SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number
1-6699
INTERNATIONAL MULTIFOODS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-0871880
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 East Lake Street, Wayzata, Minnesota 55391
(Address of principal executive offices) (Zip Code)
(612) 594-3300
(Registrant's telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's Common Stock,
par value $.10 per share, as of December 31, 1999 was 18,737,655.
PART I. FINANCIAL INFORMATION
-----------------------------
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- --------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Net sales $ 632,192 $ 611,147 $ 1,789,716 $ 1,723,420
Cost of materials and
production (537,155) (520,729) (1,526,617) (1,472,735)
Delivery and distribution (44,588) (38,573) (126,339) (111,380)
- --------------------------------------------------------------------------------
Gross profit 50,449 51,845 136,760 139,305
Selling, general
and administrative (34,304) (34,318) (99,398) (101,771)
Unusual items 519 - 519 (28,963)
- --------------------------------------------------------------------------------
Operating earnings 16,664 17,527 37,881 8,571
Interest, net (2,737) (2,705) (7,919) (7,731)
Other income (expense), net (297) 541 (763) 42
- --------------------------------------------------------------------------------
Earnings from continuing
operations before
income taxes 13,630 15,363 29,199 882
Income taxes (5,501) (5,548) (11,417) (1,094)
- --------------------------------------------------------------------------------
Earnings (loss) from
continuing operations 8,129 9,815 17,782 (212)
- --------------------------------------------------------------------------------
Discontinued operations:
Operating loss, after tax - - - (14,068)
Net loss on disposition,
after tax - (7,244) (19,560) (122,098)
- --------------------------------------------------------------------------------
Loss from discontinued
operations - (7,244) (19,560) (136,166)
- --------------------------------------------------------------------------------
Net earnings (loss) $ 8,129 $ 2,571 $ (1,778) $ (136,378)
================================================================================
Basic earnings (loss) per
share:
Continuing operations $ .43 $ .52 $ .95 $ (.01)
Discontinued operations - (.38) (1.04) (7.26)
- --------------------------------------------------------------------------------
Total $ .43 $ .14 $ (.09) $ (7.27)
================================================================================
Diluted earnings (loss) per
share:
Continuing operations $ .43 $ .52 $ .94 $ (.01)
Discontinued operations - (.38) (1.03) (7.26)
- --------------------------------------------------------------------------------
Total $ .43 $ .14 $ (.09) $ (7.27)
================================================================================
Average shares of common
stock outstanding:
Basic 18,760 18,743 18,755 18,758
Diluted 18,809 18,770 18,833 18,758
- --------------------------------------------------------------------------------
Dividends per share of
common stock $ .20 $ .20 $ .60 $ .60
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands)
Condensed
from audited
financial
(Unaudited) statements
Nov. 30, Feb. 28,
1999 1999
- -----------------------------------------------------------------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 11,032 $ 13,495
Trade accounts receivable, net 141,092 124,843
Inventories 192,361 162,414
Other current assets 56,301 39,315
- -----------------------------------------------------------------------
Total current assets 400,786 340,067
- -----------------------------------------------------------------------
Property, plant and equipment, net 194,181 165,161
Goodwill, net 85,509 82,089
Net noncurrent assets of
discontinued operations - 44,905
Other assets 91,526 64,711
- -----------------------------------------------------------------------
Total assets $772,002 $696,933
=======================================================================
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Notes payable $ 77,737 $ 32,489
Current portion of long-term debt 20,000 2,750
Accounts payable 169,296 161,700
Net current liabilities of
discontinued operations - 9,079
Other current liabilities 51,947 58,227
- -----------------------------------------------------------------------
Total current liabilities 318,980 264,245
- -----------------------------------------------------------------------
Long-term debt 147,199 121,199
Employee benefits and other liabilities 56,265 51,173
- -----------------------------------------------------------------------
Total liabilities 522,444 436,617
- -----------------------------------------------------------------------
Shareholders' equity:
Common stock 2,184 2,184
Accumulated other comprehensive loss (14,673) (17,215)
Other shareholders' equity 262,047 275,347
- -----------------------------------------------------------------------
Total shareholders' equity 249,558 260,316
- -----------------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------------
Total liabilities and shareholders' equity $772,002 $696,933
=======================================================================
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(unaudited)
(in thousands)
NINE MONTHS ENDED
---------------------
Nov. 30, Nov. 30,
1999 1998
- ---------------------------------------------------------------------------------
Cash flows from operations:
Earnings(loss) from continuing operations $ 17,782 $ (212)
Adjustments to reconcile earnings(loss) from continuing
operations to cash provided by (used for)
continuing operations:
Depreciation and amortization 16,318 16,676
Deferred income tax expense (benefit) 3,695 (9,561)
Provision for losses on receivables 762 172
(Gain) loss from unusual items (519) 28,963
Changes in working capital, net of business acquisition:
Accounts receivable (8,070) (16,009)
Inventories (22,604) (13,732)
Other current assets (11,287) (2,183)
Accounts payable 3,382 30,881
Other current liabilities (1,161) (18,174)
Other, net (4,083) (3,846)
- ---------------------------------------------------------------------------------
Cash provided by (used for) continuing operations (5,785) 12,975
Cash used for discontinued operations (12,197) (28,092)
- ---------------------------------------------------------------------------------
Cash used for operations (17,982) (15,117)
- ---------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (33,032) (16,043)
Acquisition of business, net of cash (27,934) -
Purchase of Venezuela operations assets (15,799) -
Proceeds from sale of investment - 2,340
Proceeds from property disposals 2,877 1,593
Discontinued operations 38,098 (4,832)
- ---------------------------------------------------------------------------------
Cash used for investing activities (35,790) (16,942)
- ---------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in notes payable 45,824 35,410
Net increase(decrease) in long-term debt 42,170 (20,302)
Dividends paid (11,233) (11,252)
Proceeds from issuance of common stock 1,235 3,355
Purchase of treasury stock (2,322) (4,617)
Discontinued operations (26,195) 34,667
Other, net 2,106 (15)
- ---------------------------------------------------------------------------------
Cash provided by financing activities 51,585 37,246
- ---------------------------------------------------------------------------------
Increase in cash from discontinued operations (263) (533)
- ---------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (13) (13)
- ---------------------------------------------------------------------------------
Net increase(decrease) in cash and cash equivalents (2,463) 4,641
Cash and cash equivalents at beginning of period 13,495 9,126
- ---------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 11,032 $ 13,767
=================================================================================
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) In the Company's opinion, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring adjustments, except as noted elsewhere in the
notes to the consolidated condensed financial statements) necessary to
present fairly its financial position as of November 30, 1999, and the
results of its operations for the three and nine months ended November
30, 1999 and 1998, and cash flows for the nine months ended November 30,
1999 and 1998. These statements are condensed and, therefore, do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
statements should be read in conjunction with the consolidated financial
statements and footnotes included in the Company's Annual Report on Form
10-K for the year ended February 28, 1999. The results of operations
for the three and nine months ended November 30, 1999, are not
necessarily indicative of the results to be expected for the full year.
(2) New accounting pronouncement - In June 1998, the Financial
Accounting Standards Board (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, depending on whether a
derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Gains and losses on derivative
instruments reported in other comprehensive income will be reclassified
as earnings in the periods in which earnings are affected by the hedged
item.
In June 1999, the FASB deferred the effective date for implementing SFAS
133. The Company now must adopt the standard no later than March 1,
2001.
(3) Acquisition - 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 will be
amortized on a straight-line basis over 20 years.
(4) Discontinued operations - In fiscal 1999, the Company recognized an
estimated loss of $124.6 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. The $9.3 million estimated loss on
disposal was based on selling the business at net book value during
fiscal 2000, with the loss resulting from estimated transaction costs
and taxes.
In the first quarter of fiscal 2000, the Company recorded an after-tax
charge of $7.8 million to discontinued operations. The charge consisted
of a $4.0 million loss on the June 1999 sale of the Venezuelan
agriculture and animal feeds business and a $3.8 million provision
resulting from higher-than-expected operating losses. The additional
operating loss provision was necessary as the first-quarter operating
results of the agriculture and animal feeds business were substantially
below the results previously forecasted. In addition, the Company also
adjusted its provision for estimated future net losses of the remaining
Venezuelan operations.
In the second quarter of fiscal 2000, the Company recorded an additional
after-tax charge of $11.8 million from the August 1999 sale of its
Venezuela consumer and commercial foods business to Gruma S.A. de C.V.
(Gruma). The additional charge resulted primarily 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. The Company received an $18.96 million note from Gruma, payable
over five years at an annual interest rate of 7.5%, and Gruma paid off
or assumed debt obligations of the Venezuelan business totaling $55.5
million, which comprised all of the Company's outstanding Venezuelan
debt. The Company, however, retained $11.9 million of Venezuelan
receivables and properties, which are expected to be collected or
liquidated over the next 15 months. The sales transactions complete the
Company's divestiture of the Venezuela Foods business.
(5) Comprehensive income (loss) - The components of total comprehensive
income (loss) were as follows:
Three Months Ended Nine Months Ended
------------------ --------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
(in thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Net earnings (loss) $8,129 $ 2,571 $(1,778) $(136,378)
Foreign currency translation
adjustments 1,399 1,322 2,542 (6,100)
Reclassification adjustment due to
foreign currency translation
adjustment recognized - 8,204 - 101,555
- --------------------------------------------------------------------------------
Comprehensive income (loss) $9,528 $12,097 $ 764 $ (40,923)
================================================================================
(6) Unusual items - In fiscal 1999, the Company's continuing operations
recognized pre-tax charges of $29.0 million. The charges were related
to the Company's plan to consolidate its two distribution businesses,
the write-off of receivables from a major customer of the Company's
former food-exporting business, and the write-down of assets and costs
associated with the Canadian frozen bakery business.
In the third quarter of fiscal 2000, the Company 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, 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 acquisition of a foodservice distribution business in the
Northeast United States, as well as strong growth potential and
strategic opportunities in certain markets. Except for the facilities
that will now stay open, remaining actions are expected to be
implemented as planned.
The liability balances as of November 30, 1999, were as follows:
Employee
Termination Lease
Benefits and Commitment
(in millions) Other Costs Total
- -------------------------------------------------------------------------------
Liability balance as of February 28, 1999 $ 2.5 $ 1.6 $ 4.1
Cash payments (1.1) (0.4) (1.5)
Liability balance reversed (0.3) (0.1) (0.4)
- -------------------------------------------------------------------------------
Liability balance as of November 30, 1999 $ 1.1 $ 1.1 $ 2.2
===============================================================================
(7) Interest, net
Three Months Ended Nine Months Ended
-------------------- --------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
(in thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------
Interest expense $3,737 $2,880 $ 9,690 $8,239
Capitalized interest (234) (23) (563) (54)
Non-operating interest income (766) (152) (1,208) (454)
- -------------------------------------------------------------------------------
Interest, net $2,737 $2,705 $ 7,919 $7,731
===============================================================================
Cash payments for interest, net of amounts capitalized, were $10.2
million and $9.4 million for the nine months ended November 30, 1999 and
1998, respectively.
(8) Income taxes - Cash payments for income taxes for the nine months
ended November 30, 1999 and November 30, 1998, were $7.4 million and
$11.1 million, respectively.
(9) Supplemental balance sheet information
Nov. 30, Feb. 28,
(in thousands) 1999 1999
- -----------------------------------------------------------------------
Trade accounts receivable, net:
Trade $ 144,737 $ 127,877
Allowance for doubtful accounts (3,645) (3,034)
- -----------------------------------------------------------------------
Total trade accounts receivable, net $ 141,092 $ 124,843
=======================================================================
Inventories:
Raw materials, excluding grain $ 15,331 $ 12,742
Grain 3,216 2,745
Finished and in-process goods 169,898 142,122
Packages and supplies 3,916 4,805
- -----------------------------------------------------------------------
Total inventories $ 192,361 $ 162,414
=======================================================================
Property, plant and equipment, net:
Land $ 14,379 $ 12,398
Buildings and improvements 90,074 82,766
Machinery and equipment 205,193 191,504
Transportation equipment 1,566 1,451
Improvements in progress 28,800 12,020
- -----------------------------------------------------------------------
340,012 300,139
Accumulated depreciation (145,831) (134,978)
- -----------------------------------------------------------------------
Total property, plant and equipment, net $ 194,181 $ 165,161
=======================================================================
Accumulated other comprehensive loss:
Foreign currency translation adjustment $ (11,262) $ (13,804)
Minimum pension liability adjustment (3,411) (3,411)
- -----------------------------------------------------------------------
Total accumulated other comprehensive loss $ (14,673) $ (17,215)
=======================================================================
(10) Segment information
Operating
Net Operating Unusual Earnings
(in millions) Sales Costs Items (Loss)
- ---------------------------------------------------------------------------
Three Months Ended Nov. 30, 1999
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
===========================================================================
Three Months Ended Nov. 30, 1998
Multifoods Distribution Group $ 483.8 $ (475.4) $ - $ 8.4
North America Foods 127.3 (115.9) - 11.4
Corporate Expenses - (2.2) - (2.2)
- ---------------------------------------------------------------------------
Total $ 611.1 $ (593.5) $ - $17.6
===========================================================================
Nine Months Ended Nov. 30, 1999
Multifoods Distribution Group $1,420.7 $(1,405.4) $ 0.5 $15.8
North America Foods 369.0 (340.8) - 28.2
Corporate Expenses - (6.1) - (6.1)
- ---------------------------------------------------------------------------
Total $1,789.7 $(1,752.3) $ 0.5 $37.9
===========================================================================
Nine Months Ended Nov. 30, 1998
Multifoods Distribution Group $1,380.6 $(1,360.2) $(11.5) $ 8.9
North America Foods 342.8 (319.9) (7.2) 15.7
Divested Business - 0.8 (10.3) (9.5)
Corporate Expenses - (6.5) - (6.5)
- ---------------------------------------------------------------------------
Total $1,723.4 $(1,685.8) $(29.0) $ 8.6
===========================================================================
(11) Contingencies - In fiscal 1998, the Company was notified that
approximately $6 million in Company-owned inventory was stolen from a
ship in the port of St. Petersburg, Russia. The ship had been chartered
by a major customer of the Company's former food-exporting business.
The Company believes, based on the facts known to date, that the loss is
covered by insurance. If the loss from the theft of product is not
covered by insurance, the Company would recognize a material charge to
its results of operations.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Results of
Operations and Financial Condition
(Unaudited)
In August 1999, the Company completed the sale of its Venezuela Foods
business. The business segment has been classified as discontinued
operations in the consolidated financial statements and in the following
management discussion and analysis.
Results of Operations:
- ----------------------
Overview
Earnings from continuing operations in the third quarter were $8.1
million, or 43 cents per share, compared with $9.8 million, or 52 cents
per share, a year ago. The decline was primarily due to lower operating
earnings in Multifoods Distribution Group, which continued to experience
higher delivery and distribution costs. The increase in these costs was
related to issues associated with the distribution group's facility
consolidations and information systems conversion. The Company is in
the process of addressing these issues and expects to return to more
normalized cost levels by the middle of next fiscal year.
For the nine months ended November 30, 1999, the net loss from
continuing and discontinued operations totaled $1.8 million, or 9 cents
per share. The net loss resulted from a $19.6 million charge to
discontinued operations. Information on the charge follows in the
discussion of discontinued operations.
Continuing Operations
Segment Results
Multifoods Distribution Group: Net sales in the third quarter
increased 3% to $496.2 million, as a result of higher volumes to
independent vending operators and the addition of results from Better
Brands, Inc., a foodservice distribution business that was acquired in
October 1999. This increase was partially offset by lower cheese
prices, which declined significantly during the quarter and reduced
the Company's sales prices. Excluding the impact of the cheese price
decline and the acquisition of Better Brands, overall sales increased
2% in the quarter. Operating earnings before unusual items declined
50% to $4.2 million. This decline was primarily due to increased
labor and delivery costs associated with the Company's distribution
center consolidations and information systems conversion. In
addition, the drop in the market price of cheese reduced operating
earnings by nearly $2 million in the quarter. The decline in
operating earnings, however, was partially offset by lower
administrative and pension costs.
In the first quarter of last year, the Company recognized an unusual
charge of $11.5 million for actions associated with the Company's plan
to consolidate its vending and foodservice operations into a single
business. The Company expects that high delivery and distribution costs
will more than offset the operating earnings benefits this year from the
consolidation program. The Company continues to expect the
consolidation plan to provide long-term annualized improvement in
operating earnings of $9 million to $12 million from additional capacity
to grow sales and cost-savings. The timing of achieving these full
benefits, however, is expected to be delayed a year to fiscal 2002.
In the third quarter of fiscal 2000, the Company 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, 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 acquisition of a foodservice distribution business in the
Northeast United States, as well as strong growth potential and
strategic opportunities in certain markets. Except for the facilities
that will now stay open, remaining actions are expected to be
implemented as planned.
Net sales for the nine-month period increased 3% to $1.42 billion, as a
result of higher volumes to independent vending operators and sandwich
shops. The increase was partially offset by a decline in sales to pizza
restaurants. Operating earnings before unusual items declined 25% to
$15.3 million, compared with $20.4 million last year. Operating
earnings were affected by the same factors described above for the third
quarter.
North America Foods: Net sales in the third quarter increased 7% to
$136 million, primarily due to higher volumes in the United States and
Canada. Sales of U.S. bakery products were up 9% in the quarter,
primarily because of additional business with large in-store bakery
chains. In Canada, consumer flour and commercial bakery ingredients
volumes increased during the quarter. In addition, sales were affected
by favorable currency translation but were reduced by the impact of
lower wheat costs. Operating earnings increased 22% to $13.9 million
because of the higher sales volume. The increase in operating earnings
as a percent of sales resulted primarily from the effects of spreading
fixed expenses over the higher sales volume.
Net sales for the nine-month period increased 8% to $369 million, up
from $342.8 million last year. Operating earnings before unusual items
increased 23% to $28.2 million, compared with $22.9 million last year.
Net sales and operating earnings were affected by the same factors
described above for the third quarter.
In the first quarter last year, the Company recognized an unusual charge
of $7.2 million for the write-down of assets and the cost of work-force
reductions associated with its Canadian frozen bakery business.
Non-operating Expense and Income
Third quarter net interest expense of $2.7 million was even with last
year. An increase in interest expense resulting from higher debt levels
was offset by higher interest income. In the current year, the Company
recognized interest income on a note from Gruma S.A. de C.V. (Gruma)
that was received from the sale of its Venezuelan consumer and
commercial foods business.
In the third quarter last year, the Company recognized a gain of $0.8
million from the sale of its investment in a Mexican animal feed
business.
Discontinued Operations
In fiscal 1999, the Company recognized an estimated loss of $124.6
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
million for operating losses from the measurement date (July 31,1998) to
the expected disposal date, and a $9.3 million loss on disposal. The
$9.3 million estimated loss on disposal was based on selling the
business at net book value during fiscal 2000, with the loss resulting
from estimated transaction costs and taxes.
In the first quarter of fiscal 2000, the Company recorded a charge of
$7.8 million to discontinued operations. The charge consisted of a $4
million loss on the June 1999 sale of the Venezuelan agriculture and
animal feeds business and a $3.8 million provision resulting from
higher-than-expected operating losses. The additional operating loss
provision was necessary as the first-quarter operating results of the
agriculture and animal feeds business were substantially below the
results previously forecasted. In addition, the Company also adjusted
its provision for estimated future net losses of the remaining
Venezuelan operations.
In the second quarter of fiscal 2000, the Company recorded an additional
charge of $11.8 million from the August 1999 sale of its Venezuelan
consumer and commercial foods business to Gruma. The additional charge
resulted primarily 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.
Financial Condition:
- --------------------
The debt-to-total-capitalization ratio increased to 50% at November 30,
1999, compared with 38% at February 28, 1999. The ratio at February 28,
1999, excludes debt obligations of the Company's Venezuelan business, as
such obligations were expected to be assumed by a buyer and were
classified as net assets of discontinued operations. The increase in
the debt-to-total-capitalization ratio was primarily the result of an
increase in working capital, planned capital expenditures and the
acquisition of Better Brands, Inc.
Working capital increased primarily because of higher accounts
receivable, inventories and other current assets. Accounts receivable
increased due to higher sales volume and extended terms given to a large
customer. In Canada, inventory levels increased as a result of seasonal
factors and a build-up requested by certain customers as part of Year
2000 contingency plans. The increase in the distribution group's
inventories was driven by its consolidation, expansion and system
conversion efforts. Other current assets increased on seasonally higher
levels of receivables from vendors and other receivables retained from
the sale of Venezuela Foods.
On August 18, 1999, the Company completed the sale of its Venezuelan
consumer and commercial foods business to Gruma. The Company received an
$18.96 million note from Gruma, payable over five years at an annual
interest rate of 7.5%, and Gruma paid off or assumed debt obligations of
the Venezuelan business totaling $55.5 million. The Company, however,
retained $11.9 million of Venezuelan receivables and properties, which
are expected to be collected or liquidated over the next 15 months. On
June 3, 1999, the Company sold its Venezuelan agriculture and animal
feeds business for $27.5 million in cash. Proceeds were used to reduce
debt obligations of the Venezuelan business. The sales transactions
complete the Company's divestiture of the Venezuela Foods business.
On October 25, 1999, the Company acquired the assets of Better Brands,
Inc., for $29.1 million, principally in cash. Better Brands is a
Connecticut-based broadline foodservice distributor with annual sales of
approximately $85 million.
Year 2000
- ---------
The Company actively addressed the Year 2000 issue by initiating Year
2000 project teams in each of its major businesses. The project teams
have been in place for over two years. Prior to December 31, 1999, each
business completed a comprehensive inventory and review of both computer
systems and non-computer systems that could include some kind of
embedded technology, upgraded or fixed all major critical systems which
were not Year 2000 compliant, tested each of these systems to insure the
systems were Year 2000 compliant and implemented these systems, as
appropriate, at all locations. Each business also completed the
development of contingency plans based upon the evaluation of critical
vendors, suppliers and customers. The Company's projects addressing the
Year 2000 compliance of its computer and non-computer systems did not
displace projects of a more critical nature. The costs associated with
the Year 2000 effort were not material to the Company's results of
operations.
All major critical systems have continued to function correctly and as
planned in the year 2000. To date, there have been no significant
operational problems due to any Year 2000 issues and based upon this
experience and the testing completed prior to December 31, 1999, the
Company does not anticipate that the Year 2000 issue will have a
material effect on the operations of the Company. The Company will,
however, continue to monitor closely the performance of its systems and
the Year 2000 readiness of its critical vendors, suppliers and
customers.
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, the
Company and its representatives may from time-to-time make written and
oral forward-looking statements. These forward-looking statements are
based on current expectations or beliefs, including, but not limited to,
statements concerning the Company's operations and financial performance
and condition. For this purpose, statements that are not statements of
historical fact may be deemed to be forward-looking statements. The
Company cautions that these statements by their nature involve risks and
uncertainties, and actual results may differ materially depending on a
variety of important factors, including, among others, the impact of
competitive products and pricing; market conditions and weather patterns
that may affect the costs of grain, cheese and other raw materials;
changes in laws and regulations; the inability of the Company or its
business partners to resolve "Year 2000" issues or the inability of the
Company to accurately estimate the cost associated with "Year 2000"
compliance; the Company's ability to realize the book value of its
remaining Venezuelan assets; the Company's ability to reduce delivery
and distribution costs and realize the earnings benefits related to the
distribution group's consolidation and expansion plans; the inability of
the Company 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 the Company's report on Form 10-K
for the year ended February 28, 1999, and other reports filed with the
Securities and Exchange Commission.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Agreement, dated October 20, 1999, between Jeffrey E. Boies
and International Multifoods Corporation regarding retirement and severance
arrangements.
11. Computation of Earnings Per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.
27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended November 30,
1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL MULTIFOODS CORPORATION
Date: January 12, 2000 By: /s/ William L. Trubeck
------------------------
William L. Trubeck
Senior Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
EXHIBIT INDEX
10.1 Agreement, dated October 20, 1999, between Jeffrey E. Boies and
International Multifoods Corporation regarding retirement and severance
arrangements.
11. Computation of Earnings (loss) Per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.
27. Financial Data Schedule.