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 August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number
1-6699
INTERNATIONAL MULTIFOODS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-0871880
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
33 South 6th Street, Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
(612) 340-3300
(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 September 30, 1996 was 17,987,644
PART I. FINANCIAL INFORMATION
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 1995 1996 1995
Net sales $ 634,499 $ 621,244 $ 1,260,572 $ 1,255,888
Cost of sales (539,729) (520,822) (1,076,487) (1,055,538)
Gross profit 94,770 100,422 184,085 200,350
Delivery and distribution (41,573) (42,138) (82,004) (80,607)
Selling, general
and administrative (42,836) (42,957) (85,134) (92,269)
Unusual items - (5,700) (3,600) (5,700)
Operating earnings 10,361 9,627 13,347 21,774
Interest, net (4,440) (4,474) (8,730) (9,353)
Other income (expense), net (214) (1,225) 8 (1,471)
Earnings before
income taxes 5,707 3,928 4,625 10,950
Income taxes (1,712) 3,059 (1,063) 601
Net earnings $ 3,995 $ 6,987 $ 3,562 $ 11,551
Net earnings per
share of common stock $ .22 $ .38 $ .20 $ .63
Average shares of common
stock outstanding 17,983 17,954 17,981 17,956
Dividends per share
of common stock $ .20 $ .20 $ .40 $ .40
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
Aug. 31, Feb. 29,
1996 1996
Assets
Current assets:
Cash and equivalents $ 5,315 $ 7,508
Trade accounts receivable, net 158,377 165,527
Inventories 256,471 230,626
Other current assets 54,978 55,374
Total current assets 475,141 459,035
Property, plant and equipment, net 227,611 226,498
Goodwill, net 98,642 99,999
Other assets 36,337 36,725
Total assets $837,731 $822,257
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 42,252 $ 28,541
Current portion of long-term debt 1,500 11,000
Accounts payable 186,480 170,884
Other current liabilities 58,478 61,870
Total current liabilities 288,710 272,295
Long-term debt 203,154 202,937
Employee benefits and other liabilities 49,195 47,462
Total liabilities 541,059 522,694
Shareholders' equity:
Common stock 2,184 2,184
Other shareholders' equity 294,488 297,379
Total shareholders' equity 296,672 299,563
Commitments and contingencies
Total liabilities and
shareholders' equity $837,731 $822,257
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(unaudited)
(in thousands)
SIX MONTHS ENDED
Aug. 31, Aug. 31,
1996 1995
Cash flows from operations:
Net earnings $ 3,562 $ 11,551
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation and amortization 14,970 14,866
Deferred income tax benefit (614) (6,564)
Provision for losses on receivables 2,376 3,445
Provision for unusual charges 3,600 15,493
Gain on major business disposition - (9,900)
Changes in operating assets and liabilities,
net of business acquisitions and disposition:
Accounts receivable 4,879 14,810
Inventories (25,816) 25,199
Other current assets 1,072 (5,037)
Accounts payable 15,798 (23,658)
Other current liabilities (7,062) (7,084)
Other, net 1,239 3,343
Cash provided by operations 14,004 36,464
Cash flows from investing activities:
Business acquisitions - (29,904)
Capital expenditures (13,490) (14,375)
Proceeds from business disposition - 48,009
Proceeds from property disposals 257 566
Cash provided by (used for)
investing activities (13,233) 4,296
Cash flows from financing activities:
Net increase (decrease) in notes payable 13,852 (7,412)
Net decrease in long-term debt (9,500) (19,138)
Dividends paid (7,313) (7,309)
Proceeds from issuance of common stock 14 957
Purchase of treasury stock (16) (1,688)
Other, net (164) (45)
Cash used for
financing activities (3,127) (34,635)
Effect of exchange rate changes on cash
and equivalents 163 (1,828)
Net increase (decrease)in cash and equivalents (2,193) 4,297
Cash and equivalents at beginning of period 7,508 10,792
Cash and equivalents at end of period $ 5,315 $ 15,089
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) In the opinion of the Company, 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 August 31, 1996 and the results of its operations
for the three and six months ended August 31, 1996 and 1995 and cash flows
for the six months ended August 31, 1996 and 1995. 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 29, 1996. The
results of operations for the three and six months ended August 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123, which was adopted by the Company on
March 1, 1996, establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS 123 allows companies to
either continue the current method of accounting for stock-based
compensation, or to switch to a fair-value based method. The Company
elected to continue using the current accounting method, and therefore will
be required to present pro forma disclosures of net income and earnings per
share as if the fair-value based method had been applied.
(2) 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 such borrowings, as a component of cost of sales.
Accordingly, cost of sales was increased by $1.2 million and $1.5 million
for the three and six months ended August 31, 1996, respectively. Cost of
sales was reduced by $2.7 million and $1.6 million for the three and six
months ended August 31, 1995, respectively.
(3) Unusual items - During the quarter ended May 31, 1996, the Company
recognized unusual items that resulted in a pre-tax charge of $3.6 million,
$2.2 million after tax ($0.12 per share). The unusual items included $2.2
million for severance and other costs resulting from the resignation of the
Company's former Chief Executive Officer, Anthony Luiso, and $1.4 million
primarily for the cost of business assessment studies.
(4) Interest, net consisted of the following (in thousands):
Three Months Ended Six Months Ended
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 1995 1996 1995
Interest expense $4,548 $5,144 $8,937 $10,445
Capitalized interest (10) (51) (19) (95)
Non-operating interest income (98) (619) (188) (997)
Interest, net $4,440 $4,474 $8,730 $ 9,353
Cash payments for interest, net of amounts capitalized, for the six months
ended August 31, 1996 and 1995 were approximately $8.6 million and $11.1
million, respectively.
(5) Income taxes - Cash payments for income taxes for the six months ended
August 31, 1996 and 1995 were $4.8 million and $2.8 million, respectively.
(6) Supplemental balance sheet information (in thousands)
Aug. 31, Feb. 29,
1996 1996
Trade accounts receivable, net:
Trade $167,845 $179,504
Allowance for doubtful accounts (9,468) (13,977)
Total trade accounts receivable, net $158,377 $165,527
Inventories:
Raw materials, excluding grain $ 26,603 $ 17,529
Grain 36,377 46,331
Finished and in-process goods 184,680 159,077
Packages and supplies 8,811 7,689
Total inventories $256,471 $230,626
Property, plant and equipment, net:
Land $ 13,398 $ 12,045
Buildings and improvements 90,426 90,001
Machinery and equipment 224,408 217,567
Transportation equipment 8,083 9,188
Improvements in progress 14,926 13,157
351,241 341,958
Accumulated depreciation (123,630) (115,460)
Total property, plant and equipment, net $227,611 $226,498
(7) Segment information - The Company's business segments are as follows:
Foodservice Distribution consists of U.S. vending distribution and limited-
menu 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 of the surimi seafood business which
was divested in fiscal 1996.
Net Operating Unusual Operating
(in millions) Sales Costs Items Earnings
Three Months Ended Aug. 31, 1996
Foodservice Distribution $ 432.7 $ (432.3) $ - $ .4
Bakery 114.4 (110.8) - 3.6
Venezuela Foods 87.4 (78.5) - 8.9
Corporate Expenses - (2.6) - (2.6)
Total $ 634.5 $ (624.2) $ - $10.3
Three Months Ended Aug. 31, 1995
Foodservice Distribution $ 400.3 $ (396.5) $(9.4) $(5.6)
Bakery 110.1 (105.4) - 4.7
Venezuela Foods 106.3 (97.8) - 8.5
Divested Businesses 4.6 (3.7) 9.9 10.8
Corporate Expenses - (2.5) (6.2) (8.7)
Total $ 621.3 $ (605.9) $(5.7) $ 9.7
Six Months Ended Aug. 31, 1996
Foodservice Distribution $ 876.0 $ (870.5) $ - $ 5.5
Bakery 226.0 (220.3) - 5.7
Venezuela Foods 158.6 (147.6) - 11.0
Corporate Expenses - (5.3) (3.6) (8.9)
Total $1,260.6 $(1,243.7) $(3.6) $13.3
Six Months Ended Aug. 31, 1995
Foodservice Distribution $ 816.7 $ (807.3) $(9.4) $ -
Bakery 218.1 (211.8) - 6.3
Venezuela Foods 203.0 (188.0) - 15.0
Divested Businesses 18.1 (15.6) 9.9 12.4
Corporate Expenses - (5.7) (6.2) (11.9)
Total $1,255.9 $(1,228.4) $(5.7) $21.8
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Results of
Operations and Financial Condition
(Unaudited)
Results of Operations:
For the second quarter and six months ended August 31, 1996 compared with
the corresponding prior periods
Overview
Consolidated fiscal 1997 second quarter net sales increased 2% to $634.5
million, compared with $621.3 million a year ago. Consolidated net earnings
for the second quarter were $4 million, or $.22 per share, compared with net
earnings of $7 million, or $.38 per share a year ago. Excluding unusual
items, net earnings for the second quarter last year were $6.5 million, or
$.36 per share. Included in fiscal 1996 unusual items were a gain from the
divestiture of the Company's surimi seafood business and a favorable impact
from a tax settlement, which was principally offset by a write-down of
vending distribution software costs and a charge for a corporate
restructuring plan. The decline in second quarter net earnings was
primarily the result of an operating loss in the Company's vending
distribution business. The Company expects that vending distribution will
continue to adversely affect the Company's operating results and the
Company's fiscal 1997 net earnings are likely to be lower than last year's
earnings.
Consolidated net sales for the six months ended August 31, 1996 increased
slightly to $1.26 billion. Consolidated net earnings were $3.6 million, or
$.20 per share, compared with $11.6 million, or $.63 per share, a year ago.
Excluding unusual items, net earnings were $5.8 million, or $.32 per share,
compared with $11.1 million, or $.61 per share, a year ago. Fiscal 1997
unusual items consist of a charge resulting from the resignation of the
Company's former Chief Executive Officer, Anthony Luiso, and costs for
business assessment studies. The decline in net earnings for the six-month
period was primarily the result of an operating loss in the vending
distribution business, lower Venezuela Foods operating earnings and the
absence of earnings from the Company's surimi seafood business which was
divested in June 1995.
Segment Results
Foodservice Distribution second quarter net sales increased 8% to $432.7
million, compared with $400.3 million a year ago. The increase was
primarily related to higher volumes in the limited-menu distribution
business which resulted from new customer accounts and the acquisition of
Alum Rock Foodservice business in July 1995. Operating earnings before
unusual items declined 89% to $0.4 million, compared with $3.8 million last
year. The decline was the result of the vending distribution performance
which was affected by lower volumes, competitive pricing pressures and
increased costs associated with correcting service-related issues. The
decline was partially offset by higher earnings in the limited-menu
distribution and food exporting businesses. Limited-menu distribution
earnings improved from the higher volumes and benefit of business
integration efforts.
Foodservice Distribution net sales for the six-month period increased 7% to
$876 million, compared with $816.7 million a year ago. Operating earnings
before unusual items declined 41% to $5.5 million compared with $9.4 million
last year. After unusual items, operating results were break-even in fiscal
1996. Fiscal 1996 unusual items of $9.4 million were principally for the
write-down of vending distribution computer software costs. In addition to
the factors noted above for the second quarter, fiscal 1997 operating
earnings benefited from the purchase of certain inventories in vending
distribution at favorable prices.
Bakery second quarter net sales increased 4% to $114.4 million, compared
with $110.1 million a year ago. Sales increased on higher prices for wheat-
based products and from higher volumes in consumer bakery products. The
increase was partially offset by lower volumes in U.S. bakery mix which was
primarily the result of softness in a large customer's business, and lower
volumes in frozen products which were affected by a strike at two large
Canadian retailers. Operating earnings declined 23% to $3.6 million,
compared with $4.7 million last year, as a result of the lower volumes.
Bakery net sales for the six-month period increased 4% to $226 million,
compared with $218.1 million a year ago. Operating earnings declined 10% to
$5.7 million, compared with $6.3 million last year. In addition to the
factors noted above for the second quarter, fiscal 1997 operating earnings
benefited from a change in the Company's promotional spending strategy.
Venezuela Foods second quarter net sales declined 18% to $87.4 million,
compared with $106.3 million a year ago. The decline was primarily the
result of lower volumes in commercial wheat flour and agricultural products
that resulted from the impact of significant local currency price increases.
Price increases in local currency were in response to higher world wheat
costs and currency devaluation, which also substantially increased the local
cost of imported grains. The net sales decline was partially offset by
higher consumer corn flour volumes. Operating earnings increased 5% to $8.9
million, compared with $8.5 million last year. The increase was the result
of a stable exchange rate in an inflationary environment coupled with the
higher consumer corn flour volumes. In addition, last year's net sales and
operating earnings benefited from the government imposed fixed foreign
exchange rate used for translation. The earnings benefit was partially
offset by the impact of the Company's use of a free-market exchange rate for
translation effective August 31, 1995.
Venezuela Foods net sales for the six-month period declined 22% to $158.6
million, compared with $203 million a year ago. Operating earnings declined
27% to $11 million, compared with $15 million last year. In addition to the
factors noted above for the second quarter, sales and operating earnings
declined as a result of a significant devaluation in the free-market
exchange rate which occurred during the second half of fiscal 1996.
Last year's second quarter results included an unusual gain of $9.9 million
from the divestiture of the Company's surimi seafood business.
Non-operating Expense and Income
Second quarter net interest expense of $4.4 million was essentially
unchanged from the prior year as the effect of higher borrowing levels were
offset by lower interest rates. For the six-month period, net interest
expense declined to $8.7 million from $9.4 million a year ago as the result
of lower interest rates.
Income Taxes
Excluding unusual items, the Company's effective tax rate in the second
quarter of fiscal 1997 was 30% compared with 32% last year. In the second
quarter of fiscal 1996 the Company recognized a $5 million benefit from a
tax settlement. For the six-month periods, the effective tax rate before
unusual items declined to 30% in fiscal 1997 compared with 33.3% last year.
Financial Condition:
The debt-to-total capitalization ratio of 45% at August 31, 1996 was
unchanged from February 29, 1996. Working capital increased on higher
inventory levels which primarily resulted from seasonal purchases in the
condiments and limited-menu distribution businesses. Higher working capital
requirements were partially offset by an increase in accounts payable which
resulted from the timing of payments.
During the first quarter of fiscal 1997, the Company entered into an $80
million revolving credit agreement in Canada that replaced an existing $84
million revolving credit agreement and a $7 million line of credit. The new
Canadian revolving credit agreement expires March 15, 2001, and bears
interest on borrowings as determined by current market factors.
In August 1996, Standard & Poor's lowered its rating on the Company's long-
term debt and commercial paper to BBB- and A-3, respectively. In October
1996, Moody's Investors Service, Inc. lowered its rating on the Company's
long-term debt and commercial paper to Baa3 and Prime-3, respectively. The
Company's management believes that the rating downgrades will not have a
material impact on the Company's results of operations or its ability to
obtain financing.
The Company's short-term financing is provided by borrowings against its
U.S. and Canadian revolving credit agreements and, on a more limited basis,
U.S. commercial paper and uncommitted lines of credit.
Management regularly reviews the Company's business operations with the
objective of maximizing its return on investment. In this regard, the
Company continues to take actions to address operating issues in order
to improve financial performance which, if not successful, could result
in material nonrecurring charges.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1996 Annual Meeting of Stockholders of International
Multifoods Corporation (the "Company") was held on June 21, 1996 (the
"Annual Meeting"). Holders of the Company's common stock, par value $.10
per share, of record on May 1, 1996 were entitled to one vote per share.
(c) At the Annual Meeting, James G. Fifield and Robert M. Price
were elected directors for a term of three years. The number of votes cast
for the election of each director and the number of votes withheld are as
follows:
FOR WITHHELD
James G. Fifield 15,262,069 730,696
Robert M. Price 15,241,734 751,031
The other directors whose term of office as a director continued after the
meeting are Nicholas L. Reding, Jack D. Rehm, Lois D. Rice and Peter S.
Willmott.
With respect to the proposal to approve the appointment of KPMG Peat
Marwick LLP as independent auditors of the Company for the fiscal year
ending February 28, 1997, there were 15,829,145 votes cast for the proposal,
95,668 votes cast against the proposal and 67,952 abstentions. There were
no broker nonvotes with respect to such matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Release Agreement, dated as of August 31, 1996, between
International Multifoods Corporation and John E. Sampson.
10.2 Consulting Agreement, dated as of September 1, 1996,
between International Multifoods Corporation and John E.
Sampson.
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
August 31, 1996.
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: October 10, 1996 By /s/ Duncan H. Cocroft
------------------------------------
Duncan H. Cocroft
Vice President - Finance and Chief
Financial Officer
(Principal Financial Officer and Duly
Authorized Officer)
EXHIBIT INDEX
10.1 Release Agreement, dated as of August 31, 1996, between
International Multifoods Corporation and John E. Sampson.
10.2 Consulting Agreement, dated as of September 1, 1996, between
International Multifoods Corporation and John E. Sampson.
11. Computation of Earnings Per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.
27. Financial Data Schedule.