EX-13 8 a2050336zex-13.txt EXHIBIT 13 EXHIBIT 13
FIVE-YEAR COMPARATIVE SUMMARY Fiscal Year Ended ----------------------------------------------------------------- March 3, February 29, February 28, February 28, February 28, (dollars and shares in millions, except per share data) 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED SUMMARY OF OPERATIONS Net sales $ 2,524.9 $ 2,384.7 $ 2,296.6 $ 2,251.1 $ 2,249.1 Cost of materials and production (2,151.0) (2,032.3) (1,961.5) (1,915.2) (1,918.3) Delivery and distribution (184.9) (168.4) (150.3) (145.9) (155.5) Selling, general and administrative (137.2) (132.1) (132.9) (140.5) (152.2) Unusual items 3.5 0.5 (29.0) (5.0) (20.1) Interest, net (14.8) (11.0) (10.4) (7.5) (12.3) Other income (expense), net (1.4) (1.0) (0.2) - (0.5) ------------------------------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations before income taxes 39.1 40.4 12.3 37.0 (9.8) Income taxes (17.9) (15.7) (5.5) (12.4) (1.6) ------------------------------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations 21.2 24.7 6.8 24.6 (11.4) ------------------------------------------------------------------------------------------------------------------------- Discontinued operations: Operating earnings (loss), after tax - - (14.1) (4.6) 14.2 Net loss on disposition, after tax - (19.6) (124.6) - - -------------------------------------------------------------------------------------------------------------------------- Earnings (loss) from discontinued operations - (19.6) (138.7) (4.6) 14.2 ------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 21.2 $ 5.1 $ (131.9) $ 20.0 $ 2.8 ========================================================================================================================= Basic earnings (loss) per share: Continuing operations $ 1.13 $ 1.32 $ 0.36 $ 1.34 $ (0.63) Discontinued operations - (1.05) (7.39) (0.25) 0.78 ------------------------------------------------------------------------------------------------------------------------- Total $ 1.13 $ 0.27 $ (7.03) $ 1.09 $ 0.15 ========================================================================================================================= Diluted earnings (loss) per share: Continuing operations $ 1.12 $ 1.31 $ 0.36 $ 1.33 $ (0.63) Discontinued Operations - (1.04) (7.34) (0.25) 0.78 ------------------------------------------------------------------------------------------------------------------------- Total $ 1.12 $ 0.27 $ (6.98) $ 1.08 $ 0.15 ========================================================================================================================= YEAR END FINANCIAL POSITION Current assets (3) $ 378.3 $ 354.0 $ 340.1 $ 383.4 $ 439.9 Current liabilities (3) 298.9 277.5 264.2 221.8 257.6 Working capital (excluding cash and short-term debt)(3) 109.7 126.8 179.3 177.3 268.6 Property, plant and equipment, net (2) 206.2 204.9 165.2 170.0 175.4 Long-term debt (2) 145.4 147.2 121.2 121.0 200.9 Shareholders' equity 256.0 255.1 260.3 309.4 289.6 Total assets (3) 764.6 736.2 696.9 703.6 804.8 ------------------------------------------------------------------------------------------------------------------------- DIVIDENDS PAID Common stock $ 15.0 $ 15.0 $ 15.0 $ 14.7 $ 14.5 Per share of common stock 0.80 0.80 0.80 0.80 0.80 ------------------------------------------------------------------------------------------------------------------------- OTHER FINANCIAL DATA Current ratio 1.3:1 1.3:1 1.3:1 1.7:1 1.7:1 Equity per share of common stock $ 13.66 $ 13.62 $ 13.86 $ 16.51 $ 16.08 Debt to total capitalization (2) 42% 45% 38% 32% 43% Depreciation (2) $ 21.7 $ 18.6 $ 18.6 $ 20.3 $ 19.9 Capital expenditures, excluding acquisitions (2) $ 35.2 $ 49.4 $ 28.1 $ 18.6 $ 21.7 Average common shares outstanding: Basic 18.7 18.8 18.8 18.4 18.0 Diluted 18.9 18.8 18.9 18.6 18.0 Number of common shareholders 4,287 4,445 4,658 4,705 5,087 Number of employees (2) 4,654 4,362 4,232 4,043 4,204 Market price per share of common stock: Close $ 19.21 $ 10.94 $ 21.69 $ 27.94 $ 21.13 High $ 23.31 $ 24.19 $ 31.44 $ 32.44 $ 22.00 Low $ 9.81 $ 10.75 $ 15.38 $ 20.00 $ 15.13 -------------------------------------------------------------------------------------------------------------------------
(1) In fiscal 1999, the Company classified its Venezuela Foods business as discontinued operations. Prior year information has been reclassified accordingly. (2) Continuing operations only. (3) Includes discontinued operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We currently operate in two business segments: Multifoods Distribution Group and North America Foods. Multifoods Distribution Group markets and distributes a broad selection of food and related products to the foodservice industry in the United States. Products are delivered from a nationwide network of distribution centers. North America Foods consists of two units, U.S. Foodservice Products and Robin Hood Multifoods. U.S. Foodservice Products produces baking mixes and frozen bakery products for foodservice operators and commercial customers. Robin Hood Multifoods, a Canadian subsidiary, processes and markets flour, baking mixes, condiments and other food products for consumers and commercial customers. In August 1999, we completed the sale of our Venezuela Foods business. The Venezuelan business is classified as discontinued operations in the consolidated financial statements and in the following management discussion and analysis. In October 1999, we completed our acquisition of Better Brands, Inc., a broadline foodservice distributor located in Windsor, Connecticut, for $29.1 million. The acquisition was accounted for using the purchase method of accounting and, accordingly, the results of operations for Better Brands have been included in our financial statements since the date of acquisition. In February 2001, we announced that we are exploring strategic alternatives for our Multifoods Distribution Group. Our review process is expected to involve evaluation of various alternative actions, some of which, if implemented, could result in a material charge to our results of operations. PENDING ACQUISITION On February 4, 2001, we entered into an asset purchase and sale agreement with The Pillsbury Company and General Mills, Inc. to acquire Pillsbury's desserts and specialty products business, Pillsbury's non-custom foodservice baking mix business and General Mills' Robin Hood business for approximately $304.6 million in cash. The assets we are acquiring include equipment and inventory of the Pillsbury businesses, inventory of the General Mills' Robin Hood business, and certain trademarks and trademark licenses. The acquisition is subject to a number of conditions, including the receipt of proceeds from new financing arrangements, the provisional approval by the Federal Trade Commission of the acquisition and completion of the merger of General Mills and Pillsbury. We expect to close the acquisition in the first half of fiscal year 2002. The acquisition will be accounted for using the purchase method of accounting. We expect the acquisition to increase our operating earnings and net earnings in the first full year after closing, and thereafter. The earnings contribution from the acquired businesses will be partially offset by increased amortization expense associated with intangible assets acquired, higher interest expense due to the debt we will incur to finance the acquisition and one-time transition costs. In addition, our overall effective tax rate may increase if we decide to remit dividends from our Canadian subsidiary. In connection with the acquisition we will enter into new financing arrangements, including a new senior secured credit facility and issuance of senior unsecured notes. Proceeds from the new financing arrangements will be used to pay for the acquisition and to refinance our existing debt. The acquisition and related financing will significantly increase our outstanding debt, as compared to historical levels. See further information in our discussion of Financial Condition. RESULTS OF OPERATIONS CONTINUING OPERATIONS The following table sets forth statement of operations data for each of our business segments and on a consolidated basis. Fiscal 2001 was a 53-week period. Divested Business represents our former food-exporting business.
2001 (in millions) (53 weeks) 2000 1999 ------------------------------------------------------------------------------- NET SALES: Multifoods Distribution Group $2,042.5 $1,899.6 $1,845.8 North America Foods 482.4 485.1 450.8 ------------------------------------------------------------------------------- TOTAL NET SALES $2,524.9 $2,384.7 $2,296.6 =============================================================================== OPERATING EARNINGS: MULTIFOODS DISTRIBUTION GROUP Operating earnings before unusual items $ 16.8 $ 20.4 $ 28.3 Unusual items (0.3) 0.5 (11.5) ------------------------------------------------------------------------------- 16.5 20.9 16.8 ------------------------------------------------------------------------------- NORTH AMERICA FOODS Operating earnings before unusual items 40.5 38.6 31.3 Unusual items (1.8) - (7.2) ------------------------------------------------------------------------------- 38.7 38.6 24.1 ------------------------------------------------------------------------------- DIVESTED BUSINESS Operating earnings before unusual items - - 0.8 Unusual items - - (10.3) ------------------------------------------------------------------------------- - - (9.5) ------------------------------------------------------------------------------- CORPORATE EXPENSES Operating expenses before unusual items (5.5) (7.1) (8.5) Unusual items 5.6 - - ------------------------------------------------------------------------------- 0.1 (7.1) (8.5) ------------------------------------------------------------------------------- CONSOLIDATED Operating earnings before unusual items 51.8 51.9 51.9 Unusual items 3.5 0.5 (29.0) ------------------------------------------------------------------------------- TOTAL OPERATING EARNINGS $ 55.3 $ 52.4 $ 22.9 =============================================================================== CONSOLIDATED EARNINGS SUMMARY: Operating earnings $ 55.3 $ 52.4 $ 22.9 Interest, net (14.8) (11.0) (10.4) Other income (expense), net (1.4) (1.0) (0.2) ------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 39.1 40.4 12.3 Income taxes (17.9) (15.7) (5.5) ------------------------------------------------------------------------------- EARNINGS FROM CONTINUING OPERATIONS $ 21.2 $ 24.7 $ 6.8 ===============================================================================
FISCAL 2001 COMPARED WITH FISCAL 2000 Overview Fiscal 2001 earnings from continuing operations were $21.2 million, or $1.12 per diluted share, compared with $24.7 million, or $1.31 per diluted share, a year ago. The decline in earnings was primarily attributable to increased interest expense, lower operating earnings in Multifoods Distribution Group and tax expense associated with a dividend from our Canadian subsidiary. Our distribution business was adversely affected by higher fuel costs and wage rates, and by start-up costs associated with $150 million in annualized new business accounts that we began to serve in the fourth quarter of fiscal 2001. The decline in fiscal 2001 earnings was partially offset by higher operating earnings in North America Foods and the benefit of increased income from our defined benefit pension plans. Income from pension plans has increased due to strong investment performance in prior years that have resulted in pension assets significantly in excess of benefit obligations. Earnings were also impacted by a net pre-tax gain of $3.5 million associated with unusual items. Unusual items included a gain from the sale of our corporate headquarters building and charges for costs associated with the consolidation of our condiments processing facilities in Canada. Further information on unusual items follows in the discussion of segment results and in Note 6 to the consolidated financial statements. Segment Results Multifoods Distribution Group: Net sales increased 8% to $2,042.5 million as a result of higher sales volumes to vending operators and sandwich shops, and the full year benefit of our acquisition of Better Brands. The increase was partially offset by the impact of a decline in cheese prices and the loss of a regional foodservice account during the first quarter of fiscal 2001. Excluding the impact of the Better Brands acquisition, overall sales volumes increased 5% for the year. Operating earnings before unusual items declined 18% to $16.8 million. Higher costs and a change in customer mix adversely affected operating earnings. We were impacted by higher fuel and wage costs along with start-up costs from new business accounts. We have had to increase pay in certain job categories and in certain locations during the year because of the tight labor market. In addition, productivity issues that resulted from facility consolidations and an information systems conversion that took place last year continued to impact delivery and distribution costs. These prior year actions increased employee turnover at the consolidated facilities and caused inefficiencies as employees adjusted to new warehouse layouts and a new information system. During fiscal 2001, we reduced the excess labor and delivery costs that resulted from these productivity issues. While we continue to focus on opportunities to improve productivity and efficiency, we expect that our fiscal 2002 operating results will continue to be impacted by high energy costs and increased wage rates. In the current year, we recognized a net charge of $0.3 million from unusual items. The charge included $1.4 million for severance and lease commitment costs associated with the closure of two distribution facilities and the departure of the group's President. In addition, we reversed a liability of $1.1 million primarily for lease commitment costs for the closure of a distribution center in California that is no longer planned. North America Foods: Net sales declined 1% to $482.4 million, compared with $485.1 million last year. Sales declined due to reduced sales of consumer flour in Canada, the purchase of a customer by a competitor in the United States and the impact of unfavorable currency translation. Sales were also adversely impacted by lower raw material costs this year. The decline was partially offset by good sales growth in flour and bakery mixes to commercial customers in Canada and strong sales of thaw-and-sell bakery products in the United States. Operating earnings before unusual charges increased 5% to $40.5 million because of lower raw material costs and higher Canadian commercial sales volumes. The earnings improvement was partially offset by higher costs, the impact of lower consumer flour volumes and unfavorable currency translation. We were impacted by higher energy costs during the year, which affected our delivery and production expenses. In addition, we incurred start-up costs associated with a new customer account in the United States and one-time costs in Canada for our condiments facility consolidation project. We believe that higher energy costs, one-time project costs and unfavorable currency translation will continue to affect our operating results in fiscal 2002. We are in the process of expanding our Canadian condiments operation in Dunnville, Ontario, and consolidating the condiment processing operations into that facility. The project includes closing a facility in Scarborough, Ontario, in fiscal 2002. We expect to realize an unusual gain from the sale of this facility. In fiscal 2001, we recorded a pre-tax unusual charge of $1.8 million for severance and related benefit costs for 174 full time and seasonal employees. Certain one-time costs related to the project, including employee and equipment relocation expenses, were not included in the unusual charge. These expenses, which were recognized when incurred, totaled $0.7 million in fiscal 2001 and were included in general and administrative expenses. Our project will allow us to lower costs and increase production. We expect to realize a mid-single digit increase to earnings per share starting in fiscal 2003 from this project. Corporate: In fiscal 2001, we recognized an unusual gain of $5.8 million from the sale of our corporate headquarters building in Minnesota. We also recognized severance costs of $0.2 million for corporate staff reductions. Non-Operating Expense and Income In fiscal 2001, net interest expense was $14.8 million, compared with $11 million last year. The increase in interest expense resulted from higher interest rates and debt levels. Higher average debt levels were driven primarily by the acquisition of Better Brands late in the third quarter last year. Income Taxes In fiscal 2001, we recognized income tax expense of $3.1 million associated with a dividend from our Canadian subsidiary. The effective tax rate on earnings before the impact of the Canadian dividend and unusual items was 38% in fiscal 2001 and 2000. FISCAL 2000 COMPARED WITH FISCAL 1999 Overview Fiscal 2000 earnings from continuing operations were $24.7 million, or $1.31 per diluted share, compared with $6.8 million, or 36 cents per share, in fiscal 1999. Excluding unusual charges, fiscal 1999 earnings from continuing operations were $25.5 million, or $1.35 per diluted share. Fiscal 2000 earnings declined because of lower operating earnings in Multifoods Distribution Group, which experienced higher delivery and distribution costs. The increase in these costs was related to productivity issues associated with the distribution group's facility consolidations and information systems conversion. In order to maintain strong customer service, we added temporary employees and incurred additional freight charges. The decline in fiscal 2000 earnings, however, was partially offset by higher operating earnings in North America Foods and by lower administrative expenses, which benefited from increased pension income and reduced employee incentive compensation costs. Segment Results Multifoods Distribution Group: Net sales increased 3% to $1,899.6 million as a result of higher sales volumes to independent vending operators and the addition of Better Brands. The increase was partially offset by a significant decline in cheese prices during the last half of the fiscal year and lower sales to pizza restaurants. Excluding the impact of the acquisition of Better Brands, overall sales volumes increased 2% for the year. Operating earnings before unusual charges declined 28% to $20.4 million due to increased labor and delivery costs at our foodservice and recently consolidated distribution facilities. The increased costs at these facilities more than offset improved results achieved at our vending distribution facilities and lower administrative expenses. In fiscal 1999, we recognized an unusual charge of $11.5 million for actions associated with our plan to consolidate the vending and foodservice operations into a single business. In fiscal 2000, we recognized a gain of $0.5 million from the reversal of certain reserves established as part of the distribution group's consolidation plan and from the sale of a distribution facility. The reversal was required as management determined that four distribution centers identified for closure under the original plan would remain open. Consequently, we had fewer-than-planned work-force reductions and lower lease commitment costs. The decision to keep the four distribution centers open was based on the subsequent acquisition of Better Brands in the northeast United States, as well as strong growth potential and strategic opportunities in certain markets. North America Foods: Net sales increased 8% to $485.1 million, due to higher sales volumes. Sales of U.S. bakery products increased 14% primarily because of additional business with large in-store bakery chains. In Canada, sales increased 5% on higher volumes of bakery mixes and flour to commercial customers and condiments to foodservice customers. In addition, sales benefited from favorable currency translation because of a stronger Canadian dollar but were reduced by the impact of lower wheat costs, which affect our sales prices. Operating earnings before unusual charges increased 23% to $38.6 million because of the higher sales volumes and lower raw material costs. The improvement in operating margin resulted primarily from the effects of spreading fixed expenses over the higher sales volumes. In fiscal 1999, we recognized an unusual charge of $7.2 million for the write-down of assets and the cost of work-force reductions in our Canadian frozen bakery business. Divested Business: The divested business segment represents our former food-exporting business, which we exited in fiscal 1998. During fiscal 1999, we recognized earnings of $0.8 million from a refund of customs taxes paid in prior years. We also recognized an unusual charge of $10.3 million for the write-off of receivables from a major customer. Non-Operating Expense and Income In fiscal 2000, net interest expense was $11 million, compared with $10.4 million in fiscal 1999. The increase in interest expense resulted from higher debt levels but was partially offset by an increase in interest income. In fiscal 2000, we recognized interest income on a note from Gruma S.A. de C.V. (Gruma) that was received from the sale of our Venezuelan consumer and commercial foods business. Interest expense excludes interest that was associated with debt obligations of our discontinued Venezuela Foods business. Interest expense classified in discontinued operations for fiscal years 2000 and 1999 was $2.4 million and $4.9 million, respectively. In fiscal 1999, we recognized a gain of $0.8 million from the sale of our investment in a Mexican animal feed business. Income Taxes The effective tax rate on earnings before unusual items was 38% in fiscal 2000 and 1999. Including the effect of unusual items, our overall tax rates were 38.8% in fiscal 2000 and 44.3% in fiscal 1999. DISCONTINUED OPERATIONS In fiscal 1999, we recognized an estimated loss of $124.6 million for the planned disposition of our Venezuela Foods business. The disposition loss consisted of $93.3 million for the recognition of the unrealized foreign currency translation losses previously included as a separate component of shareholders' equity, a provision of $22 million for operating losses from the measurement date (July 31, 1998) to the expected disposal date, and a $9.3 million loss on disposal. In fiscal 2000, we completed the divestiture of our Venezuela Foods business and recorded an additional after-tax charge of $19.6 million. The charge consisted of a $4 million loss on the June 1999 sale of the Venezuelan agriculture and animal feeds business, a $3.8 million provision resulting from higher-than-expected operating losses and an $11.8 million charge from the August 1999 sale of the Venezuelan consumer and commercial foods business to Gruma. The $11.8 million charge primarily resulted from a higher-than-expected loss on the sale transaction, and a write-down of certain receivables and properties in Venezuela that we retained. During fiscal 2001, substantially all of the retained receivables and properties were collected or sold at book value. FINANCIAL CONDITION Our short-term financing is provided by borrowings against our U.S. and Canadian revolving credit agreements and uncommitted lines of credit. Our committed revolving credit agreements totaled $255 million, of which $115 million was available at March 3, 2001. Our uncommitted lines of credit totaled $40 million, none of which was outstanding at fiscal year end. We also have a medium-term note program under our shelf registration statement filed with the Securities and Exchange Commission that provides for the issuance of up to $150 million in medium-term notes in various amounts. As of March 3, 2001, $140 million was available under the medium-term note program. See Notes 10 and 11 to the consolidated financial statements for additional information on capital resources. Our debt-to-total-capitalization ratio decreased to 42% at March 3, 2001, compared with 45% at February 29, 2000. The decrease in the debt-to-total-capitalization ratio was primarily the result of cash provided by operations together with the sale of certain corporate assets. Cash flows from operations in fiscal 2001 benefited from improved cash management and year-end timing of payments to suppliers, which caused a substantial increase in accounts payable at March 3, 2001, compared to the prior year end. Cash flows from investing activities in fiscal 2001 included $12 million received from the sale of our corporate headquarters building and $7.4 million received from the sale of certain Venezuelan assets. The Venezuelan assets consisted of properties that were not included in the sale of the Venezuela Foods business. Proceeds from these dispositions were used to reduce debt obligations. Capital expenditures were $35.2 million in fiscal 2001, compared with $49.4 million in fiscal 2000. Capital expenditures in fiscal 2000 included significant amounts for facility expansion and consolidation projects at Multifoods Distribution Group. Capital expenditures in fiscal 2001 reflect amounts for completion of distribution facility projects and investments in North America Foods to accommodate volume growth. For fiscal 2002, we currently expect to spend about $30 million on capital projects. Our estimate includes expenditures associated with the expansion of our condiments operation in Dunnville, Ontario. In June 1999, we sold our Venezuelan agriculture and animal feeds business for $27.5 million in cash. Proceeds were used to reduce debt obligations of the Venezuelan business. In August 1999, we completed the sale of our Venezuelan consumer and commercial foods business to Gruma. We received a $19 million note from Gruma, payable over five years at an annual interest rate of 7.5%, and Gruma paid off or assumed the remaining debt obligations of our Venezuelan business, which totaled $55.5 million. In anticipation of the pending acquisition of assets from Pillsbury and General Mills, we announced in February 2001 that we eliminated our quarterly dividend of 20 cents per share. We believe that cash flows from operations together with available external financing will be sufficient to fund operations and capital expenditures anticipated for fiscal 2002. IMPACT OF PENDING ACQUISITION We expect to finance the pending acquisition of assets from Pillsbury and General Mills, replace existing credit facilities and refinance existing debt by entering into a $450 million senior secured credit facility and issuing $200 million of senior unsecured notes. In addition to financing a portion of the acquisition, the senior secured credit facility will be used to finance our working capital needs and for general corporate purposes. The interest rates on borrowings under the senior secured credit facility will be variable and based on market factors. We anticipate that the senior credit facility and the indenture with respect to the notes will contain a number of restrictive covenants that will restrict our corporate and business activities. These restrictions are expected to impact, among other things, our ability to incur debt, pay dividends, create liens and sell assets. In addition, we will be required to comply with financial covenant ratios and tests. We believe that cash from operations together with these contemplated financing arrangements will be sufficient to meet our liquidity needs. MARKET RISK MANAGEMENT We are exposed to market risks resulting from changes in commodity prices, foreign currency exchange rates and interest rates. Changes in these factors could adversely affect our results of operations and financial position. To minimize these risks, we utilize derivative financial instruments, such as commodity futures contracts, currency forward contracts and interest rate swaps. We use derivative financial instruments as risk management tools and not for speculative or trading purposes. See Note 9 to the consolidated financial statements for further information regarding financial instruments. Commodity Risk Management: Our Canadian operations minimize the risk associated with wheat market price fluctuations by hedging our wheat and flour inventories, open wheat purchase contracts and open flour sales contracts with wheat futures contracts. In the United States, we entered into futures contracts to reduce the risk of price fluctuations on anticipated flour purchases. The U.S. dollar-denominated futures contracts are traded on U.S. regulated exchanges. The open futures contracts mature in the period from March 2001 to July 2002 and substantially coincide with the maturities of the open wheat purchase contracts, open flour sales contracts and the anticipated timing of flour purchases. Foreign Currency Hedging: Our Canadian operations enter into foreign currency forward contracts to minimize our exposure to foreign currency fluctuations as a result of U.S. dollar-denominated sales and purchases. In addition, our Canadian operations also enter into foreign currency forward contracts that have the effect of converting the U.S. dollar-denominated grain futures contracts (see Commodity Risk Management) into Canadian dollar equivalents. Interest Rate Risk Management: Our exposure to changes in interest rates results from borrowing activities used to meet our working capital and other long-term financing needs. The borrowings are comprised of notes payable, principally to banks, which have variable interest rates, and of fixed rate medium-term notes. We used sensitivity analysis to determine the impact of market risk exposures on the fair values of our debt and financial instruments, including derivative financial instruments. Sensitivity analysis assesses the risk of loss in market risk sensitive instruments based on hypothetical changes in market prices or rates. The following tables provide information on the potential impact in fair value and pre-tax earnings assuming a 10% adverse change.
Potential Effect on Fair Value ------------------------------ (in millions) 2001 2000 ---------------------------------------------------------------- Futures contracts $2.3 $1.1 Medium-term notes 4.2 6.2 Interest rate swap 0.1 - ----------------------------------------------------------------
Potential Decrease in Pre-tax Earnings -------------------------------------- (in millions) 2001 2000 ---------------------------------------------------------------- Currency forward contracts $2.9 $2.9 Notes payable 0.8 0.9 ----------------------------------------------------------------
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we 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 our 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. We caution 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 closing of the pending acquisition and the timing of the close; actions in the financial markets; regulatory approval related to the pending acquisition; integration problems associated with the pending acquisition; the results of our review of strategic alternatives for our Multifoods Distribution Group; the impact of competitive products and pricing; market or weather conditions that may affect the costs of grain, cheese, other raw materials, fuel and labor; changes in laws and regulations; fluctuations in interest rates; the inability to collect on a $6 million insurance claim related to the theft of product in St. Petersburg, Russia; fluctuations in foreign exchange rates; risks commonly encountered in international trade; and other factors as may be discussed in our reports filed with the Securities and Exchange Commission. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of International Multifoods Corporation: We have audited the accompanying consolidated balance sheets of International Multifoods Corporation and subsidiaries as of March 3, 2001, and February 29, 2000, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three-year period ended March 3, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Multifoods Corporation and subsidiaries as of March 3, 2001, and February 29, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended March 3, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota March 27, 2001 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The consolidated financial statements have been prepared by management in conformity with accounting principles generally accepted in the United States of America and include, where required, amounts based on management's best estimates and judgments. Management continues to be responsible for the integrity and objectivity of data in these consolidated financial statements, which it seeks to ensure through an extensive system of internal controls. Such controls are designed to provide reasonable, but not absolute, assurance that assets are safeguarded from unauthorized use or disposition and that financial records are sufficiently reliable to permit the preparation of consolidated financial statements. It is recognized that estimates and judgments are required to assess and balance the relative cost and expected benefits of any system of internal controls. The system of internal accounting controls is designed to provide reasonable assurance that the books and records reflect the Company's transactions and that its established policies and procedures are carefully followed. The system includes written policies and procedures, a financial reporting system, an internal audit department and careful selection and training of qualified personnel. /s/ Gary E. Costley /s/ John E. Byom Gary E. Costley John E. Byom Chairman, President Vice President, Finance, and Chief Executive Officer and Chief Financial Officer INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED --------------------------------------- MARCH 3, February 29, February 28, (IN THOUSANDS, EXCEPT PER SHARE DATA) 2001 2000 1999 ----------------------------------------------------------------------------- Net sales $ 2,524,907 $ 2,384,715 $ 2,296,550 Cost of materials and production (2,150,949) (2,032,349) (1,961,441) Delivery and distribution (184,917) (168,371) (150,310) ----------------------------------------------------------------------------- Gross profit 189,041 183,995 184,799 Selling, general and administrative (137,283) (132,057) (132,943) Unusual items 3,488 519 (28,963) ----------------------------------------------------------------------------- Operating earnings 55,246 52,457 22,893 Interest, net (14,801) (11,040) (10,382) Other income (expense), net (1,346) (1,066) (245) ----------------------------------------------------------------------------- Earnings from continuing operations before income taxes 39,099 40,351 12,266 Income taxes (17,924) (15,656) (5,434) ----------------------------------------------------------------------------- Earnings from continuing operations 21,175 24,695 6,832 ----------------------------------------------------------------------------- Discontinued operations: Operating loss, after tax - - (14,068) Net loss on disposition, after tax - (19,560) (124,634) ----------------------------------------------------------------------------- Loss from discontinued operations - (19,560) (138,702) ----------------------------------------------------------------------------- NET EARNINGS (LOSS) $ 21,175 $ 5,135 $ (131,870) ============================================================================= Basic earnings (loss) per share: Continuing operations $ 1.13 $ 1.32 $ 0.36 Discontinued operations - (1.05) (7.39) ----------------------------------------------------------------------------- TOTAL $ 1.13 $ 0.27 $ (7.03) ============================================================================= Diluted earnings (loss) per share: Continuing operations $ 1.12 $ 1.31 $ 0.36 Discontinued operations - (1.04) (7.34) ----------------------------------------------------------------------------- TOTAL $ 1.12 $ 0.27 $ (6.98) ============================================================================= Average shares of common stock outstanding: Basic 18,739 18,752 18,759 Diluted 18,874 18,786 18,903 -----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 3, February 29, (IN THOUSANDS) 2001 2000 ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 10,247 $ 11,224 Trade accounts receivable, net of allowance 131,780 122,638 Inventories 185,207 171,342 Deferred income taxes 10,001 9,485 Other current assets 41,082 39,299 ------------------------------------------------------------------------- Total current assets 378,317 353,988 Property, plant and equipment, net 206,160 204,924 Goodwill, net 81,919 84,894 Other assets 98,229 92,401 ------------------------------------------------------------------------- TOTAL ASSETS $764,625 $736,207 ========================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 39,542 $ 41,521 Current portion of long-term debt 1,000 20,000 Accounts payable 216,050 167,282 Other current liabilities 42,288 48,652 ------------------------------------------------------------------------- Total current liabilities 298,880 277,455 Long-term debt 145,420 147,199 Deferred income taxes 32,014 23,170 Employee benefits and other liabilities 32,329 33,259 ------------------------------------------------------------------------- Total liabilities 508,643 481,083 ------------------------------------------------------------------------- Shareholders' equity: Preferred capital stock - - Common stock, authorized 50,000 shares; issued 21,844 shares 2,184 2,184 Capital in excess of par value 91,643 91,888 Retained earnings 248,204 242,013 Accumulated other comprehensive loss (17,670) (12,122) Treasury stock, 3,098 and 3,106 shares, at cost (68,239) (68,437) Unearned compensation (140) (402) ------------------------------------------------------------------------- Total shareholders' equity 255,982 255,124 ------------------------------------------------------------------------- Commitments and contingencies ------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $764,625 $736,207 =========================================================================
See accompanying notes to consolidated financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED -------------------------------------- MARCH 3, February 29, February 28, (IN THOUSANDS) 2001 2000 1999 ------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS: Earnings from continuing operations $ 21,175 $ 24,695 $ 6,832 Adjustments to reconcile earnings from continuing operations to cash provided by continuing operations: Depreciation and amortization 25,380 22,157 22,081 Unusual items (3,488) (519) 28,963 Deferred income tax expense (benefit) 3,829 8,443 (2,748) Increase in prepaid pension asset (14,538) (9,634) (7,678) Provision for losses on receivables 2,345 1,847 713 Changes in working capital* 11,583 (2,347) (15,582) Other, net 1,566 5,358 4,571 ------------------------------------------------------------------------------------------- Cash provided by continuing operations 47,852 50,000 37,152 Cash provided by (used for) discontinued operations 1,194 (12,541) (39,500) ------------------------------------------------------------------------------------------- Cash provided by (used for) operations 49,046 37,459 (2,348) ------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (35,167) (49,438) (28,050) Acquisition of business - (27,934) - Sale (purchase) of Venezuelan operation assets 7,371 (15,799) - Proceeds from sale of investment - - 2,340 Payment received on note receivable 948 - - Proceeds from property disposals 13,325 4,405 2,010 Discontinued operations - 38,098 (6,220) ------------------------------------------------------------------------------------------- Cash used for investing activities (13,523) (50,668) (29,920) ------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in notes payable (622) 9,492 31,430 Additions to long-term debt - 44,921 3,157 Reductions in long-term debt (20,000) (2,750) (23,750) Dividends paid (14,958) (14,988) (14,995) Proceeds from issuance of common stock 96 1,235 4,129 Purchase of treasury stock (148) (2,598) (4,787) Discontinued operations - (26,195) 45,346 Other, net (848) 2,104 (2,133) ------------------------------------------------------------------------------------------- Cash provided by (used for) financing activities (36,480) 11,221 38,397 ------------------------------------------------------------------------------------------- Increase in cash from discontinued operations - (263) (1,747) ------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (20) (20) (13) ------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (977) (2,271) 4,369 Cash and cash equivalents at beginning of year 11,224 13,495 9,126 ------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 10,247 $ 11,224 $ 13,495 =========================================================================================== *CASH FLOWS FROM CHANGES IN WORKING CAPITAL: Accounts receivable $(11,852) $ 9,325 $ (17,880) Inventories (16,760) (1,124) (8,693) Other current assets (5,620) (6,960) 5,360 Accounts payable 50,357 1,036 30,744 Other current liabilities (4,542) (4,624) (25,113) ------------------------------------------------------------------------------------------- NET CHANGE $ 11,583 $ (2,347) $ (15,582) ===========================================================================================
See accompanying notes to consolidated financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
10 cents par value Accumulated ------------------ Capital in Other Common Treasury Excess of Retained Comprehensive Unearned (in thousands) Stock Stock Par Value Earnings Loss Compensation Total ---------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1998 $2,184 $(67,480) $91,340 $ 398,754 $(114,311) $ (1,134) $309,353 Comprehensive loss(a) - - - (131,870) 97,096 - (34,774) Dividends declared on common stock - - - (15,010) - - (15,010) 170 shares purchased for treasury - (4,787) - - - - (4,787) 208 shares issued for employee benefit plans - 4,526 660 - - (262) 4,924 Amortization of unearned compensation - - - - - 610 610 ---------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1999 2,184 (67,741) 92,000 251,874 (17,215) (786) 260,316 Comprehensive income(a) - - - 5,135 5,093 - 10,228 Dividends declared on common stock - - - (14,996) - - (14,996) 124 shares purchased for treasury - (2,598) - - - - (2,598) 86 shares issued for employee benefit plans - 1,902 (112) - - (226) 1,564 Amortization of unearned compensation - - - - - 610 610 ---------------------------------------------------------------------------------------------------------------------- Balance at February 29, 2000 2,184 (68,437) 91,888 242,013 (12,122) (402) 255,124 Comprehensive income(a) - - - 21,175 (5,548) - 15,627 Dividends declared on common stock - - - (14,984) - - (14,984) 9 shares purchased for treasury - (148) - - - - (148) 17 shares issued for employee benefit plans - 346 (245) - - (131) (30) Amortization of unearned compensation - - - - - 393 393 ---------------------------------------------------------------------------------------------------------------------- BALANCE AT MARCH 3, 2001 $2,184 $(68,239) $91,643 $ 248,204 $ (17,670) $ (140) $255,982 ======================================================================================================================
(a) Reconciliations of net earnings (loss) to comprehensive income (loss) are as follows:
(in thousands) 2001 2000 1999 ------------------------------------------------------------------------------------------------- Net earnings (loss) $21,175 $5,135 $(131,870) ------------------------------------------------------------------------------------------------- Other comprehensive income (loss): Foreign currency translation adjustments (5,175) 3,600 (4,547) Reclassification adjustment due to foreign currency translation adjustments recognized - - 101,555 Minimum pension liability adjustment (net of tax of $239, $(955), and $(56), respectively) (373) 1,493 88 ------------------------------------------------------------------------------------------------- Other comprehensive income (loss) (5,548) 5,093 97,096 ------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) $15,627 $10,228 $(34,774) =================================================================================================
See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to consolidated financial statements. Actual results could differ from these estimates. In March 2000, the Company changed its fiscal year from the last day of February to the Saturday closest to the last day of February. Fiscal 2001 is a 53-week year. BASIS OF STATEMENT PRESENTATION The accompanying consolidated financial statements include the accounts of International Multifoods Corporation and all of its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The functional currency of the Company's Canadian operations is the Canadian dollar. Assets and liabilities are translated at current exchange rates, and results of operations are translated using the weighted average exchange rate in effect during the fiscal year. The gains or losses resulting from translation are included as a separate component of shareholders' equity. STOCK-BASED COMPENSATION The Company uses the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for employee stock options. Under the intrinsic value method, compensation expense is recorded only to the extent that the market price of the common stock exceeds the exercise price of the stock option on the date of grant. INCOME TAXES Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amount and the tax basis of assets and liabilities. EARNINGS PER SHARE Basic earnings per share are computed by dividing net earnings by the weighted average shares outstanding during the reporting 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 that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the reporting period. The computations for basic and diluted earnings per share from continuing operations are as follows:
(in thousands, except per share data) 2001 2000 1999 ------------------------------------------------------------------------------- Earnings from continuing operations $21,175 $24,695 $ 6,832 ------------------------------------------------------------------------------- Average shares of common stock outstanding: Basic 18,739 18,752 18,759 Effect of stock options 135 34 144 ------------------------------------------------------------------------------- Diluted 18,874 18,786 18,903 ------------------------------------------------------------------------------- Earnings per share from continuing operations: Basic $ 1.13 $ 1.32 $ 0.36 Diluted 1.12 1.31 0.36 -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS Included in cash and cash equivalents are cash on hand, time deposits and highly liquid short-term investments purchased with original maturities of three months or less. INVENTORIES Inventories, excluding grain in Canada, are valued principally at the lower of cost (first-in, first-out) or market (replacement or net realizable value). In Canada, inventories of grain are valued on the basis of replacement market prices prevailing at fiscal year-end. The Company generally minimizes risks associated with market price fluctuations by hedging those inventories with futures contracts. Therefore, included in inventories is the amount of gain or loss on open grain contracts, including futures contracts, which generally has the effect of adjusting those inventories to cost. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost, and depreciation is computed using the straight-line method for determining financial statement income. When permitted, accelerated depreciation methods are used to calculate depreciation for income tax purposes. GOODWILL AND OTHER INTANGIBLES Goodwill represents the excess of costs of businesses acquired over the fair market value of net tangible and identifiable intangible assets. Such excess costs are amortized on a straight-line basis over various periods not exceeding 40 years. Identifiable intangible assets represent costs allocated to noncompete agreements, trade names and other specifically identifiable assets arising from business acquisitions. These assets are amortized on a straight-line basis over their estimated useful lives. Accumulated amortization of goodwill and other intangibles at March 3, 2001, and February 29, 2000, was $36.5 million and $32.9 million, respectively. RECOVERABILITY OF LONG-LIVED ASSETS The Company assesses the recoverability of goodwill and other long-lived assets whenever events or changes in circumstances indicate that expected future undiscounted cash flows may not be sufficient to support the carrying amount of an asset. The Company deems an asset to be impaired if a forecast of undiscounted future operating cash flows is less than its carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying value of the asset exceeds its fair value. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that companies record derivative instruments on the consolidated balance sheet at their fair value. Changes in fair value will be recorded each period in earnings or other comprehensive income (OCI), 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 OCI will be reclassified as earnings in the period in which earnings are affected by the hedged item. In June 2000, the FASB issued SFAS 138, which amended certain guidance within SFAS 133. The Company adopted SFAS 133, as amended, effective March 4, 2001. The impact of this change was a pre-tax charge of approximately $1 million to OCI and an increase to liabilities by approximately $1 million. The above assessment is based on the fair value of an interest rate swap and currency forward exchange contracts as of March 4, 2001, that were designated as cash flow hedges. NOTE 2: PENDING ACQUISITION On February 4, 2001, the Company entered into an asset purchase and sale agreement with The Pillsbury Company and General Mills, Inc. to acquire Pillsbury's desserts and specialty products business, Pillsbury's non-custom foodservice baking mix business and General Mills' Robin Hood business for approximately $304.6 million in cash. The assets being acquired include equipment and inventory of the Pillsbury businesses, inventory of the General Mills' Robin Hood business, and certain trademarks and trademark licenses. The acquisition is subject to a number of conditions, including provisional approval by the Federal Trade Commission of the acquisition and completion of the merger of General Mills and Pillsbury. The Company expects to close the acquisition in the first half of fiscal year 2002. NOTE 3: BUSINESS ACQUIRED In October 1999, the Company completed its acquisition of Better Brands, Inc., a broadline foodservice distributor located in Windsor, Connecticut. The acquisition was accounted for using the purchase method, and accordingly, the results of operations for Better Brands have been included in the Company's consolidated financial statements since the date of acquisition. The purchase price of $29.1 million included goodwill of $5.1 million, which is being amortized on a straight-line basis over 20 years. The Company's fiscal 2000 results would not have been materially different had this acquisition occurred at the beginning of the fiscal year. NOTE 4: DISCONTINUED OPERATIONS In fiscal 1999, the Company recognized an estimated after-tax loss of $124.6 million (after income tax expense of $10.8 million) for the planned disposition of its Venezuela Foods business. The disposition loss consisted of $93.3 million for the recognition of the unrealized foreign currency translation losses previously included as a separate component of shareholders' equity, a provision of $22.0 million for operating losses from the measurement date (July 31, 1998) to expected disposal date, and a $9.3 million loss on disposal. In fiscal 2000, the Company completed its divestiture of the Venezuela Foods business and recorded an additional after-tax charge of $19.6 million (net of a $5.2 million tax benefit). The charge consisted of a $4.0 million loss on the June 1999 sale of the Venezuelan agriculture and animal feeds business, a $3.8 million provision resulting from higher-than-expected operating losses and an $11.8 million charge from the August 1999 sale of the Venezuelan consumer and commercial foods business to Gruma S.A. de C.V. (Gruma). The $11.8 million charge primarily resulted from a higher-than- expected loss on the sale transaction, and a write-down of certain receivables and properties in Venezuela that were retained by the Company. During fiscal 2001, substantially all of the retained receivables and properties were collected or sold at book value. Proceeds from the sale of the Venezuelan agriculture and animal feeds business were $27.5 million in cash, which was used to reduce debt obligations of the Venezuelan business. Proceeds from the sale of the Venezuelan consumer and commercial foods business consisted of a $19 million note from Gruma and the assumption of the remaining debt obligations of the Venezuelan business, which totaled $55.5 million. The note receivable is payable over five years and bears interest at an annual rate of 7.5%. NOTE 5: INTEREST, NET Interest, net consisted of the following:
(in thousands) 2001 2000 1999 ---------------------------------------------------------------------- Interest expense $18,269 $13,902 $11,107 Capitalized interest (542) (814) (196) Non-operating interest income (2,926) (2,048) (529) ---------------------------------------------------------------------- INTEREST, NET $14,801 $11,040 $10,382 ======================================================================
Cash payments for interest, net of amounts capitalized, totaled $19.3 million in fiscal 2001, $13.2 million in fiscal 2000 and $11.4 million in fiscal 1999. Interest expense of the Venezuela Foods business is classified in discontinued operations. NOTE 6: UNUSUAL ITEMS FISCAL 2001 The Company recognized a pre-tax unusual gain of $3.5 million as follows:
Employee Gain on Termination Lease Sale of and Other Commitment (in millions) Building Exit Costs Costs Total --------------------------------------------------------------------------------- CONDIMENTS FACILITY CONSOLIDATION $ - $(1.8) $ - $(1.8) SALE OF HEADQUARTERS BUILDING 5.8 (0.2) - 5.6 REVERSAL OF CHARGES - 0.2 0.9 1.1 SEVERANCE AND COSTS FOR CLOSURE OF DISTRIBUTION CENTERS - (1.1) (0.3) (1.4) --------------------------------------------------------------------------------- TOTAL UNUSUAL GAIN $5.8 $(2.9) $ 0.6 $ 3.5 =================================================================================
The Company is in the process of expanding its Canadian condiments operation in Dunnville, Ontario, and consolidating the condiment processing operations into that facility. The project includes closing a facility in Scarborough, Ontario in fiscal 2002. The Company expects to realize an unusual gain from the sale of this facility. In fiscal 2001, the Company recorded a pre-tax unusual charge of $1.8 million for severance and related benefit costs for 174 full time and seasonal employees. Certain costs related to the project, including employee and equipment relocation expenses, were not included in the unusual charge. These expenses, which were recognized when incurred, totaled $0.7 million in fiscal 2001 and were included in general and administrative expenses. The Company recognized a pre-tax unusual gain of $5.8 million from the sale of its corporate headquarters building in Minnesota. The Company also incurred severance costs of $0.2 million for corporate staff reductions that were associated with the sale. The Company decided to retain a distribution center in California that was originally scheduled to be closed as part of a fiscal 1999 consolidation plan. As a result, $1.1 million of costs were reversed, which included lease commitment and employee termination costs. Remaining actions initiated in the fiscal 1999 plan have been completed. The Company decided to close its Boise, Idaho, and West Allis, Wisconsin, distribution centers. Components of charges resulting from the closures included losses on lease commitments and employee termination costs. In addition, the Company recognized severance and related costs associated with the departure of the distribution group's President. These actions resulted in unusual charges of $1.4 million. The liability associated with unusual items as of March 3, 2001, was as follows:
Employee Termination Lease and Other Commitment (in millions) Exit Costs Costs Total -------------------------------------------------------------------------------- Liability balance as of February 29, 2000 $ 0.7 $ 1.2 $ 1.9 ADDITION TO LIABILITY 3.1 0.3 3.4 CASH PAYMENTS (1.6) (0.6) (2.2) REVERSAL OF CHARGES (0.2) (0.9) (1.1) -------------------------------------------------------------------------------- LIABILITY BALANCE AS OF MARCH 3, 2001 $ 2.0 $ - $ 2.0 ================================================================================
Fiscal 2000 In the third quarter of fiscal 2000, the Company recognized a gain of $0.5 million from the reversal of certain reserves established in fiscal 1999 as part of the distribution group's consolidation plan and from the sale of a distribution facility. The reversal was required as management determined that four distribution centers identified for closure under the original plan would remain open. Consequently, the Company had fewer-than-planned work-force reductions and lower lease commitment costs. The decision to keep the four distribution centers open was based on the subsequent acquisition of a foodservice distribution business in the northeast United States, as well as strong growth potential and strategic opportunities in certain markets. Fiscal 1999 The Company recognized unusual items that resulted in pre-tax charges of $29.0 million, as described below. The Company incurred a $11.5 million charge to consolidate its foodservice and vending distribution operations into a single business. The plan involved 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. As a result of changes made to the plan, certain accruals were reversed. See further discussion under Fiscal 2000 and Fiscal 2001. The Company recognized a charge of $7.2 million, which consisted of a $6.1 million write-off for asset impairment and $1.1 million primarily for employee termination benefits, 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. 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 was restructured on several occasions because of the customer's financial difficulties. In fiscal 1999, the Company was notified by the customer that it would not meet its obligations under the restructured exit agreement. NOTE 7: INCOME TAXES Income tax expense was as follows:
U.S. Operations ----------------- Non-U.S. (in thousands) Federal Other Operations Total ---------------------------------------------------------------------- 2001: CURRENT EXPENSE $ 5,130 $ 102 $ 8,863 $14,095 DEFERRED EXPENSE 2,372 645 812 3,829 ---------------------------------------------------------------------- TOTAL TAX EXPENSE $ 7,502 $ 747 $ 9,675 $17,924 ====================================================================== 2000: Current expense (benefit) $ (773) $ 93 $ 7,893 $ 7,213 Deferred expense 3,775 1,732 2,936 8,443 ---------------------------------------------------------------------- Total tax expense $ 3,002 $1,825 $10,829 $15,656 ====================================================================== 1999: Current expense $ 356 $ 278 $ 7,548 $ 8,182 Deferred expense (benefit) (3,845) (21) 1,118 (2,748) ---------------------------------------------------------------------- Total tax expense (benefit) $(3,489) $ 257 $ 8,666 $ 5,434 ======================================================================
Temporary differences that gave rise to deferred tax assets and liabilities as of March 3, 2001, and February 29, 2000, were as follows:
2001 2000 -------------------- -------------------- DEFERRED DEFERRED Deferred Deferred TAX TAX Tax Tax (in thousands) ASSETS LIABILITIES Assets Liabilities -------------------------------------------------------------------------- Depreciation and amortization $ 2,389 $30,015 $ 2,247 $28,328 Prepaid pension asset - 23,744 - 16,003 Accrued expenses 18,408 54 18,192 9 Inventory valuation methods 1,488 - 537 - Provision for losses on receivables 1,274 - 1,729 - Deferred income 3,458 - 465 - Loss carryforwards 1,142 - 3,735 - Alternative minimum tax credit carryforward 1,994 - 1,142 - Foreign earnings repatriation - - - 2,676 Other 2,555 908 5,943 1,057 -------------------------------------------------------------------------- Subtotal 32,708 54,721 33,990 48,073 Valuation allowance - - (1,249) - -------------------------------------------------------------------------- TOTAL DEFERRED TAXES $32,708 $54,721 $32,741 $48,073 ==========================================================================
The Company's foreign operations had capital loss carryforwards of approximately $1.4 million that have no expiration date. The Company expects to fully utilize the capital loss carryforwards. In fiscal 2000, the Company had a valuation allowance for its foreign tax credit carryforwards due to uncertainty over its ability to utilize these credits before their expiration. In fiscal 2001, the Company fully utilized its foreign tax credit carryforwards and the benefit of that utilization is reflected in the taxes on U.S. Operations. Total income taxes from continuing operations differ from the amount computed by applying the U.S. federal income tax rate because of the following items: (in thousands) 2001 2000 1999 ------------------------------------------------------------------------ Tax at U.S. federal statutory rate $13,685 $14,123 $4,293 Differences: Effect of taxes on non-U.S. earnings 3,217 379 912 State and local income taxes 485 1,216 167 Effect of intangibles 122 137 101 Other 415 (199) (39) ------------------------------------------------------------------------ TOTAL INCOME TAXES $17,924 $15,656 $5,434 ======================================================================== No provision has been made for U.S. income taxes applicable to remittance of earnings from non-U.S. affiliates. It is not practicable to estimate the remaining deferred tax liability associated with temporary differences related to investments in non-U.S. affiliates. Earnings before income taxes from non-U.S. affiliates were $26.9 million in fiscal 2001, $29.9 million in fiscal 2000 and $20.1 million in fiscal 1999. Cash paid for income taxes totaled $10.8 million in fiscal 2001, $4.1 million in fiscal 2000 and $13.0 million in fiscal 1999. NOTE 8: SUPPLEMENTAL BALANCE SHEET INFORMATION
(in thousands) 2001 2000 ---------------------------------------------------------------------- Trade accounts receivable, net: Trade $ 135,991 $ 127,576 Allowance for doubtful accounts (4,211) (4,938) ---------------------------------------------------------------------- TOTAL TRADE ACCOUNTS RECEIVABLE, NET $ 131,780 $ 122,638 ====================================================================== Inventories: Raw materials, excluding grain $ 12,667 $ 12,470 Grain 3,784 2,736 Finished and in-process goods 164,600 152,493 Packages and supplies 4,156 3,643 ---------------------------------------------------------------------- TOTAL INVENTORIES $ 185,207 $ 171,342 ====================================================================== Property, plant and equipment, net: Land $ 13,079 $ 14,938 Buildings and improvements 106,470 97,022 Machinery and equipment 234,203 221,548 Improvements in progress 14,756 20,921 ---------------------------------------------------------------------- 368,508 354,429 Accumulated depreciation (162,348) (149,505) ---------------------------------------------------------------------- TOTAL PROPERTY, PLANT AND EQUIPMENT, NET $ 206,160 $ 204,924 ====================================================================== Other assets: Prepaid pension $ 58,100 $ 44,659 Identifiable intangible assets 11,257 12,339 Other 28,872 35,403 ---------------------------------------------------------------------- TOTAL OTHER ASSETS $ 98,229 $ 92,401 ====================================================================== Other current liabilities: Wages and benefits $ 9,723 $ 9,424 Income taxes 7,724 8,921 Other 24,841 30,307 ---------------------------------------------------------------------- TOTAL OTHER CURRENT LIABILITIES $ 42,288 $ 48,652 ====================================================================== Accumulated other comprehensive loss: Foreign currency translation adjustment $ (15,379) $ (10,204) Minimum pension liability adjustment (2,291) (1,918) ---------------------------------------------------------------------- TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS $ (17,670) $ (12,122) ======================================================================
NOTE 9: FINANCIAL INSTRUMENTS The following tables provide information on the carrying amount, notional amounts and fair value of financial instruments, including derivative financial instruments. The carrying value of financial instruments classified as current assets and current liabilities, such as cash and cash equivalents, receivables, accounts payable and short-term debt, approximate fair value due to the short-term maturity of the instruments. The fair value of medium-term notes, futures contracts, currency forward contracts and interest rate swaps was based on quoted market prices. The fair value of the note receivable from Gruma was based on prevailing market conditions and available financial information.
2001 2000 ------------------- ----------------- CARRYING FAIR Carrying Fair (in thousands) AMOUNT VALUE Amount Value --------------------------------------------------------------------------- Assets: Note receivable from Gruma $17,219 $15,128 $17,864 $16,870 Liabilities: Medium-term notes 45,000 41,923 65,000 61,907 --------------------------------------------------------------------------- 2001 2000 ------------------- ----------------- NOTIONAL FAIR Notional Fair (in thousands) AMOUNT VALUE Amount Value --------------------------------------------------------------------------- Derivative financial instruments: Futures contracts-buy $22,701 $ (68) $11,433 $(257) Futures contracts-sell - - 231 - Currency forward contracts-buy 23,563 287 11,027 (101) Currency forward contracts-sell 46,344 (977) 37,692 267 Interest rate swap 25,000 (293) - - ---------------------------------------------------------------------------
COMMODITY RISK MANAGEMENT The Company utilizes commodity futures contracts, primarily wheat futures contracts, to reduce the risks associated with price fluctuations on its wheat and flour inventories. The futures contracts are marked-to-market each month and the gains and losses are recognized in earnings. FOREIGN CURRENCY HEDGING The Company's Canadian operations enter into foreign currency forward contracts to minimize exposure to foreign currency fluctuations with respect to U.S. dollar-denominated transactions. The foreign exchange forward contracts are purchased through major Canadian banking institutions. The gains and losses arising on these transactions are recognized in income at the maturity of the contracts. INTEREST RATE RISK MANAGEMENT The Company enters into interest rate swaps to reduce the impact of fluctuating interest rates. In November 2000, the Company entered into a $25 million notional amount interest rate swap agreement maturing on November 30, 2001. Under the terms of the agreement, the Company will make quarterly payments at a fixed-rate of 6.46%. In return, the Company will receive floating rate payments based on the current 3-month London Interbank Offered Rate (LIBOR). The net amount received or paid under the terms of the contract is classified as interest expense. OFF-BALANCE SHEET RISK As of March 3, 2001, and February 29, 2000, the Company had sold with limited recourse $19.8 million and $18.5 million of accounts receivable, respectively, related to its Canadian operations. To maintain the aggregate outstanding balance, collections received on these accounts may be replaced by new receivables. The credit risk of uncollectible accounts has been substantially transferred to the purchaser. Fees associated with these transactions are included in other income (expense), net, in the consolidated statements of operations. CONCENTRATIONS OF CREDIT RISK Management believes that the credit risk of exchange-traded futures contracts, foreign exchange forward contracts and interest rate contracts due to nonperformance of the counterparties is insignificant. The Company extends credit on a regular basis under various terms to customers that meet certain financial and other criteria. In general, the Company does not require collateral or security. The Company believes that its trade receivables do not represent significant concentrations of credit risk due to the large number of customers and markets into which its products are sold, as well as their dispersion across geographic areas. NOTE 10: NOTES PAYABLE Notes payable consisted of the following:
(in thousands) 2001 2000 -------------------------------------------------------------------- Canadian bankers' acceptances $ 54,934 $ 8,938 Notes payable, principally to banks 85,028 133,782 Amounts reclassified to long-term debt (100,420) (101,199) -------------------------------------------------------------------- TOTAL NOTES PAYABLE $ 39,542 $ 41,521 ====================================================================
The Company has a $180 million revolving credit agreement in the United States that expires in October 2005 and a $75 million 364-day revolving credit agreement in Canada. The Canadian credit agreement can be extended annually for additional 364-day terms, or if not renewed, can be converted into a two-year term loan. The Company had available $115 million under these revolving credit agreements as of March 3, 2001. The interest rates on borrowings under these agreements are variable and based on current market factors and the credit rating of the Company. These facilities are available for general corporate purposes. The credit agreements contain covenants pertaining to the maintenance of a fixed charge coverage ratio and an indebtedness to capitalization ratio. Related facility fees were $0.6 million and $0.4 million in fiscal 2001 and 2000, respectively. At March 3, 2001, the Company had total unused and uncommitted lines of credit from banks in the United States and Canada of approximately $40 million. No compensating balances were required for any of these credit lines. Notes payable totaling $100.4 million have been classified as long-term debt as a result of the Company's intent to refinance this debt on a long-term basis and the availability of such financing under the terms of the revolving credit agreements. The weighted average interest rates on notes payable outstanding at March 3, 2001, and February 29, 2000, were 5.8% and 6.1%, respectively. NOTE 11: LONG-TERM DEBT Long-term debt, net of current portion of $1.0 million in fiscal 2001 and $20.0 million in fiscal 2000, was as follows:
(in thousands) 2001 2000 ------------------------------------------------------------- Medium-term notes $ 45,000 $ 45,000 Other - 1,000 Notes payable, reclassified 100,420 101,199 ------------------------------------------------------------- TOTAL LONG-TERM DEBT $145,420 $147,199 =============================================================
The Company maintains a shelf registration statement with the Securities and Exchange Commission for the issuance of $150 million of debt securities, of which $140 million remained available at March 3, 2001. The Company may issue up to the entire amount as medium-term notes, Series B, in varying amounts, rates and maturities. Medium-term notes outstanding at March 3, 2001, mature in fiscal 2002 to 2007 and have a weighted average interest rate of 6.6%. Minimum principal payments totaling $145.4 million are due as follows: $33.3 million in fiscal 2003, $14.0 million in fiscal 2004, $6.0 million in fiscal 2005, $82.1 million in fiscal 2006 and $10.0 million in fiscal 2007. NOTE 12: SHAREHOLDERS' EQUITY The Company has authorized 10,000,000 shares of Preferred Capital Stock, par value $1.00 per share, which may be designated and issued as convertible into common shares. The Company has created a series of such Preferred Capital Stock, designated as Series A Junior Participating Preferred Capital Stock, consisting of 500,000 shares, par value $1.00 per share. No Preferred Capital Stock was outstanding during the three years ended March 3, 2001. The Company has a share rights plan that entitles one preferred share purchase right for each outstanding share of common stock. The rights become exercisable only after a person or group (with certain exceptions) becomes the beneficial owner of 15% or more of the Company's outstanding common stock or announces a tender offer, the consummation of which would result in beneficial ownership by a person or group of 15% or more of the Company's outstanding common stock. Each right will entitle its holder to purchase one one-hundredth share of Series A Junior Participating Preferred Capital Stock (consisting of 500,000 shares, par value $1.00 per share) at an exercise price of $70, subject to adjustment. If a person or group acquires beneficial ownership of 15% or more of the Company's outstanding common stock, each right will entitle its holder (other than such person or group) to purchase, at the then-current exercise price of the right, a number of shares of the Company's common stock having a market value of twice the then-current exercise price of the right. In addition, if the Company is acquired in a merger or other business combination transaction or if 50% or more of its consolidated assets or earnings power are acquired, each right will entitle its holder to purchase, at the then-current exercise price of the right, a number of the acquiring company's common shares having a market value of twice the then-current exercise price of the right. Following the acquisition by a person or group of beneficial ownership of 15% or more of the Company's outstanding common stock and prior to an acquisition by any person or group of 50% or more of the Company's outstanding common stock, the Board of Directors may exchange the outstanding rights (other than rights owned by such person or group), in whole or in part, for common stock or equivalent securities of the Company. Prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company's outstanding common stock, the rights are redeemable for $.001 (subject to adjustment) per right at the option of the Board of Directors. In addition, prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company's outstanding common stock, the Board of Directors may amend the terms of the rights to lower the 15% threshold for exercisability of the rights to not less than the greater of (i) the sum of .001% and the largest percentage of the outstanding common stock then beneficially owned by any person or group (with certain exceptions) or (ii) 10%. NOTE 13: LEASES The Company leases certain plant, office space and equipment for varying periods. Management expects that in the normal course of business, leases will be renewed or replaced by other leases. The following is a schedule of future minimum lease payments for operating leases that had initial or remaining noncancelable lease terms in excess of one year as of March 3, 2001:
Operating (in thousands) Leases ------------------------------------------------------------ 2002 $21,030 2003 16,737 2004 13,863 2005 11,673 2006 7,698 2007 AND BEYOND 12,173 ------------------------------------------------------------ Total minimum lease payments* $83,174 ============================================================
*Minimum payments do not include contingent rentals or vehicle lease payments based on mileage. Total net rent expense for operating leases, including those with terms of less than one year, consisted of the following:
(in thousands) 2001 2000 1999 ------------------------------------------------------------- Minimum rentals $26,730 $26,170 $25,144 Sublease rentals (249) (488) (355) ------------------------------------------------------------- TOTAL NET RENT EXPENSE $26,481 $25,682 $24,789 =============================================================
NOTE 14: COMMITMENTS AND 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. However, following submission of a claim for indemnity, the insurance carrier denied our claim for coverage and the Company commenced a lawsuit seeking to obtain coverage under the insurance carrier's policy. If the loss from the theft of product is not covered by such insurance, the Company would recognize a material charge to its results of operations. At March 3, 2001, the estimated cost to complete improvements in progress totaled approximately $12 million. NOTE 15: STOCK PLANS The 1989 and 1997 stock-based plans of the Company permit awards of restricted stock, incentive units and stock options to directors and key employees subject to the provisions of the plans and as determined by the Compensation Committee of the Board of Directors. At March 3, 2001, a total of 186,261 common shares were available for grants. In fiscal 2001, grants of 11,941 shares of restricted stock were awarded with varying performance criteria and vesting periods. At March 3, 2001, the total number of restricted shares outstanding was 81,185. The market value of shares issued under the plans, as of the date of grant, has been recorded as unearned compensation and is shown as a separate component of shareholders' equity. Unearned compensation is expensed over the period that restrictions lapse. Stock options are granted to purchase shares of Company common stock at not less than fair market value at dates of grant. With the exception of certain options that become exercisable over a period of years based on varying performance criteria, options generally become exercisable one year after the date of grant. In addition, options generally expire 10 years after the date of grant. The per share weighted average fair values of stock options granted were $3.46 in fiscal 2001, $5.35 in fiscal 2000 and $6.91 in fiscal 1999. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The following weighted-average assumptions were used in the calculation:
Assumptions 2001 2000 1999 -------------------------------------------------------------------- Expected dividend yield 4.4% 4.4% 3.8% Expected volatility 31.6% 27.6% 24.0% Risk-free interest rates 6.4% 5.7% 5.7% Expected life (in years) 7.3 6.9 8.2 --------------------------------------------------------------------
The Company applies APB Opinion No. 25 in accounting for the compensation costs of employee stock options in the financial statements. Had the Company determined compensation costs based on the fair value at the date of grant for its stock options, the Company's earnings from continuing operations would have been reduced to the pro forma amounts indicated below:
(in thousands, except per share data) 2001 2000 1999 ------------------------------------------------------------------- Earnings from continuing operations: As reported $21,175 $24,695 $6,832 Pro forma 19,805 23,968 5,944 Diluted earnings per share from continuing operations: As reported $ 1.12 $ 1.31 $ 0.36 Pro forma 1.05 1.28 0.31 -------------------------------------------------------------------
The following table contains information on stock options:
Weighted Average Exercise Shares Price Per Share ----------------------------------------------------------- Outstanding at February 28, 1998 1,336,496 $22.11 Granted 181,564 28.55 Exercised (191,879) 21.52 Expired or canceled (25,222) 25.75 ----------------------------------------------------------- Outstanding at February 28, 1999 1,300,959 $23.02 Granted 141,550 22.21 Exercised (61,089) 20.21 Expired or canceled (60,700) 25.38 ----------------------------------------------------------- Outstanding at February 29, 2000 1,320,720 $22.96 GRANTED 541,742 12.03 EXERCISED (6,000) 16.00 EXPIRED OR CANCELED (252,940) 22.37 ----------------------------------------------------------- OUTSTANDING AT MARCH 3, 2001 1,603,522 $19.38 ----------------------------------------------------------- Options exercisable at: February 28, 1999 875,009 $21.74 February 29, 2000 934,670 $22.58 MARCH 3, 2001 924,152 $22.22 -----------------------------------------------------------
For options outstanding at March 3, 2001, the range of exercise price per share was $11.84 to $28.91 and the average remaining contractual life was 7.3 years. NOTE 16: RETIREMENT PLANS DEFINED BENEFIT PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS In the United States and Canada, defined benefit pension plans cover substantially all employees. Benefits are based primarily on years of credited service and average compensation or stated amounts for each year of service. These plans are generally funded by contributions to tax-exempt trusts in amounts sufficient to provide assets to cover the plans' obligations. Plan assets consist principally of listed equity securities, fixed income securities and cash equivalents. The Company also provides post-retirement health and life insurance benefits for retirees in the United States and Canada who meet minimum age and service requirements. Life insurance benefits are funded on a pay-as-you-go basis through an insurance company. Health-care benefits are provided under a self-insured program administered by an insurance company. Summaries related to the changes in benefit obligations and plan assets, and to the funded status of the plans are as follows:
Post-Retirement Pension Benefits Benefits -------------------- -------------------- (in thousands) 2001 2000 2001 2000 ------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $182,569 $203,811 $ 13,582 $ 14,462 Service cost 3,298 3,724 171 149 Interest cost 13,597 12,358 1,081 929 Plan participants' contributions 547 600 756 668 Amendments 813 557 - - Plan expenses (706) (474) - - Actuarial (gain) loss 15,654 (24,512) 1,645 (763) Benefits payments (15,984) (15,606) (2,529) (2,040) Curtailments 405 - - - Foreign exchange adjustment (3,662) 2,111 (326) 177 ------------------------------------------------------------------------------- BENEFIT OBLIGATION AT END OF YEAR $196,531 $182,569 $ 14,380 $ 13,582 =============================================================================== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $288,104 $257,030 $ - $ - Actual return on plan assets 11,038 42,588 - - Employer contribution 1,381 1,289 1,773 1,372 Plan participants' contributions 547 600 756 668 Benefits payments (15,984) (15,606) (2,529) (2,040) Plan expenses (659) (474) - - Foreign exchange adjustment (4,876) 2,677 - - ------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR $279,551 $288,104 $ - $ - =============================================================================== FUNDED STATUS Funded status at end of year $ 83,020 $105,535 $(14,380) $(13,582) Unrecognized transition asset (2,804) (4,471) - - Unrecognized prior service cost 5,216 5,616 (490) (571) Unrecognized net (gain) loss (39,783) (73,921) 2,183 850 ------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED $ 45,649 $ 32,759 $(12,687) $(13,303) =============================================================================== Amounts recognized in the consolidated balance sheet consist of: Prepaid pension asset $ 58,100 $ 44,659 $ - $ - Accrued benefit liability (16,213) (15,044) (12,687) (13,303) Intangible asset 6 - - - Accumulated other comprehensive loss 3,756 3,144 - - ------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED $ 45,649 $ 32,759 $(12,687) $(13,303) =============================================================================== Post-Retirement Pension Benefits Benefits -------------------- -------------------- Weighted-average assumptions 2001 2000 2001 2000 ------------------------------------------------------------------------------- Discount rate 7.2% 7.6% 7.2% 7.6% Expected return on plan assets 10.3% 10.3% N/A N/A Rate of compensation increase 4.0% 4.0% N/A N/A -------------------------------------------------------------------------------
The assumed annual rate of increase in per capita costs of post-retirement health-care benefits for fiscal 2001 ranged from 4.8% to 5.8%. The rate is assumed to decrease gradually to 4% for fiscal 2004 and thereafter. Assumed health-care cost trends could have an effect on the amounts reported for the health-care plans. The effects of a one-percentage-point change in the assumed health-care cost trends are as follows:
1-Percentage-Point ------------------ (in thousands) Increase Decrease ---------------------------------------------------------- Total of service and interest cost $ 79 $ (65) Accumulated post-retirement benefit obligation 768 (639) ----------------------------------------------------------
Post-Retirement Pension Benefits Benefits ---------------------------- ------------------------- (in thousands) 2001 2000 1999 2001 2000 1999 ------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 3,298 $ 3,724 $ 3,337 $ 171 $ 149 $ 101 Interest cost 13,597 12,358 12,518 1,081 929 907 Expected return on plan assets (25,697) (23,017) (20,419) - - - Amortization of transition asset (1,521) (1,539) (1,532) - - - Amortization of prior service cost 949 1,080 1,367 (34) (35) (34) Recognized actuarial (gain) loss (3,567) (45) 760 157 159 117 Curtailment loss 401 - - - - - ------------------------------------------------------------------------------------- NET PERIODIC (BENEFIT) COST $(12,540) $ (7,439) $ (3,969) $1,375 $1,202 $1,091 =====================================================================================
The following information pertains to pension plans with accumulated benefit obligations in excess of plan assets:
Pension Benefits ------------------------ (in thousands) 2001 2000 ------------------------------------------------------------ Projected benefit obligation $16,648 $15,564 Accumulated benefit obligation 16,420 15,336 ------------------------------------------------------------
The minimum liability recorded for pension plans where the accumulated benefit obligation exceeded the fair market value of assets is as follows:
(in thousands) 2001 2000 ------------------------------------------------------------ Minimum liability recognized in comprehensive loss $(3,756) $(3,144) Tax benefit 1,465 1,226 ------------------------------------------------------------ MINIMUM LIABILITY RECOGNIZED IN COMPREHENSIVE LOSS, NET OF TAX $(2,291) $(1,918) ============================================================
DEFINED CONTRIBUTION PLANS Defined contribution plans cover substantially all salaried, sales and certain hourly employees in the United States and Canada. The Company makes contributions equal to 50% of the participating employee's contributions subject to certain limitations. Employer contributions, which are invested in shares of the Company's common stock, were $2.4 million in fiscal 2001, $2.3 million in fiscal 2000 and $2.2 million in fiscal 1999. NOTE 17: MULTIFOODS' BUSINESS SEGMENTS The Company has two reportable business segments: Multifoods Distribution Group and North America Foods. MULTIFOODS DISTRIBUTION GROUP is a distributor of food and related products to the foodservice industry in the United States. The business offers foodservice customers a broad selection of national brand-name, regional and private-label items, including food products, paper goods and cleaning supplies, through its national network of distribution centers. Customers include casual-dining, limited-menu restaurants, such as pizza, Mexican and Italian establishments, and sandwich shops; vending operators; the office coffee service market; movie theaters; fund-raising groups; commissaries; and stadium and recreational concession stands. In October 1999, the Company acquired Better Brands, Inc., a broadline foodservice distributor based in the northeast United States. The acquisition enhances the Company's position in the foodservice industry and expands its geographic reach. The Company holds leadership positions in the independent pizza restaurant, vending and office coffee service foodservice categories. NORTH AMERICA FOODS is comprised of two business units: U.S. Foodservice Products and Robin Hood Multifoods in Canada. U.S. Foodservice Products is a manufacturer and provider of baking mixes and frozen batters, doughs and desserts to foodservice operators and commercial customers. Customers include retail, wholesale and in-store bakeries, and foodservice establishments, such as restaurants and convenience stores. In Canada, Robin Hood Multifoods is a leading consumer foods manufacturer and marketer of flour and baking mixes, primarily under the Robin Hood brand name; and condiments, primarily under the Bick's brand name. The Company also is a leading provider of grain-based products and condiments to foodservice operators and commercial customers. DIVESTED BUSINESS consists of the food-exporting business, which the Company exited in fiscal 1998. The Company does not allocate interest expense, income taxes or certain corporate expenses to its business segments. The following tables set forth information by business segment:
Operating Net Operating Unusual Earnings (in millions) Sales Costs Items (Loss) --------------------------------------------------------------------------- 2001: MULTIFOODS DISTRIBUTION GROUP $2,042.5 $(2,025.7) $ (0.3) $ 16.5 NORTH AMERICA FOODS 482.4 (441.9) (1.8) 38.7 CORPORATE EXPENSES - (5.5) 5.6 0.1 --------------------------------------------------------------------------- TOTAL $2,524.9 $(2,473.1) $ 3.5 $ 55.3 =========================================================================== 2000: Multifoods Distribution Group $1,899.6 $(1,879.2) $ 0.5 $ 20.9 North America Foods 485.1 (446.5) - 38.6 Corporate Expenses - (7.1) - (7.1) --------------------------------------------------------------------------- Total $2,384.7 $(2,332.8) $ 0.5 $ 52.4 =========================================================================== 1999: Multifoods Distribution Group $1,845.8 $(1,817.5) $(11.5) $ 16.8 North America Foods 450.8 (419.5) (7.2) 24.1 Divested Business - 0.8 (10.3) (9.5) Corporate Expenses - (8.5) - (8.5) --------------------------------------------------------------------------- Total $2,296.6 $(2,244.7) $(29.0) $ 22.9 ===========================================================================
2001 2000 1999 -------------------------------- -------------------------------- -------------------------------- DEPRECIATION Depreciation Depreciation CAPITAL AND Capital and Capital and (in millions) EXPENDITURES AMORTIZATION ASSETS Expenditures Amortization Assets Expenditures Amortization Assets ---------------------------------------------------------------------------------------------------------------------- Multifoods Distribution Group $12.4 $13.7 $424.2 $31.1 $11.0 $400.2 $13.0 $11.4 $354.3 North America Foods 22.5 11.5 243.1 18.3 10.8 232.7 14.7 10.3 215.6 Divested Business - - 6.2 - - 6.2 - - 6.7 Corporate 0.3 0.2 91.1 - 0.4 97.1 0.4 0.4 75.4 Discontinued Operations - - - - - - - - 44.9 ---------------------------------------------------------------------------------------------------------------------- TOTAL $35.2 $25.4 $764.6 $49.4 $22.2 $736.2 $28.1 $22.1 $696.9 ======================================================================================================================
Corporate assets include cash and cash equivalents, U.S. prepaid pension assets, and current and deferred income tax assets. Geographic Information The Company's North America Foods business segment operates in the United States and Canada. The Canadian operations had revenues of $315.0 million, $311.8 million and $297.3 million for fiscal years 2001, 2000 and 1999, respectively. In addition, long-lived assets of the Canadian operations were $86.3 million, $87.6 million and $79.3 million at March 3, 2001, February 29, 2000, and February 28, 1999, respectively. Long-lived assets consist of property, plant and equipment; goodwill; and identifiable intangible assets.
NOTE 18: QUARTERLY SUMMARY (UNAUDITED) Net Operating Unusual Operating (in millions) Sales Costs Items Earnings ------------------------------------------------------------------------------ FIRST QUARTER - 2001 MULTIFOODS DISTRIBUTION GROUP $495.9 $(490.7) $ - $ 5.2 NORTH AMERICA FOODS 114.4 (106.9) - 7.5 CORPORATE EXPENSES - (1.5) - (1.5) ----------------------------------------------------------------------------- TOTAL $610.3 $(599.1) $ - $ 11.2 ============================================================================= First Quarter - 2000 Multifoods Distribution Group $472.0 $(465.7) $ - $ 6.3 North America Foods 116.8 (110.5) - 6.3 Corporate Expenses - (2.3) - (2.3) ----------------------------------------------------------------------------- Total $588.8 $(578.5) $ - $ 10.3 ============================================================================= SECOND QUARTER - 2001 MULTIFOODS DISTRIBUTION GROUP $468.8 $(465.0) $ (0.3) $ 3.5 NORTH AMERICA FOODS 116.5 (107.4) - 9.1 CORPORATE EXPENSES - (1.2) 5.6 4.4 ----------------------------------------------------------------------------- TOTAL $585.3 $(573.6) $ 5.3 $ 17.0 ============================================================================= Second Quarter - 2000 Multifoods Distribution Group $452.5 $(447.7) $ - $ 4.8 North America Foods 116.2 (108.2) - 8.0 Corporate Expenses - (1.9) - (1.9) ----------------------------------------------------------------------------- Total $568.7 $(557.8) $ - $ 10.9 ============================================================================= THIRD QUARTER - 2001 MULTIFOODS DISTRIBUTION GROUP $518.7 $(512.7) $ - $ 6.0 NORTH AMERICA FOODS 131.1 (116.7) (1.5) 12.9 CORPORATE EXPENSES - (1.2) - (1.2) ----------------------------------------------------------------------------- TOTAL $649.8 $(630.6) $ (1.5) $ 17.7 ============================================================================= Third Quarter - 2000 Multifoods Distribution Group $496.2 $(492.0) $ 0.5 $ 4.7 North America Foods 136.0 (122.1) - 13.9 Corporate Expenses - (1.9) - (1.9) ----------------------------------------------------------------------------- Total $632.2 $(616.0) $ 0.5 $ 16.7 ============================================================================= FOURTH QUARTER - 2001 MULTIFOODS DISTRIBUTION GROUP $559.1 $(557.3) $ - $ 1.8 NORTH AMERICA FOODS 120.4 (110.9) (0.3) 9.2 CORPORATE EXPENSES - (1.6) - (1.6) ----------------------------------------------------------------------------- TOTAL $679.5 $(669.8) $ (0.3) $ 9.4 ============================================================================== Fourth Quarter - 2000 Multifoods Distribution Group $478.9 $(473.8) $ - $ 5.1 North America Foods 116.1 (105.7) - 10.4 Corporate Expenses - (1.0) - (1.0) ----------------------------------------------------------------------------- Total $595.0 $(580.5) $ - $ 14.5 =============================================================================
NOTE 18: QUARTERLY SUMMARY (UNAUDITED) FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL YEAR (in millions, --------------- ---------------- --------------- ---------------- ---------------- except per share data) 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------------------------ Gross profit $44.7 $ 43.8 $45.0 $ 42.5 $52.6 $50.5 $46.7 $47.2 $189.0 $184.0 Earnings from continuing operations 4.8 4.6 5.2(b) 5.1 8.5(c) 8.1 2.7(d) 6.9 21.2 24.7 Loss from discontinued operations - (7.8) - (11.8) - - - - - (19.6) ------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) 4.8 (3.2) 5.2 (6.7) 8.5 8.1 2.7 6.9 21.2 5.1 Basic earnings (loss) per share of common stock (a): Continuing operations 0.25 0.24 0.28(b) 0.27 0.45(c) 0.43 0.14(d) 0.37 1.13 1.32 Discontinued operations - (0.41) - (0.63) - - - - - (1.05) ------------------------------------------------------------------------------------------------------------------------ Total 0.25 (0.17) 0.28 (0.36) 0.45 0.43 0.14 0.37 1.13 0.27 Diluted earnings (loss) per share of common stock (a): Continuing operations 0.25 0.24 0.28(b) 0.27 0.45(c) 0.43 0.14(d) 0.37 1.12 1.31 Discontinued operations - (0.41) - (0.62) - - - - - (1.04) ------------------------------------------------------------------------------------------------------------------------ Total 0.25 (0.17) 0.28 (0.35) 0.45 0.43 0.14 0.37 1.12 0.27 Comprehensive income (loss) 1.0 (1.1) 6.9 (7.7) 5.6 9.6 2.1 9.4 15.6 10.2 Dividends paid per share of common stock 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.80 0.80 Market price of common stock: Close 13.44 22.00 16.88 22.69 18.63 13.94 19.21 10.94 19.21 10.94 High 14.94 24.19 18.56 24.19 18.63 23.38 23.31 14.44 23.31 24.19 Low 9.81 19.63 12.56 21.31 15.75 13.63 16.44 10.75 9.81 10.75 ------------------------------------------------------------------------------------------------------------------------
(a) Earnings (loss) per share are computed independently for each period presented. As a result, the sum of the quarterly earnings (loss) per share in fiscal 2001 and 2000 does not equal the total computed for the year. (b) Includes a net after-tax gain of $0.2 million, or 1 cent per share, from unusual items and tax expense associated with a dividend from the Company's Canadian subsidiary. (c) Includes a net after-tax charge of $0.9 million, or 5 cents per share, from unusual items. (d) Includes a net after-tax charge of $0.2 million, or 1 cent per share, from unusual items.