------------------- William L. Trubeck Senior Vice President - Finance and Chief Financial Officer and President Latin America Operations (Principal Financial Officer and Duly Authorized Officer) EXHIBIT INDEX 11. Computation of Earnings Per Common Share. 12. Computation of Ratio of Earnings to Fixed Charges. 27. Financial Data Schedule. EX-11 2 Exhibit 11 INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Computation of Earnings (Loss) per Common Share (unaudited) (in thousands, except per share amounts) THREE MONTHS ENDED NINE MONTHS ENDED -------------------- -------------------- Nov. 30, Nov. 30, Nov. 30, Nov. 30, 1998 1997 1998 1997 - -------------------------------------------------------------------------------- Average shares of common stock outstanding 18,743 18,570 18,758 18,273 Dilutive potential common shares 27 295 - 243 - -------------------------------------------------------------------------------- Average shares outstanding assuming full dilution 18,770 18,865 18,758 18,516 ================================================================================ Earnings (loss) from continuing operations $ 9,815 $13,083 $ (212) $20,096 Loss from discontinued operations (7,244) (3,672) (136,166) (4,146) - -------------------------------------------------------------------------------- Net earnings (loss) applicable to common stock $ 2,571 $ 9,411 $(136,378) $15,950 ================================================================================ Basic earnings (loss) per share: Continuing operations $ .52 $ .70 $ (.01) $ 1.10 Discontinued operations (.38) (.19) (7.26) (.23) - -------------------------------------------------------------------------------- Total $ .14 $ .51 $ (7.27) $ .87 ==================================================================================== Diluted earnings (loss) per share: Continuing operations $ .52 $ .69 $ (.01) $ 1.09 Discontinued operations (.38) (.19) (7.26) (.23) - -------------------------------------------------------------------------------- Total $ .14 $ .50 $ (7.27) $ .86 ================================================================================ Basic earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed similar to basic earnings per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and the proceeds from such exercises were used to acquire shares of common stock at the average market price during the period.
EX-12 3 Exhibit 12 INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (unaudited) (in thousands) THREE MONTHS ENDED NINE MONTHS ENDED -------------------- ------------------ Nov. 30, Nov. 30, Nov. 30, Nov. 30, 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Earnings from continuing operations before income taxes $15,363 $19,733 $ 882 $30,310 Plus: Fixed charges (1) 6,343 6,495 18,271 21,303 Less: Capitalized interest (50) - (81) (9) - -------------------------------------------------------------------------------- Earnings available to cover fixed charges $21,656 $26,228 $19,072 $51,604 ================================================================================ Ratio of earnings to fixed charges 3.41 4.04 1.04 2.42 ================================================================================ (1) Fixed charges consisted of the following: THREE MONTHS ENDED NINE MONTHS ENDED -------------------- ----------------- Nov. 30, Nov. 30, Nov. 30, Nov. 30, 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Interest expense, gross $ 4,003 $ 4,162 $11,438 $14,120 Rentals (Interest factor) 2,340 2,333 6,833 7,183 - ------------------------------------------------------------------------------- Total fixed charges $ 6,343 $ 6,495 $18,271 $21,303 ===============================================================================
EX-27 4
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEET, STATEMENTS OF OPERATIONS AND CASH FLOWS AND ACCOMPANYING NOTES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES. 1,000 9-MOS FEB-28-1999 MAR-01-1998 NOV-30-1998 13,767 0 126,082 2,593 166,742 373,360 287,149 130,216 695,066 276,381 121,199 0 0 2,184 254,528 695,066 1,723,420 1,723,420 1,584,115 1,584,115 0 172 8,185 882 1,094 (212) (136,166) 0 0 (136,378) (7.27) (7.27)
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