Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Overview
Fiscal 1995 net earnings were $57 million, or $3.16 per share, compared
with a net loss of $13.4 million, or $.72 per share, in fiscal 1994.
Exclusive of unusual items, fiscal 1995 net earnings were $28 million, or
$1.55 per share, compared with $35.5 million, or $1.86 per share a year
ago. Fiscal 1993 net earnings were $41.2 million, or $2.13 per share.
Unusual items in fiscal 1995 resulted in a net benefit of $29 million
after tax, or $1.61 per share. Included in unusual items was a gain from
the divestiture of the Company's Frozen Specialty Foods business, a charge
for the integration of two of the Company's limited-menu foodservice
distribution businesses, a benefit with respect to a tax settlement and a
benefit from adjustments related to previously divested businesses. The
integration of the limited-menu foodservice distribution business of
Leprino Foods Company, acquired by the Company in fiscal 1995, with the
former Pueringer limited-menu foodservice distribution unit is expected to
provide pre-tax benefits of up to $3 million in fiscal 1996 and $6 million
in fiscal 1997. Unusual items in fiscal 1994 reduced after-tax earnings
by $48.9 million, or $2.58 per share. Included in fiscal 1994 unusual
items were the disposition of certain underperforming assets and an
investment in an unconsolidated affiliate, the write-downs of certain
assets and the reorganization of remaining operations. Reorganization
activities included the consolidation and closing of certain facilities,
plant rationalization and organizational changes.
Segment Results
The Company has redefined its business segments and adopted a revised
allocation process that provides that corporate general and administrative
costs are reflected as corporate expenses unless such costs are associated
with a business segment. The three continuing business segments are
Foodservice Distribution, Bakery and Venezuela Foods. In addition, the
Company has defined as Divested Businesses its Frozen Specialty Foods and
Meats businesses, which were sold in fiscal 1995, and its surimi seafood
business, which the Company anticipates divesting in fiscal 1996.
Previously reported segment financial information has been reclassified to
conform with the fiscal 1995 presentation. A description of the business
segments along with segment net sales and operating results are included
in Note 19 to the consolidated financial statements.
Net Sales from Continuing Businesses
[Graphic Material Omitted]
(in billions) 1993 1994 1995
Foodservice Distribution $1.10 $1.11 $1.39
Bakery .43 .44 .46
Venezuela Foods .25 .27 .32
Total Continuing Businesses $1.78 $1.82 $2.17
Operating Earnings from Continuing Businesses*
[Graphic Material Omitted]
1995
Foodservice Distribution 29%
Bakery 38%
Venezuela Foods 33%
*Before unusual items
Fiscal 1995 compared with fiscal 1994. Net sales from continuing
businesses increased 19% to $2.17 billion. Exclusive of acquisitions,
sales from continuing businesses increased 5%. Consolidated net sales
increased 6% to $2.3 billion. Consolidated operating earnings before
unusual items declined 11% to $60.3 million from $67.8 million in fiscal
1994. As a result of unusual items, consolidated operating earnings were
$86.5 million in fiscal 1995 as compared to an operating loss of $2.2
million in fiscal 1994.
Foodservice Distribution sales increased 26% to $1.4 billion.
Excluding the effect of acquisitions, net sales increased 3% primarily on
higher volumes from the former Pueringer limited-menu foodservice
distribution unit (Pueringer). Operating earnings before unusual items
declined 2% to $17.5 million compared with $17.8 million in fiscal 1994.
A significant decrease in vending distribution earnings resulted primarily
from costs associated with delays in the implementation timetable of a
business information system. Vending distribution will continue to
experience added costs in fiscal 1996 as the system is rolled out to
distribution centers. Fiscal 1995 operating earnings benefited from the
earnings of the acquired Leprino distribution business and improved
earnings from Pueringer as a result of the higher volumes. Fiscal 1995
unusual items of $6.2 million were for costs associated with the
integration of the limited-menu distribution businesses and fiscal 1994
unusual charges of $9.1 million were for organizational changes in vending
distribution.
Bakery sales increased 4% to $459.2 million principally as a result
of higher volumes in frozen bakery products, bakery flour and consumer
flour, partially offset by a 3% impact from a decline in the average
Canadian exchange rate. Operating earnings before unusual items increased
15% to $22.4 million compared with $19.5 million in fiscal 1994. The
increase in operating earnings was primarily the result of the benefits
from the reorganization of operations and improved volumes. The earnings
improvement was partially offset by the unfavorable Canadian exchange rate
and costs related to the introduction of consumer salsa products in Canada
and consumer condiments in the southern United States. Unusual items of
$29.4 million in fiscal 1994 consisted of the closing and downsizing of
certain facilities and organizational changes, including streamlining
Canadian administrative functions.
Venezuela Foods sales increased 19% to $317.7 million primarily on
volume increases in bakery, consumer and agricultural products. Higher
volumes in bakery products resulted from increased market shares and
additional business obtained in connection with the lease of two wheat
flour mills beginning in October 1994. Improved volumes in consumer
products were primarily the result of increased demand for grain-based
products and the impact of the acquisition of a corn flour business in May
1994. Higher volumes in agricultural products were primarily attributable
to an increase in feed market share. Operating earnings declined 18% to
$19.9 million, compared with $24.3 million in fiscal 1994. The earnings
decline was primarily the result of difficult economic conditions
including rising inflation, which resulted in the change to the U.S.
dollar as the functional currency for translation purposes in the fourth
quarter of fiscal 1994. These unfavorable impacts were partially offset
by the effects of higher volumes and the near-term stability from
government-imposed foreign exchange controls, described below.
In June 1994, the Venezuelan government implemented price controls,
which affect most of the Venezuelan operations' products, and a foreign
exchange control system. The government generally has allowed reasonable
price increases for most of the Company's products; however, there can be
no assurance that the Company will continue to be able to obtain
reasonable price increases. In connection with the implementation of
exchange and price controls, the government has announced that sufficient
U.S. dollars will be made available at the controlled exchange rate for
basic food imports, which include the Company's raw material needs. The
government has allowed the exchange of Venezuelan bolivars to U.S. dollars
for payments by the Company for raw material imports. However, the
Company has experienced delays in obtaining U.S. dollars for such import
transactions.
As of February 28, 1995, net monetary liabilities of the Company's
Venezuelan operations totaled the U.S.-dollar equivalent of $14 million.
The Company anticipates that its Venezuelan operations will generally be
in a net monetary asset position during fiscal 1996. Since June 1994, the
Venezuelan government has established the exchange rate at 170 bolivars
per dollar and has stated that exchange controls are temporary. However,
the Company is unable to determine the extent and timing of any changes in
the exchange controls and the potential impact on the exchange rate. If
the bolivar were to decline in value versus the U.S. dollar and the
Company was in a net monetary asset position, there would be foreign
exchange losses, the amount of which will depend upon the size of the net
monetary asset position and magnitude of the currency devaluation. In
addition, the Company may be unable to immediately increase selling prices
to maintain then-current gross profit margins. At the present time,
strategies for the management of currency risks consist of working capital
management techniques and product pricing strategies.
The Venezuelan government announced that companies intending to
repatriate dividends in U.S. dollars must obtain government approval. It
is unclear whether there will be limits imposed on such dividend
repatriations.
Divested businesses sales were $122.3 million in fiscal 1995 as
compared with $340 million in fiscal 1994. Operating earnings before
unusual items declined to $11.9 million compared with $18.5 million in
fiscal 1994. Sales and earnings declined as a result of the fiscal 1995
divestitures of the Frozen Specialty Foods and Meats businesses. Earnings
of the surimi seafood business, which the Company anticipates divesting in
fiscal 1996, were even with the year earlier. Unusual items of $34.2
million in fiscal 1995 were primarily from the gain on the divestiture of
the Frozen Specialty Foods business. Unusual items totaling $30.7 million
in fiscal 1994 included the write-down of the Company's Meats business net
assets to net realizable value and the loss on the sale of a regional
bakery distribution business.
Fiscal 1994 compared with fiscal 1993. Sales from continuing businesses
increased 2% to $1.82 billion while consolidated net sales declined 2% to
$2.16 billion. Consolidated operating earnings before unusual items
declined 10% to $67.8 million from $75.1 million in fiscal 1993. The
fiscal 1994 operating loss of $2.2 million was the result of $70 million of
unusual items.
Foodservice Distribution sales were $1.11 billion in fiscal 1994, up
slightly compared with fiscal 1993. Sales were impacted by the volume loss
of a major vending distribution customer which contributed to an overall
decline in sales and unit volume in vending distribution. Sales improved
on higher volumes from the Company's former Pueringer unit. Foodservice
Distribution operating earnings before unusual items declined 36% to $17.8
million compared with $28 million in fiscal 1993. The earnings decline
resulted from a significant decrease in vending distribution earnings,
which experienced lower sales and also lower gross margins resulting from
pricing pressures in a very competitive marketplace. Unusual items
totaling $9.1 million in Foodservice Distribution were primarily for
organizational changes in vending distribution.
Bakery sales increased 3% to $440.3 million principally as a result of
higher volumes in bakery mix, partially offset by a 4% impact from a
decline in the average Canadian exchange rate. Operating earnings before
unusual items declined 20% to $19.5 million compared to $24.5 million in
fiscal 1993. Operating earnings were impacted by lower margins in both
bakery and consumer products, which resulted from higher wheat costs and
competitive pricing pressures, and the unfavorable Canadian exchange rate.
Unusual items totaling $29.4 million in fiscal 1994 consisted of the
closing and consolidation of certain facilities and organizational changes,
including streamlining Canadian administration functions.
Venezuela Foods sales increased 7% to $267.8 million on volume
increases in consumer and agricultural product lines. Operating earnings
declined 5% to $24.3 million from the effects of rising inflation, which
resulted in the fiscal 1994 fourth quarter change to the U.S. dollar as the
functional currency for translation purposes, higher wheat costs and
competitive pricing pressures in animal feed products.
Divested businesses sales declined from $420.1 million to $340 million
as a result of the fiscal 1994 divestiture of a regional bakery
distribution business. Operating earnings before unusual items increased
from $9.9 million to $18.5 million on improved surimi seafood results which
benefited from more favorable raw material costs and higher volumes.
Unusual items totaling $30.7 million in fiscal 1994 included the write-down
of the Company's Meats business net assets to net realizable value and the
loss on the sale of the regional bakery distribution business.
Non-operating Expense and Income
In fiscal 1995, net interest expense increased from $10.7 million to $12.1
million primarily as a result of higher interest rates in the United States
and Canada, partially offset by higher interest income in Venezuela.
Increased interest income in Venezuela was the result of the temporary
build-up of local currency cash and equivalents which resulted from delays
in obtaining U.S. dollars to settle certain U.S. dollar-denominated
obligations as described above. The Company also recognized foreign
exchange losses of $2.7 million in fiscal 1995 from the Venezuelan local
currency cash and equivalents.
In fiscal 1994, interest expense declined from $11.8 million to $10.7
million, principally as a result of lower interest rates in the United
States and Canada and higher interest income in Venezuela.
In fiscal 1994, losses from unconsolidated affiliates were $12.2
million compared to earnings of $1.8 million in fiscal 1993. The fiscal
1994 loss included $12.5 million associated with the write-down of the
Company's investment in a Mexican animal feed affiliate and loss on
disposition of the Company's investment in a Mexican bakery mix affiliate.
Income Taxes
The effective tax rates on earnings before unusual items were 38.5% and
38.4% in fiscal 1995 and 1994, respectively. These rates reflect a low
effective tax rate in Venezuela in each of the fiscal years. The overall
effective tax rate was 20.5% in fiscal 1995 compared to 46.0% in fiscal
1994 and 37.6% in fiscal 1993. The fiscal 1995 overall effective tax rate
was impacted by the low tax rate on the Frozen Specialty Foods transaction
and a favorable tax settlement with respect to prior years' business
acquisitions.
Financial Condition
The Company's balance sheet and overall financial condition reflect the
impact of business acquisitions and divestitures during fiscal 1995.
Common shareholders' equity increased to $291.1 million while the debt-to-
total capitalization ratio decreased from 50% to 45%. Short-term financing
is provided by the use of commercial paper and short-term bank borrowings.
Approximately $263 million in U.S. and Canadian revolving credit agreements
and lines of credit are maintained to ensure availability of funds. As of
February 28, 1995, approximately $195 million of debt obligations were at
variable interest rates. The Company has a medium-term note program under
its shelf registration statement filed with the Securities and Exchange
Commission, which provides for the issuance of up to $100 million in
medium-term notes in various amounts. As of February 28, 1995, $70 million
remained available under the medium-term note program.
Debt to Total Capitalization
[Graphic Material Omitted]
(in millions) 1993 1994 1995
Total Debt $194 $258 $241
Total Capitalization $519 $511 $536
Ratio 37% 50% 45%
In fiscal 1995, operating working capital increased $49.4 million,
exclusive of the impact of acquisitions, dispositions and foreign exchange.
The increase was principally the result of higher inventories in Venezuela
from the effects of inflation and additional production capacity and, to a
lesser extent, the result of higher inventories in Bakery products. The
balance sheet impact from acquisitions is summarized in Note 2 to the
consolidated financial statements. The balance sheet impact from
divestitures includes a reduction of working capital of $40 million and a
reduction of property, plant and equipment of $55 million.
Capital Expenditures by Continuing Businesses (in millions)
[Graphic Material Omitted]
1993 1994 1995
Foodservice Distribution $12.2 $20.8 $ 8.4
Bakery 21.9 18.3 15.2
Venezuela Foods 5.7 8.7 5.5
Total Capital Expenditures
by Continuing Businesses $39.8 $47.8 $29.1
Capital expenditures and acquisitions of businesses are the Company's
principal investing activities. Capital expenditures by continuing
businesses totaled $29.1 million in fiscal 1995, down from $47.8 million in
fiscal 1994. Approximately 30% of the fiscal 1995 capital expenditures was
attributable to projects focused on increasing earnings through volume
improvements, new business or cost savings. The remaining capital
expenditures related to projects that were required to maintain existing
facilities and equipment.
During fiscal 1995, business acquisitions totaled $115.8 million. In
addition to the acquisition of the Leprino distribution business, the
Company acquired a corn flour business in Venezuela. The Company also
completed the divestitures of its Frozen Specialty Foods and Meats
businesses at an aggregate sale price of approximately $156 million. The
Company continues to pursue tactical and strategic business acquisitions in
order to enhance its market leadership positions in its Bakery and
Foodservice Distribution businesses.
The Company purchased approximately 0.4 million and 1.2 million shares
of outstanding common stock in fiscal 1995 and 1994, respectively,
primarily pursuant to a 2.5 million share repurchase program which was
initiated in fiscal 1994. The Company expects that future share
repurchases under this program, if any, will be funded by borrowings or
proceeds from any divestitures.
In Canada, the Company minimizes risks associated with wheat market
price fluctuations by hedging its wheat and flour inventories, open wheat
purchase contracts and open flour sales contracts with wheat futures
contracts. See Note 7 to the consolidated financial statements for further
discussion.
Independent Auditors' Report
The Board of Directors and Shareholders
International Multifoods Corporation:
We have audited the accompanying consolidated balance sheets of
International Multifoods Corporation and subsidiaries as of February 28,
1995 and 1994, and the related consolidated statements of operations and
cash flows for each of the years in the three-year period ended February
28, 1995. 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 generally accepted auditing
standards. 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 February 28,
1995 and 1994, and the results of their operations and their cash flows for
each of the years in the three-year period ended February 28, 1995 in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 12, 1995
Management's Responsibility for Financial Statements
The consolidated financial statements have been prepared by management in
conformity with generally accepted accounting principles 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 assure
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/Anthony Luiso /s/Duncan H. Cocroft
Anthony Luiso Duncan H. Cocroft
Chairman, President and Vice President-Finance and
Chief Executive Officer Chief Financial Officer
INTERNATIONAL MULTIFOODS CORPORATION and SUBSIDIARIES
Consolidated Statements of Operations
Fiscal year ended the last day of February
(dollars and shares in thousands,
except per share data) 1995 1994 1993
Net sales $2,295,119 $2,158,354 $2,199,158
Cost of sales (1,901,932) (1,743,892) (1,783,403)
Gross profit 393,187 414,462 415,755
Delivery and distribution (146,220) (141,838) (141,666)
Selling, general and
administrative (186,616) (204,852) (199,020)
Unusual items 26,240 (70,007) -
Operating earnings (loss) 86,591 (2,235) 75,069
Financing costs:
Interest, net (12,105) (10,685) (11,848)
Foreign exchange gains (losses)
on cash and equivalents (2,747) 203 1,110
Total financing costs (14,852) (10,482) (10,738)
Earnings (losses) from
unconsolidated affiliates - (12,187) 1,759
Earnings (loss) before income taxes 71,739 (24,904) 66,090
Income taxes (14,718) 11,466 (24,880)
Net earnings (loss) $ 57,021 $ (13,438) $ 41,210
Net earnings (loss) per share of
common stock $ 3.16 $ (.72) $ 2.13
Average shares of common
stock outstanding 17,974 18,911 19,282
See accompanying notes to consolidated financial statements.
INTERNATIONAL MULTIFOODS CORPORATION and SUBSIDIARIES
Consolidated Balance Sheets
February 28, 1995 and 1994
(dollars and shares in thousands) 1995 1994
Assets
Current assets:
Cash and equivalents $ 10,792 $ 10,507
Trade accounts receivable, net of allowance 142,474 146,455
Inventories 256,878 219,630
Deferred income taxes 18,506 27,266
Other current assets 43,047 35,432
Total current assets 471,697 439,290
Property, plant and equipment, net 228,025 245,891
Goodwill 108,636 72,672
Other assets 38,347 56,922
Total assets $846,705 $814,775
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 47,149 $ 58,651
Current portion of long-term debt 11,083 3,953
Accounts payable 167,114 150,221
Other current liabilities 90,646 88,909
Total current liabilities 315,992 301,734
Long-term debt, net of current portion 183,087 195,125
Deferred income taxes 15,767 22,462
Employee benefits and other liabilities 37,193 41,815
Total liabilities 552,039 561,136
Redeemable preferred stock, redemption value
$3,784 and $3,817 3,604 3,635
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 88,862 89,158
Retained earnings 395,406 349,298
Equity adjustment from foreign
currency translation (108,884) (107,364)
Equity adjustment from minimum
pension liability (1,641) (2,301)
Treasury stock, 3,835 and 3,507 shares, at cost (83,417) (78,364)
Unearned restricted stock (1,448) (2,607)
Total shareholders' equity 291,062 250,004
Commitments and contingencies
Total liabilities and shareholders' equity $846,705 $814,775
See accompanying notes to consolidated financial statements.
INTERNATIONAL MULTIFOODS CORPORATION and SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal year ended the last day of February
(dollars in thousands) 1995 1994 1993
Cash flows from operations:
Net earnings (loss) $ 57,021 $(13,438) $41,210
Adjustments to reconcile net earnings (loss)
to cash provided by operations:
Depreciation and amortization 27,045 29,892 28,797
Provision for unusual charges 5,413 70,007 -
Equity in losses (earnings) of
unconsolidated affiliates - 12,187 (1,759)
Gain on major business disposition (33,581) - -
Deferred income tax expense (benefit) 4,483 (12,504) 12,350
Provision for losses on receivables 4,477 3,783 2,953
Changes in operating assets and
liabilities, net of business
acquisitions and dispositions* (49,351) (49,573) (29,886)
Other, net 6,372 (4,137) (1,529)
Cash provided by operations 21,879 36,217 52,136
Cash flows from investing activities:
Acquisitions of businesses,
net of cash acquired (115,847) (18,476) (29,016)
Capital expenditures (30,776) (51,904) (45,683)
Proceeds from business dispositions 156,367 4,862 -
Proceeds from other property disposals 823 1,482 966
Other, net - - (472)
Cash provided by (used for)
investing activities 10,567 (64,036) (74,205)
Cash flows from financing activities:
Net increase (decrease) in notes payable (7,231) 40,095 (15,374)
Additions to long-term debt 4,973 40,000 81,222
Reductions in long-term debt (7,038) (8,735) (19,503)
Dividends paid (14,560) (15,423) (15,562)
Proceeds from issuance of common stock 355 1,579 1,501
Purchase of treasury stock (5,877) (27,490) (1,810)
Other, net (19) (209) (18)
Cash provided by (used for)
financing activities (29,397) 29,817 30,456
Effect of exchange rate changes
on cash and equivalents (2,764) (2,535) (1,541)
Net increase (decrease) in cash
and equivalents 285 (537) 6,846
Cash and equivalents at beginning of year 10,507 11,044 4,198
Cash and equivalents at end of year $ 10,792 $ 10,507 $11,044
*Cash flows from changes in operating
assets and liabilities, net of business
acquisitions and dispositions:
Accounts receivable $ (441) $(18,410) $(19,119)
Inventories (47,866) (23,032) 17,482
Other current assets (9,089) (1,889) (15,590)
Accounts payable 16,643 1,989 27,936
Other current liabilities (8,598) (8,231) (40,595)
Net change $(49,351) $(49,573) $(29,886)
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
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. The Company's fiscal year ends the last
day of February. To conform to the fiscal 1995 presentation, the net
margin from commodity sales of the Company's food exporting business for
fiscal 1994 and 1993 has been reclassified to net sales. As a result of
this reclassification, net sales and cost of sales decreased $66.4 million
in fiscal 1994 and $24.8 million in fiscal 1993 from the amounts previously
reported. In addition, certain other reclassifications have been made in
the accompanying consolidated financial statements in order to conform with
fiscal 1995 presentation.
Cost of sales. To more closely match costs with related revenues, the
Company classifies the inflation element inherent in interest rates on
Venezuelan local currency borrowings and the foreign exchange gains and
losses, which occur on certain Venezuelan borrowings, as a component of
cost of sales. Accordingly, a reduction of $0.4 million in fiscal 1995 and
increases of $2.8 million in fiscal 1994 and $3.6 million in fiscal 1993
are included in cost of sales.
Foreign currency translation and transactions. For the Company's Canadian
operations, the functional currency is the local currency. Assets and
liabilities are translated at current exchange rates and results of
operations are translated using a weighted average exchange rate during the
fiscal year. The gains or losses resulting from such translation are
included in a separate component of shareholders' equity.
Effective December 1, 1993, the functional currency for the Company's
Venezuelan operations changed from the local currency to the U.S. dollar.
In U.S. dollar functional currency operations, certain assets and related
earnings statement items are translated at historical exchange rates while
all other assets and liabilities are translated at current exchange rates.
Translation gains or losses are included in the determination of net
earnings.
Net foreign exchange losses of $3.0 million in fiscal 1995, $2.3
million in fiscal 1994 and $1.1 million in fiscal 1993 are included in
earnings.
Research and development expense. Research and development expense was
$1.6 million in fiscal 1995, $2.1 million in fiscal 1994 and $1.5 million
in fiscal 1993. Costs are charged to expense when incurred.
Income taxes. The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), as of March 1,
1993 and has elected to apply its provisions prospectively as of that date.
Under SFAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the
financial statement carrying amount and tax basis of assets and
liabilities. The cumulative effect as of March 1, 1993 of the accounting
change was insignificant.
Earnings per share. Earnings per share of common stock has been determined
by dividing net earnings, after deduction of preferred stock dividends, by
the average number of shares of common stock outstanding during the year.
Common stock options and other common stock equivalents are not included in
earnings per share computations since their effect is not significant.
Cash and equivalents. The Company considers all highly liquid short-term
investments purchased with a maturity of three months or less to be cash
equivalents.
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 cost of
businesses acquired over the fair market value of net tangible and
identifiable intangible assets. Goodwill and other intangibles are
amortized on a straight-line basis over not more than a 40-year period.
Other intangibles are included in other assets on the consolidated balance
sheets. Accumulated amortization of goodwill and other intangibles at
February 28, 1995 and 1994 was $16.8 million and $29.0 million,
respectively.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" (SFAS 121), which is required to be adopted by the Company on or before
the fiscal year ending February 28, 1997. The standard generally requires
recognition of impairment in the carrying value of goodwill and other long-
lived assets if the undiscounted expected future net cash flows is less
than the carrying amount of the assets. If SFAS 121 had been adopted in
fiscal 1995, management believes it would not have had a material effect on
the Company's financial condition or results of operations.
Note 2: Businesses Acquired
The Company acquired, with cash and notes, several businesses during the
three years ended February 28, 1995. All acquisitions have been accounted
for as purchases and, accordingly, their results of operations have been
included since their respective dates of acquisition. The most significant
acquisitions were as follows:
Fiscal
Year Business Segment Name Date Acquired
1995 Foodservice Distribution business
Distribution of Leprino Foods August 1994
1994 Foodservice
Distribution Bevmatic August 1993
Bakery JAMCO June 1993
1993 Bakery Gourmet Baker April 1992
Components of cash used for acquisitions, as reflected in the
consolidated statements of cash flows, were as follows:
(in thousands) 1995 1994 1993
Fair value of current assets,
net of cash acquired $ 46,298 $ 4,738 $ 8,062
Fair value of noncurrent assets,
excluding goodwill 39,003 12,276 11,557
Goodwill 51,478 5,778 12,493
Liabilities assumed, principally current (20,932) (1,816) (3,096)
Purchase contract liabilities - (2,500) -
Cash paid at closing,
net of cash acquired $115,847 $18,476 $29,016
The following unaudited pro forma financial information assumes the
Company's fiscal 1995 acquisition of the limited-menu foodservice
distribution business of Leprino Foods Company had been completed on March
1, 1993, the beginning of fiscal 1994. It includes the financing costs of
the acquisition as well as depreciation and amortization associated with
the allocation of the purchase price to net tangible and intangible assets
acquired. The pro forma information is not necessarily indicative of the
combined results of operations that would have occurred had the acquisition
been completed as of the beginning of fiscal 1994.
(in thousands, except earnings per share) 1995 1994
Net sales $2,495,000 $2,540,000
Net earnings (loss) 57,200 (13,800)
Net earnings (loss) per share of common stock 3.17 (.74)
Note 3: Financing Costs
Financing costs consisted of the following:
(in thousands) 1995 1994 1993
Interest expense $16,287 $13,181 $14,592
Capitalized interest (317) (746) (1,144)
Non-operating interest income (3,865) (1,750) (1,600)
Interest, net 12,105 10,685 11,848
Foreign exchange losses (gains) 2,747 (203) (1,110)
Total financing costs $14,852 $10,482 $10,738
Cash payments for interest, net of amounts capitalized, totaled $14.6
million in fiscal 1995, $12.0 million in fiscal 1994 and $17.1 million in
fiscal 1993.
Total interest income was $4.9 million in fiscal 1995, $2.3 million in
fiscal 1994 and $2.0 million in fiscal 1993.
Foreign exchange gains and losses which occur on cash and equivalents
of the Company's Venezuelan operations are included in financing costs in
order to match such gains and losses with the related interest income.
Note 4: Unusual Items
In fiscal 1995, the Company divested its Frozen Specialty Foods business
for a pre-tax gain of $33.6 million. The Company also recognized a pre-tax
charge of $6.2 million for the integration of the limited-menu foodservice
distribution business of Leprino Foods Company acquired by the Company in
fiscal 1995 with the Company's former Pueringer unit ("Business
Integration"), a pre-tax charge of $1.8 million for costs associated with
business acquisition activities, and a pre-tax benefit of $0.6 million
primarily related to previously divested businesses. The net tax benefit
from unusual items was $2.8 million which included the tax effect from
divested businesses and a benefit from a tax settlement with respect to the
proposed disallowance of certain deductions in connection with business
acquisitions. The total after-tax gain from these unusual items was $29.0
million, or $1.61 per share.
The Business Integration charge of $6.2 million included $1.1 million
for asset write-downs and $5.1 million of charges, which consisted of $1.4
million for severance benefits to approximately 125 warehouse, delivery and
administrative employees and $3.7 million primarily for the write-down of
lease commitments.
In fiscal 1994, the Company recognized unusual charges of $70.0 million
and a $12.5 million charge related to its investments in Mexican
unconsolidated affiliates. The total after-tax loss for these unusual
items was $48.9 million, or $2.58 per share. The $70.0 million in charges
included the disposition of certain underperforming assets and the
reorganization of remaining operations. The reorganization entails the
consolidation and closing of certain U.S. and Canadian facilities, plant
rationalization and organizational changes. Non-cash pre-tax charges
consisted of $19.1 million for asset write-downs and the loss on the sale
of a regional bakery distribution business and a $22.5 million charge
associated with the write-down of the Company's Meats business net assets
to expected realizable value. Remaining pre-tax charges of $28.4 million
include the cost of severance and related employee benefits and write-down
of lease commitments.
The following table summarizes the changes in the Company's
reorganization and integration reserves for the year ended February 28,
1995:
Foodservice Distribution Bakery Corporate
------------------------- ------------------ ---------
Consoli-
Organi- Organi- dation/ Organi-
zational Business zational Closing zational
(in thousands) Changes Integration Changes Facilities Changes Total
Accrued costs
at February 28, 1994 $4,043 $ - $6,864 $7,443 $687 $19,037
Reserves additions - 5,120 - - - 5,120
Reserves utilized (3,251) (714) (2,405) (4,282) (547) (11,199)
Reserves reversals - - - - (140) (140)
Exchange rate effect - - (149) (164) - (313)
Accrued costs
at February 28, 1995 $ 792 $4,406 $4,310 $2,997 $ - $12,505
Note 5: Income Taxes
Income tax expense was as follows:
U.S. Operations Non-U.S.
(in thousands) Federal Other Operations Total
1995:
Current expense $ 1,785 $ 2,340 $ 6,110 $ 10,235
Deferred expense (benefit) 603 (151) 4,031 4,483
Total tax expense $ 2,388 $ 2,189 $10,141 $ 14,718
1994:
Current expense (benefit) $ (2,571) $ 666 $ 2,943 $ 1,038
Deferred benefit (9,028) (2,021) (1,455) (12,504)
Total tax expense (benefit) $(11,599) $(1,355) $ 1,488 $(11,466)
1993:
Current expense $ 3,251 $ 1,739 $ 7,540 $ 12,530
Deferred expense 8,214 909 3,227 12,350
Total tax expense $ 11,465 $ 2,648 $10,767 $ 24,880
Temporary differences which give rise to deferred tax assets and
liabilities as of February 28, 1995 and 1994 were as follows:
1995 1994
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
(in thousands) Assets Liabilities Assets Liabilities
Depreciation and
amortization $15,154 $28,141 $15,441 $39,062
Accrued expenses 23,306 7,346 23,563 7,432
Inventory valuation methods 8,973 - 6,826 -
Reorganization and
divestiture reserves 8,723 - 20,041 -
Provision for losses
on receivables 2,738 12 3,214 5
Foreign net operating
loss carryforwards 9,383 - 4,792 -
Foreign earnings repatriation - 4,273 - 3,042
Alternative minimum tax - - 946 -
Other 3,537 1,865 3,877 2,471
Subtotal 71,814 41,637 78,700 52,012
Valuation allowance (31,760) - (24,904) -
Total deferred taxes $40,054 $41,637 $53,796 $52,012
At February 28, 1995, the Company's Venezuelan operations had net
operating loss carryforwards of approximately $30 million which will
expire in fiscal 1997 and 1998. The financial statement benefit of the
net operating loss carryforwards has been offset by the valuation
allowance due to the limited carryforward period. In fiscal 1995, the
valuation allowance increased $6.9 million, primarily as a result of the
aforementioned net operating loss carryforwards. The remainder of the
valuation allowance also relates to the Company's Venezuelan operations.
The effective tax rate varied from the U.S. federal statutory tax rate
as follows:
1995 1994 1993
U.S. federal statutory tax rate 35.0% (35.0)% 34.0%
Differences:
Effect of taxes on non-U.S. earnings (1.9) .1 (3.5)
State and local income taxes 2.0 (3.5) 3.1
Effect of intangibles (2.5) 1.7 3.0
Basis difference for business disposals (12.6) (12.2) -
Other .5 2.9 1.0
Effective tax rate 20.5% (46.0)% 37.6%
Provision was made for U.S. and non-U.S. income taxes applicable to
anticipated remittances of earnings from affiliates. At February 28,
1995, no provision was made on approximately $85 million of unremitted
earnings of non-U.S. affiliates which have been, or are intended to be,
permanently reinvested. Such earnings would become taxable upon the sale
or liquidation of the non-U.S. affiliates or upon the remittance of
dividends. It is not practicable to estimate the amount of the deferred
tax liability on such earnings. Earnings before income taxes resulting
from non-U.S. affiliates were $33.0 million in fiscal 1995, $3.5 million
in fiscal 1994 and $39.3 million in fiscal 1993.
The Internal Revenue Service (IRS) has completed examinations of the
U.S. federal income tax returns filed by the Company for the fiscal years
ended February 28, 1987 through February 28, 1991. As a result of the
examinations, the IRS has issued to the Company statutory notices of
deficiency covering the fiscal years ended February 28, 1987 and February
29, 1988 and a preliminary report covering the fiscal years ended February
28, 1989 through February 28, 1991, which are primarily related to the
proposed disallowance by the IRS of certain deductions claimed by the
Company in connection with acquisitions. In fiscal 1995, the Company
reached a settlement with the IRS on the proposed deduction disallowance
in connection with acquisitions, but the Company is still vigorously
pursuing its judicial remedies with respect to certain other issues
covering fiscal years 1988 to 1991. Management believes the final outcome
of the remaining matters will not have a material adverse effect on the
financial condition, results of operations or cash flows of the Company.
Net income taxes (refunded) paid totaled $5.9 million in fiscal 1995,
$(1.0) million in fiscal 1994 and $31.8 million in fiscal 1993.
Note 6: Supplemental Balance Sheet Information
(in thousands) 1995 1994
Accounts receivable, net:
Trade $149,132 $151,642
Allowance for doubtful accounts (6,658) (5,187)
Total accounts receivable, net $142,474 $146,455
Inventories:
Raw materials, excluding grain $ 25,683 $ 27,614
Grain 65,402 41,785
Finished and in-process goods 158,497 141,241
Packages and supplies 7,296 8,990
Total inventories $256,878 $219,630
Property, plant and equipment, net:
Land $ 11,635 $ 10,733
Buildings and improvements 87,739 107,741
Machinery and equipment 212,262 213,838
Transportation equipment 9,042 4,678
Improvements in progress 13,381 38,740
334,059 375,730
Accumulated depreciation (106,034) (129,839)
Total property, plant and equipment, net $228,025 $245,891
Accounts payable:
Trade $131,754 $111,061
Other 35,360 39,160
Total accounts payable $167,114 $150,221
Other current liabilities:
Wages and benefits $ 16,163 $ 16,520
Income taxes 18,177 12,328
Reorganization reserves 12,505 19,037
Other accrued expenses 43,801 41,024
Total other current liabilities $ 90,646 $ 88,909
Note 7: Financial Instruments
Fair value of financial instruments. The carrying value of cash and
equivalents, accounts receivable, accounts payable and debt approximate
fair value.
Concentrations of credit risk. The Company's Venezuelan operations
maintain deposits, primarily in local currency, in Venezuelan financial
institutions. As of February 28, 1995, these deposits totaled the
equivalent of $6.0 million. Due to foreign exchange controls implemented
by the Venezuelan government, the Company has experienced delays in
converting these deposits to U.S. dollars and, accordingly, paying down
U.S. dollar-denominated obligations of its Venezuelan operations.
Additionally, the Venezuelan government has assumed control of several
local banks due to their respective financial difficulties in order to
stabilize the banking system. The Company performs ongoing evaluations of
the relative credit standing of the Venezuelan financial institutions in
which it has deposits in order to minimize its credit risk.
Other financial instruments. In Canada, the Company minimizes risks
associated with wheat market price fluctuations by hedging its wheat and
flour inventories, open wheat purchase contracts, and open flour sales
contracts with wheat futures contracts. These futures contracts are
traded on U.S. exchanges and are denominated in U.S. dollars. Since the
inventories, purchase contracts and sales contracts are generally
denominated in Canadian dollars, the Company enters into foreign currency
forward contracts which have the effect of converting the U.S. dollar-
denominated futures contracts into Canadian dollar equivalents. At
February 28, 1995, the Company had entered into wheat futures contracts
with maturities that substantially coincided with the maturities of the
open wheat purchase contracts and flour sales contracts. These future
contracts hedged substantially all of the Company's Canadian wheat and
flour inventories and commitments as of February 28, 1995. At February
28, 1995, the foreign currency forward contracts relating to these wheat
futures contracts totaled approximately $3.2 million.
The U.S. exchanges on which the futures contracts are traded are the
counterparties to these transactions. The foreign currency forward
contracts are purchased through major Canadian banking institutions which
are counterparties to these transactions. Management believes the credit
risk of these futures and foreign currency forward contracts due to
nonperformance of the counterparties is insignificant.
Note 8: Accounts Receivable
As of February 28, 1995 and 1994, the Company had sold approximately $11.5
million and $11.8 million of accounts receivable, respectively.
Collections received on these accounts may be replaced by new receivables
in order to maintain the aggregate outstanding balance. The credit risk
of uncollectible accounts has been substantially transferred to the
purchaser. Fees associated with these transactions are included in
interest expense in the consolidated statements of operations.
Note 9: Notes Payable
Notes payable consisted of the following:
(in thousands) 1995 1994
Commercial paper $ - $26,154
Notes payable, principally to banks 47,149 32,497
Total notes payable $47,149 $58,651
Note 10: Long-term Debt
Long-term debt, net of current portion of $11.1 million in fiscal 1995 and
$4.0 million in fiscal 1994, was as follows:
(in thousands) 1995 1994
Commercial paper $ 50,455 $ 54,005
Notes payable to banks 49,545 100,000
Canadian Bankers Acceptances 57,504 -
Medium-term notes 20,000 30,000
Industrial revenue bond financing 3,500 8,434
Other, due in varying amounts through fiscal 1998 2,083 2,686
Total long-term debt $183,087 $195,125
The Company has a $150 million U.S. revolving credit agreement which
expires March 5, 1997, $52 million in U.S. and Canadian short-term lines
of credit which expire in fiscal 1996 and a $61 million Canadian revolving
credit agreement which expires March 15, 1997. The interest rate on
borrowings under these agreements is variable and based on current market
factors. There are no restrictions on the use of these facilities for
general corporate purposes and support for commercial paper issued by the
Company. The credit agreements and lines of credit contain certain
restrictive covenants that include maintenance of tangible net worth and
an indebtedness ratio. None of the restrictive covenants are expected to
affect the payment of dividends based on the Company's present dividend
guideline. At February 28, 1995, the Company had available $86 million
under the lines of credit and credit agreements. Related commitment and
facility fees were $0.6 million and $0.5 million during fiscal 1995 and
fiscal 1994, respectively.
The notes payable, commercial paper and Canadian Bankers Acceptance
amounts 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.
Minimum principal and sinking fund payments totaling $183.1 million
are as follows: $7.0 million in fiscal 1997, $162.6 million in fiscal
1998, $10.0 million in fiscal 1999, and $3.5 million in fiscal 2004.
The weighted average interest rate on commercial paper, notes payable
and Canadian Bankers Acceptances outstanding at February 28, 1995 was 6.7%
and at February 28, 1994 was 3.9%. The outstanding balances include U.S.
dollar, Canadian dollar and Venezuelan bolivar obligations. The average
dollar amount of consolidated borrowings in fiscal 1995 was $239.9 million
which had a weighted average interest rate of 6.7%.
In fiscal 1993, the Company established a medium-term note program
under its shelf registration statement filed with the Securities and
Exchange Commission for $100 million of debt securities of the Company.
Under the program, the Company may issue the entire amount in medium-term
notes. Amounts outstanding under this program at February 28, 1995 mature
in fiscal 1996 to fiscal 1999 and had a weighted average interest rate of
5.4%.
The industrial revenue bond financing matures in fiscal 2004 and had
an interest rate of 6.75% in fiscal 1995.
At February 28, 1995, the Company had available uncommitted lines of
credit from banks in Venezuela of approximately $65 million. No
compensating balances were required for any of these credit lines.
Note 11: Redeemable Preferred Stock
The Company has authorized 200,000 shares of Cumulative Redeemable Sinking
Fund First Preferred Capital Stock, par value $100 per share, which is
redeemable at the option of the Company at $105 per share plus accrued
dividends. There is a semiannual sinking fund requirement equal to $1.00
for each share then outstanding which may be satisfied by repurchases not
in excess of the redemption price or by call for redemption. The holders
of outstanding shares are entitled to elect one-third of the Company's
directors in the event of default in the payment of eight quarterly
dividends or in providing four semiannual sinking fund installments.
The Company purchased 310 shares in fiscal 1995, 2,841 shares in
fiscal 1994 and 300 shares in fiscal 1993 for sinking fund requirements.
The amounts issued and outstanding were:
(dollars in thousands) 1995 1994
Par value:
4% Series A $1,114 $1,123
4 1/4% Series C 380 390
4 1/2% Series D 755 767
5 1/4% Series E 1,355 1,355
Total $3,604 $3,635
Number of shares 36,042 36,352
Note 12: Preferred Capital Stock
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 1990 Junior Participating
Capital Preferred Stock, consisting of 500,000 shares, par value $1.00 per
share.
No Preferred Capital Stock was outstanding during the three years
ended February 28, 1995.
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 February 28, 1995:
Operating
(in thousands) leases
1996 $16,759
1997 14,232
1998 10,202
1999 7,394
2000 5,256
2001 and beyond 11,271
Total minimum lease payments * $65,114
*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) 1995 1994 1993
Minimum rentals $27,608 $28,270 $29,873
Contingent rentals 246 1,009 2,643
Sublease rentals (44) (286) (7)
Total net rent expense $27,810 $28,993 $32,509
Note 14: Commitments and Contingencies
There were no contingencies or litigation as of February 28, 1995 that, in
the opinion of management, would have had a material adverse effect on the
Company's consolidated financial condition, results of operations or cash
flows.
At February 28, 1995, the estimated cost to complete improvements in
progress totaled approximately $13 million.
Note 15: Shareholders' Equity
The following summarizes the changes in shareholders' equity for the three
years ended February 28, 1995:
Equity Adjustment from:
$.10 par value -----------------------
------------------ Capital in Foreign Minimum Unearned
Common Treasury Excess of Retained Currency Pension Restricted
(dollars and shares in thousands) Stock Stock Par Value Earnings Translation Liability Stock Total
Balance at February 29, 1992 $2,184 $(54,836) $88,700 $352,452 $(71,828) $(1,989) $(1,559) $313,124
Net earnings - - - 41,210 - - - 41,210
Translation adjustments - - - - (15,238) - - (15,238)
Dividends declared:
Common stock - - - (15,452) - - - (15,452)
Preferred stock - - - (180) - - - (180)
70 shares purchased for treasury - (1,810) - - - - - (1,810)
66 shares issued for
employee benefit plans - 1,496 180 - - - (149) 1,527
Amortization of unearned
restricted stock - - - - - - 465 465
Adjustment associated with
recognition of minimum
pension liability - - - - - (1,684) - (1,684)
Balance at February 28, 1993 2,184 (55,150) 88,880 378,030 (87,066) (3,673) (1,243) 321,962
Net loss - - - (13,438) - - - (13,438)
Translation adjustments - - - - (20,298) - - (20,298)
Dividends declared:
Common stock - - - (15,120) - - - (15,120)
Preferred stock - - - (174) - - - (174)
1,200 shares purchased for treasury - (27,490) - - - - - (27,490)
194 shares issued for
employee benefit plans - 4,276 278 - - - (2,844) 1,710
Amortization of unearned
restricted stock - - - - - - 1,480 1,480
Adjustment associated with
recognition of minimum
pension liability - - - - - 1,372 - 1,372
Balance at February 28, 1994 2,184 (78,364) 89,158 349,298 (107,364) (2,301) (2,607) 250,004
Net earnings - - - 57,021 - - - 57,021
Translation adjustments - - - - (1,520) - - (1,520)
Dividends declared:
Common stock - - - (10,746) - - - (10,746)
Preferred stock - - - (167) - - - (167)
366 shares purchased for treasury - (5,877) - - - - - (5,877)
37 shares issued for
employee benefit plans - 824 (296) - - - (222) 306
Amortization of unearned
restricted stock - - - - - - 1,381 1,381
Adjustment associated with
recognition of minimum
pension liability - - - - - 660 - 660
Balance at February 28, 1995 $2,184 $(83,417) $88,862 $395,406 $(108,884) $(1,641) $(1,448) $291,062
The Company's 1989 stock-based plan permits awards of restricted stock
and incentive units to key employees subject to the provisions of the plan
and as determined by the Compensation Committee of the Board of Directors.
In fiscal 1994, grants include 78,000 shares of restricted stock which
were awarded to key employees under the Company's long-term incentive
program. The restricted stock has a ten-year vesting period which will be
accelerated only if specified financial performance objectives are
achieved over a three-year period. In addition, incentive units were
awarded to each such key employee in a number equal to the number of
shares of restricted stock awarded. These incentive units will be earned
only in the event the Company achieves stronger financial performance than
that which is required to accelerate vesting of the restricted stock.
Incentive units, if earned, will be paid in the form of restricted stock.
The market value of shares issued under the plan, as of the date of grant,
has been recorded as unearned restricted stock and is shown as a separate
component of shareholders' equity. Unearned restricted stock is expensed
over the period restrictions lapse.
The Company has a shareholder 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 10% 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 10% or
more of the Company's outstanding common stock. Each right will entitle
its holder to purchase one one-hundredth share of Series 1990 Junior
Participating Preferred Capital Stock (consisting of 500,000 shares, par
value $1.00 per share) at an exercise price of $100, subject to
adjustment. If a person or group acquires beneficial ownership of 10% 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 (or, in certain circumstances, preferred) 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 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 10% 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 (or, in certain circumstances,
preferred) stock of the Company. Prior to the acquisition by a person or
group of beneficial ownership of 10% or more of the Company's outstanding
common stock, the rights are redeemable for $.01 per right at the option
of the Board of Directors.
Note 16: Stock Options
A total of 505,081 common shares are available for grants of stock options
or restricted stock under the Company's 1986 and 1989 stock plans. Stock
options are granted to directors, officers and key management employees to
purchase shares of Company common stock at not less than fair market value
at dates of grant for incentive stock options and at not less than 75% of
fair market value at dates of grant for non-qualified stock options.
Options generally become exercisable one year after the date of grant and
expire ten years after the date of grant.
The following table contains information on stock options:
Option Price
Shares Per Share-Range
Outstanding at
February 29, 1992 1,739,532 $11.28 - 29.00
Granted 152,200 23.69 - 28.06
Exercised (79,100) 11.28 - 25.69
Expired or canceled (6,925) 22.75 - 29.00
Outstanding at
February 28, 1993 1,805,707 $11.28 - 29.00
Granted 85,019 19.25 - 25.75
Exercised (86,375) 11.28 - 23.21
Expired or canceled (82,236) 19.21 - 28.06
Outstanding at
February 28, 1994 1,722,115 $11.28 - 29.00
Granted 72,077 16.06 - 18.00
Exercised (26,100) 11.28 - 14.97
Expired or canceled (200,263) 11.28 - 29.00
Outstanding at
February 28, 1995 1,567,829 $14.97 - 29.00
Options exercisable at:
February 28, 1993 1,246,463 $11.28 - 29.00
February 28, 1994 1,443,027 $11.28 - 29.00
February 28, 1995 1,424,844 $14.97 - 29.00
Note 17: Retirement Plans
The Company sponsors two defined contribution plans and several defined
benefit retirement plans.
The defined contribution plans cover salaried, sales and certain
hourly employees in the United States and Canada. The Company makes
contributions equal to 50% of the employee's contribution subject to
certain limitations. Employer contributions were approximately $1.7
million in fiscal 1995, $2.1 million in fiscal 1994 and $1.8 million in
fiscal 1993.
In the United States and Canada, defined benefit plans cover
substantially all employees. Benefits are based on final average salary
for U.S. salaried employees, years of credited service for U.S. hourly
employees and career average pay for Canadian employees. These plans are
generally funded by contributions to tax-exempt trusts in amounts
sufficient to provide assets to cover the plans' benefits. Plan assets
consist principally of listed equity securities, fixed income securities
and cash equivalents.
Net pension cost for the defined benefit plans was as follows:
(in thousands) 1995 1994 1993
Service costs $ 2,483 $ 2,769 $ 2,381
Interest costs 12,102 12,277 11,936
Actual return on plan assets 2,337 (22,813) (7,790)
Net amortization and deferral (16,760) 8,272 (6,550)
Net pension cost (credit) $ 162 $ 505 $ (23)
The funded status of the defined benefit plans and the amounts
recognized in the balance sheets were as follows:
1995 1994
Assets Benefit Assets Benefit
Exceed Obli- Exceed Obli-
Benefit gations Benefit gations
Obli- Exceed Obli- Exceed
(in thousands) gations Assets gations Assets
Actuarial present value
of benefit obligations:
Vested $131,952 $ 8,183 $146,293 $ 8,332
Nonvested 4,142 1,014 5,105 1,107
Accumulated benefit
obligations 136,094 9,197 151,398 9,439
Effect of future
salary increases 3,185 810 5,130 1,041
Projected benefit
obligations 139,279 10,007 156,528 10,480
Plan assets at
fair value 157,284 - 174,826 -
Plan assets in
excess of (less
than) projected
benefit obligations 18,005 (10,007) 18,298 (10,480)
Unamortized prior
service cost 6,080 - 6,815 -
Unrecognized effect
from past experience
different from that
assumed 9,390 3,500 8,720 4,813
Unrecognized transition
(assets) obligations,
net of amortization (12,511) 802 (14,343) 1,203
Adjustment required
to recognize minimum
pension liability - (3,492) - (4,975)
Prepaid (accrued)
pension costs $20,964 $(9,197) $ 19,490 $(9,439)
The Company amortizes prior service costs and unrecognized gains and
losses on a straight-line basis over not more than 16 years. Other
assumptions used, which reflect weighted averages of the U.S. and Canadian
defined benefit plans, were as follows:
1995 1994
Average discount rate 8.6% 7.5%
Expected long-term return rate 9.5% 9.5%
Rate of increase in future compensation 4.0% 4.0%
In Venezuela, all employees are entitled to certain severance
indemnities based on compensation and cause of separation. This post-
employment arrangement qualifies as a defined benefit plan under the
provisions of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions." The Company has elected to define
the vested benefit obligation for this arrangement as the actuarial
present value of vested benefits the employee is entitled to if
immediately separated at the measurement date. This arrangement has not
been funded and the corresponding expense recognized was $3.8 million in
fiscal 1995, $3.7 million in fiscal 1994 and $3.1 million in fiscal 1993.
Note 18: Post-retirement Health and Life Insurance Benefits
The Company provides post-retirement health and life insurance benefits
for retirees in the United States and Canada who meet minimum age and
service requirements. The costs of the U.S. life insurance benefits are
funded over the employees' active working lives through contributions to
an insurance continuation fund maintained by an insurance company. Life
insurance benefits for Canadian retirees are funded on a pay-as-you-go
basis through an insurance company. Health care benefits for U.S. and
Canadian retirees are provided under a self-insured program administered
by an insurance company.
During fiscal 1993, certain of the Company's U.S. post-retirement
health benefit plans were amended resulting in a decrease in accumulated
benefit obligations and service and interest costs.
The net periodic post-retirement benefit cost was as follows:
(in thousands) 1995 1994 1993
Service costs $ 296 $ 458 $ 602
Interest costs 1,134 1,492 1,627
Net amortization and deferral (1,689) (1,944) (1,458)
Net post-retirement
benefits cost (credit) $ (259) $ 6 $ 771
The actuarial present value of benefit obligations and the amounts
recognized in the consolidated balance sheets were as follows:
(in thousands) 1995 1994
Actuarial present value of benefit obligations:
Retirees $11,718 $14,952
Fully eligible active plan participants 539 2,553
Other active plan participants 2,535 4,144
Accumulated benefit obligations 14,792 21,649
Unrecognized effect from past experience
different from that assumed 3,178 (2,840)
Unrecognized effect from plan amendments 3,747 6,949
Accrued post-retirement cost $21,717 $25,758
The assumed annual rate of future increases in per capita cost of
health care benefits ranged from 4% to 8% for each of the next 10 years
and 4% thereafter. These trend rates reflect the Company's prior
experience, plan provisions and management's expectation of future rates.
Increasing the health care cost trend by 1% in each year would increase
the accumulated benefit obligation by $1.0 million at February 28, 1995
and the service and interest cost by $0.1 million for fiscal 1995. The
discount rates used, which reflect weighted averages of the U.S. and
Canadian plans, were 8.6% and 7.4% in fiscal 1995 and fiscal 1994,
respectively.
The fiscal 1995 divestitures of the Frozen Specialty Foods and Meats
businesses resulted in curtailment gains totaling $2.4 million. The
curtailment gains are reflected in the gain and loss, respectively, on
these transactions.
Note 19: Multifoods' Business Segments
The Company's business segments are as follows:
- Foodservice Distribution consists of U.S. vending distribution
and limited-menu foodservice distribution and food exporting
business.
- Bakery consists of U.S. and Canadian bakery products and consumer
products in Canada, which includes primarily home baking products
and condiments.
- Venezuela Foods consists of bakery products, consumer products for
home baking and agricultural products.
- Divested Businesses consists principally of the frozen specialty
foods and meats businesses which were divested in fiscal 1995
and the surimi seafood business which the Company
anticipates divesting in fiscal 1996.
In fiscal 1995 the Company redefined its business segments and also
adopted a revised allocation process that provides that corporate general
and administrative costs are reflected as corporate expenses unless such
costs are associated with a business segment. Fiscal 1994 and 1993
segment financial information has been reclassified to conform with the
fiscal 1995 presentation.
Operating
Net Operating Unusual Earnings
(in millions) Sales Costs Items (Loss)
1995:
Foodservice Distribution $1,395.9 $(1,378.4) $ (6.2) $ 11.3
Bakery 459.2 (436.8) - 22.4
Venezuela Foods 317.7 (297.8) - 19.9
Divested Businesses 122.3 (110.4) 34.2 46.1
Corporate Expenses - (11.4) (1.8) (13.2)
Total $2,295.1 $(2,234.8) $ 26.2 $ 86.5
1994:
Foodservice Distribution $1,110.3 $(1,092.5) $ (9.1) $ 8.7
Bakery 440.3 (420.8) (29.4) (9.9)
Venezuela Foods 267.8 (243.5) - 24.3
Divested Businesses 340.0 (321.5) (30.7) (12.2)
Corporate Expenses - (12.3) (.8) (13.1)
Total $2,158.4 $(2,090.6) $(70.0) $ (2.2)
1993:
Foodservice Distribution $1,103.2 $(1,075.2) $ - $ 28.0
Bakery 426.6 (402.1) - 24.5
Venezuela Foods 249.3 (223.8) - 25.5
Divested Businesses 420.1 (410.2) - 9.9
Corporate Expenses - (12.8) - (12.8)
Total $2,199.2 $(2,124.1) $ - $ 75.1
1995 1994 1993
---------------------------------- --------------------------------- ----------------------------------
Depreciation Depreciation Depreciation
Capital and Capital and Capital and
(in millions) Expenditures Amortization Assets Expenditures Amortization Assets Expenditures Amortization Assets
Foodservice
Distribution $ 8.4 $10.2 $371.9 $20.8 $ 6.1 $248.8 $12.2 $ 5.3 $220.8
Bakery 15.2 9.1 251.0 18.3 8.9 238.4 21.9 7.7 217.3
Venezuela Foods 5.5 3.1 147.1 8.7 2.3 104.3 5.7 1.9 98.3
Divested Businesses 1.5 3.9 39.6 3.6 11.9 183.9 5.5 13.0 214.2
Corporate .2 .7 37.1 .5 .7 39.4 .4 .9 52.9
Total $30.8 $27.0 $846.7 $51.9 $29.9 $814.8 $45.7 $28.8 $803.5
Amounts expended for business acquisitions are not considered as part of
capital expenditures. Assets are identifiable to business segments either
by their direct use or by allocations when used jointly by two or more
segments.
Note 20: Quarterly Summary (unaudited)
Operating
Net Operating Unusual Earnings
(in millions) Sales Costs Items (Loss)
First Quarter - 1995
Foodservice Distribution $293.3 $(288.3) $ - $ 5.0
Bakery 104.1 (103.0) - 1.1
Venezuela Foods 76.7 (74.2) - 2.5
Divested Businesses 73.8 (69.3) - 4.5
Corporate Expenses - (2.6) - (2.6)
Total $547.9 $(537.4) $ - $ 10.5
First Quarter - 1994
Foodservice Distribution $280.0 $(274.6) $ - $ 5.4
Bakery 101.4 (99.4) - 2.0
Venezuela Foods 65.3 (60.0) - 5.3
Divested Businesses 97.0 (93.5) - 3.5
Corporate Expenses - (3.4) - (3.4)
Total $543.7 $(530.9) $ - $ 12.8
Second Quarter - 1995
Foodservice Distribution $275.2 $(272.3) $ (6.2) $ (3.3)
Bakery 113.8 (109.2) - 4.6
Venezuela Foods 70.2 (66.0) - 4.2
Divested Businesses 17.1 (14.4) 32.9 35.6
Corporate Expenses - (3.0) - (3.0)
Total $476.3 $(464.9) $ 26.7 $ 38.1
Second Quarter - 1994
Foodservice Distribution $248.8 $(245.2) $ (9.1) $ (5.5)
Bakery 108.0 (103.0) (29.4) (24.4)
Venezuela Foods 66.6 (59.6) - 7.0
Divested Businesses 87.5 (82.5) (8.2) (3.2)
Corporate Expenses - (2.8) (.8) (3.6)
Total $510.9 $(493.1) $(47.5) $(29.7)
Third Quarter - 1995
Foodservice Distribution $423.3 $(417.3) $ - $ 6.0
Bakery 132.7 (122.6) - 10.1
Venezuela Foods 81.0 (74.8) - 6.2
Divested Businesses 16.4 (14.2) - 2.2
Corporate Expenses - (3.3) - (3.3)
Total $653.4 $(632.2) $ - $ 21.2
Third Quarter - 1994
Foodservice Distribution $297.2 $(291.0) $ - $ 6.2
Bakery 123.4 (115.7) - 7.7
Venezuela Foods 64.5 (59.0) - 5.5
Divested Businesses 81.2 (75.6) - 5.6
Corporate Expenses - (3.3) - (3.3)
Total $566.3 $(544.6) $ - $ 21.7
Fourth Quarter - 1995
Foodservice Distribution $404.1 $(400.5) $ - $ 3.6
Bakery 108.6 (102.0) - 6.6
Venezuela Foods 89.8 (82.8) - 7.0
Divested Businesses 15.0 (12.5) 1.3 3.8
Corporate Expenses - (2.5) (1.8) (4.3)
Total $617.5 $(600.3) $ (.5) $ 16.7
Fourth Quarter - 1994
Foodservice Distribution $284.3 $(281.7) $ - $ 2.6
Bakery 107.5 (102.7) - 4.8
Venezuela Foods 71.4 (64.9) - 6.5
Divested Businesses 74.3 (69.9) (22.5) (18.1)
Corporate Expenses - (2.8) - (2.8)
Total $537.5 $(522.0) $(22.5) $ (7.0)
First Quarter Second Quarter Third Quarter Fourth Quarter Total Year
(dollars in millions, --------------- --------------- ---------------- --------------- ----------------
except per share amounts) 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
Gross profit $98.9 $100.9 $82.7 $99.0 $112.4 $111.8 $99.2 $102.8 $393.2 $414.5
Net earnings (loss) 3.0 6.4 31.4(b) (27.2)(c) 10.9 12.5 11.7(d) (5.1)(e) 57.0 (13.4)
Per share (a) .17 .33 1.74(b) (1.41)(c) .61 .66 .65(d) (.28)(e) 3.16 (.72)
Dividends paid per share
of common stock .20 .20 .20 .20 .20 .20 .20 .20 .80 .80
Market price of
common stock:
Close 16 1/8 25 3/8 16 3/4 21 7/8 15 7/8 22 5/8 18 5/8 17 3/8 18 5/8 17 3/8
High 18 3/8 26 3/8 16 7/8 25 3/4 18 3/8 24 19 5/8 21 1/8 19 5/8 26 3/8
Low 15 1/8 23 5/8 15 3/8 20 15 3/4 21 1/4 15 7/8 16 3/4 15 1/8 16 3/4
(a) Earnings per share is computed independently for each period presented.
As a result of the effect of common shares purchased for treasury, the
total of the per share results for the four quarters do not equal the
annual net earnings (loss) per share in fiscal 1995 and 1994.
(b) Includes a net after-tax benefit of $25.9 million, or $1.44 per share
from unusual items. The net benefit is the result of a gain from the
divestiture of the Company's Frozen Specialty Foods business and a
charge for the integration of the Company's limited-menu
foodservice distribution businesses.
(c) Includes a $36.3 million after-tax, or $1.88 per share charge from
unusual items. Included in unusual items were the disposition of
underperforming assets, the write-down of certain assets and
reorganization of operations.
(d) Includes a net after-tax benefit from unusual items of $3.1 million,
or $.17 per share. Unusual items included a benefit from a tax
settlement and costs associated with acquisition activities.
(e) Includes a $12.6 million after-tax loss, or $.69 per share principally
from the write-down of Meats business net assets to expected realizable
value
Six-Year Comparative Summary
Fiscal year ended the last day of February
(dollars and shares in millions, except per share data) 1995 1994 1993 1992 1991 1990
Consolidated Summary of Operations
Net sales $2,295.1 $2,158.4 $2,199.2 $2,264.8 $2,175.7 $2,065.9
Cost of sales (1,901.9) (1,743.9) (1,783.4) (1,817.8) (1,744.2) (1,678.3)
Delivery and distribution (146.2) (141.8) (141.7) (138.0) (128.3) (106.4)
Selling, general and administrative (186.7) (204.9) (199.0) (224.1) (217.6) (207.5)
Unusual items 26.2 (70.0) - 3.4 1.0 (2.1)
Financing costs (14.8) (10.5) (10.8) (18.8) (20.7) (26.9)
Earnings (losses) from unconsolidated affiliates - (12.2) 1.8 (2.1) .3 .9
Earnings (loss) before income taxes and cumulative
effect of accounting change 71.7 (24.9) 66.1 67.4 66.2 45.6
Income taxes (14.7) 11.5 (24.9) (28.3) (31.0) (20.3)
Earnings (loss) before cumulative
effect of accounting change 57.0 (13.4) 41.2 39.1 35.2 25.3
Cumulative effect of accounting change, net of taxes - - - (17.1) - -
Net earnings (loss) $ 57.0 $ (13.4) $ 41.2 $ 22.0 $ 35.2 $ 25.3
Earnings (loss) per share of common stock:
Before cumulative effect of accounting change $ 3.16 $ (.72) $ 2.13 $ 2.00 $ 1.81 $ 1.30
Cumulative effect of accounting change - - - (.88) - -
Net earnings (loss) per share of common stock $ 3.16 $ (.72) $ 2.13 $ 1.12 $ 1.81 $ 1.30
Year-End Financial Position
Current assets $ 471.7 $ 439.3 $ 415.9 $ 413.3 $ 427.6 $ 474.1
Current liabilities 316.0 301.7 243.5 285.4 312.5 348.0
Working capital 155.7 137.6 172.4 127.9 115.1 126.1
Property, plant and equipment, net 228.0 245.9 245.7 221.3 239.2 218.7
Long-term debt, net of current portion 183.1 195.1 167.0 103.9 115.0 134.6
Shareholders' equity 291.1 250.0 322.0 313.1 320.6 303.0
Total assets 846.7 814.8 803.5 767.7 805.6 844.3
Dividends Paid
Preferred stock $ .2 $ .2 $ .2 $ .2 $ .2 $ .2
Common stock 14.4 15.2 15.4 15.4 15.2 15.2
Per share of common stock .80 .80 .80 .80 .79 .79
Other Financial Data
Current ratio 1.5:1 1.5:1 1.7:1 1.4:1 1.4:1 1.4:1
Return on beginning shareholders' equity 22.7% (4.2)% 13.1% 12.1%* 11.5% 8.5%
Equity per share of common stock $ 16.16 $ 13.63 $ 16.64 $ 16.19 $ 16.41 $ 15.68
Debt to total capitalization 45% 50% 37% 33% 34% 50%
Depreciation $ 22.8 $ 24.9 $ 23.8 $ 24.7 $ 24.1 $ 22.4
Capital expenditures, excluding acquisitions $ 30.8 $ 51.9 $ 45.7 $ 51.2 $ 57.3 $ 46.2
Average common shares outstanding 18.0 18.9 19.3 19.5 19.4 19.3
Number of common shareholders 5,234 4,939 5,097 5,113 5,008 5,273
Number of employees 7,495 8,390 8,341 8,231 9,140 9,172
Market price per share of common stock:
At year-end $ 18 5/8 $ 17 3/8 $ 25 3/4 $ 26 3/8 $ 25 5/8 $ 16 1/2
Range for year $ 19 5/8- $ 26 3/8- $ 28 7/8- $ 31 1/2- $ 26 1/2- $ 22 1/4-
15 1/8 16 3/4 23 1/4 23 7/8 16 3/8 16 1/8
*Exclusive of cumulative effect of accounting change.