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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number
1-6699
INTERNATIONAL MULTIFOODS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-0871880
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 East Lake Street, Wayzata, Minnesota 55391
(Address of principal executive offices) (Zip Code)
(612) 594-3300
(Registrant's telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
The number of shares outstanding of the registrant's Common
Stock, par value $.10 per share, as of September 30, 1998 was
18,743,094.
PART I. FINANCIAL INFORMATION
-----------------------------
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
Net sales $ 547,086 $ 541,600 $1,112,273 $1,106,468
Cost of materials and
Production (467,956) (461,278) (952,006) (945,373)
Delivery and distribution (36,483) (35,655) (72,807) (72,074)
- -------------------------------------------------------------------------------
Gross profit 42,647 44,667 87,460 89,021
Selling, general
and administrative (32,540) (34,119) (67,453) (73,933)
Unusual items - - (28,963) -
- -------------------------------------------------------------------------------
Operating earnings (loss) 10,107 10,548 (8,956) 15,088
Interest, net (2,221) (1,721) (5,026) (4,652)
Other income (expense), net (239) 321 (499) 141
- -------------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes 7,647 9,148 (14,481) 10,577
Income taxes (3,059) (3,082) 4,454 (3,564)
- -------------------------------------------------------------------------------
Earnings (loss) from
continuing operations 4,588 6,066 (10,027) 7,013
- -------------------------------------------------------------------------------
Discontinued Operations:
Operating loss, net of tax (4,382) (1,527) (14,068) (474)
Net loss on disposition,
after tax (114,854) - (114,854) -
- -------------------------------------------------------------------------------
Loss from discontinued
Operations (119,236) (1,527) (128,922) (474)
- -------------------------------------------------------------------------------
Net earnings (loss) $(114,648) $ 4,539 $ (138,949) $ 6,539
===============================================================================
Basic earnings (loss) per
share:
Continuing operations $ .24 $ .33 $ (.53) $ .39
Discontinued operations (6.35) (.08) (6.87) (.03)
- -------------------------------------------------------------------------------
Total $ (6.11) $ .25 $ (7.40) $ .36
===============================================================================
Diluted earnings (loss) per
share:
Continuing operations $ .24 $ .33 $ (.53) $ .38
Discontinued operations (6.30) (.08) (6.87) (.02)
- -------------------------------------------------------------------------------
Total $ (6.06) $ .25 $ (7.40) $ .36
===============================================================================
Average shares of common
stock outstanding:
Basic 18,769 18,234 18,766 18,125
Diluted 18,930 18,514 18,766 18,318
- -------------------------------------------------------------------------------
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. 28,
1998 1998
- ------------------------------------------------------------------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 11,885 $ 9,126
Trade accounts receivable, net 113,928 111,944
Inventories 161,497 156,335
Net current assets of
discontinued operations 64,247 62,962
Other current assets 66,165 53,379
- -----------------------------------------------------------------------
Total current assets 417,722 393,746
- -----------------------------------------------------------------------
Property, plant and equipment, net 153,141 169,982
Goodwill, net 83,110 84,911
Net noncurrent assets of
discontinued operations 6,305 7,976
Other assets 32,740 36,194
- -----------------------------------------------------------------------
Total assets $693,018 $ 692,809
=======================================================================
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Notes payable $ 49,162 $ 1,025
Current portion of long-term debt 3,500 24,500
Accounts payable 155,191 132,401
Other current liabilities 75,871 63,839
- -----------------------------------------------------------------------
Total current liabilities 283,724 221,765
- -----------------------------------------------------------------------
Long-term debt 121,073 120,951
Employee benefits and other liabilities 39,987 40,740
- -----------------------------------------------------------------------
Total liabilities 444,784 383,456
- -----------------------------------------------------------------------
Shareholders' equity:
Common stock 2,184 2,184
Accumulated other comprehensive income:
Foreign currency translation adjustments (24,883) (110,812)
Minimum pension liability adjustment (3,499) (3,499)
Other shareholders' equity 274,432 421,480
- ------------------------------------------------------------------------
Total shareholders' equity 248,234 309,353
- ------------------------------------------------------------------------
Commitments and contingencies
- ------------------------------------------------------------------------
Total liabilities and shareholders' equity $693,018 $ 692,809
========================================================================
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,
1998 1997
- ---------------------------------------------------------------------------
Cash flows from operations:
Earnings(loss) from continuing operations $(10,027) $ 7,013
Adjustments to reconcile earnings(loss) from
continuing operations to cash provided by
(used for) operations:
Depreciation and amortization 11,357 11,875
Deferred income tax expense (benefit) (9,913) 968
Provision for losses on receivables 102 132
Provision for unusual charges 28,963 -
Changes in operating assets and liabilities:
Accounts receivable (6,508) 53,032
Inventories (9,260) (6,729)
Other current assets (5,852) 4,633
Accounts payable 25,263 (13,682)
Other current liabilities (17,703) (6,075)
Other, net 325 (227)
- ---------------------------------------------------------------------------
Cash provided by continuing operations 6,747 50,940
Cash provided by (used for) discontinued
operations (10,944) 22,386
- ---------------------------------------------------------------------------
Cash provided by(used for) all operations (4,197) 73,326
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (8,747) (4,655)
Discontinued operations (3,542) (3,152)
Proceeds from property disposals 1,424 277
- ---------------------------------------------------------------------------
Cash used for investing activities (10,865) (7,530)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Net increase(decrease) in notes payable 30,359 (14,181)
Net decrease in long-term debt (19,756) (35,055)
Dividends paid (7,510) (7,263)
Proceeds from issuance of common stock 3,391 7,748
Purchase of treasury stock (4,617) (799)
Discontinued operations 17,175 (19,358)
Other, net (15) (15)
- ---------------------------------------------------------------------------
Cash provided by (used for)
financing activities 19,027 (68,923)
- ---------------------------------------------------------------------------
(Increase)decrease in cash from discontinued
operations (1,193) 2,007
- ---------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (13) (9)
- ---------------------------------------------------------------------------
Net increase(decrease)in cash and cash equivalents 2,759 (1,129)
Cash and cash equivalents at beginning of period 9,126 5,446
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of period $11,885 $ 4,317
===========================================================================
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) In the Company's opinion, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring adjustments, except as noted elsewhere in the
notes to the consolidated condensed financial statements) necessary to
present fairly its financial position as of August 31, 1998, and the
results of its operations for the three and six months ended August 31,
1998 and 1997, and cash flows for the six months ended August 31, 1998
and 1997. These statements are condensed and, therefore, do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
statements should be read in conjunction with the consolidated
financial statements and footnotes included in the Company's Annual
Report on Form 10-K for the year ended February 28, 1998. The results
of operations for the three and six months ended August 31, 1998, are
not necessarily indicative of the results to be expected for the full
year.
(2) New accounting pronouncement - In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities," which must be adopted
by the Company by March 1, 2000, with early adoption permitted. SFAS
No. 133 requires that all derivative instruments be recorded on the
consolidated balance sheet at their fair value. Changes in the fair
value of derivatives will be recorded each period in earnings or other
comprehensive earnings, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge
transaction. Gains and losses on derivative instruments reported in
other comprehensive earnings will be reclassified as earnings in the
periods in which earnings are affected by the hedged item. The Company
has not yet determined the timing of adoption or the impact that
adoption or subsequent application of SFAS No. 133 will have on its
financial position or results of operations.
(3) Discontinued operations - In the second quarter of fiscal 1999 the
Company decided to sell its Venezuela Foods business and, accordingly,
has classified this business as discontinued operations in the
consolidated financial statements. On August 4, 1998, the Company
announced that it had entered into a letter of intent with Archer
Daniels Midland Co. (ADM) to sell its Venezuela Foods business. The
estimated loss on the sale is $114.9 million (after taxes of $7.4
million), consisting of $93.3 million for the recognition of the
unrealized foreign currency translation loss in shareholders' equity, a
provision of $8.2 million for anticipated future operating losses until
disposal and a $13.4 million estimated loss on disposal. The estimated
loss was based on an anticipated sale date of October 31, 1998 and an
estimated sale price that approximated the net book value of the
business.
On September 29, 1998, the Company announced ADM's decision not to
proceed with the acquisition of the Venezuela Foods business. The
Company continues to be committed to selling the business as soon as
practicable. Management is in the process of reviewing the assumptions
used in determining the estimated loss on the sale as a result of this
recent development. It is anticipated that an additional charge will
be required in the third quarter, as the sale is not expected to occur
before the fourth quarter of fiscal 1999. The additional charge may be
material to the Company's consolidated results of operations.
The fiscal 1999 operating loss of the Venezuela Foods business
reflected in the Consolidated Statements of Operations included results
through July 31, 1998, the measurement date. The estimated operating
loss from the measurement to anticipated sale date is reflected in the
net loss on disposition. The operating results below are through
August 31, 1998 and are exclusive of loss provisions related to the
disposal.
Three Months Ended Six Months Ended
------------------ -----------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
(in thousands) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
Net sales $84,852 $87,613 $180,788 $189,931
Operating earnings (loss) (5,704) (1,293) (15,392) 1,694
Interest, net 1,050 1,328 2,013 2,881
Net loss (7,526) (1,527) (17,212) (474)
- -------------------------------------------------------------------------------
The net assets of the Venezuela Foods business were as follows:
Aug. 31, Feb 28,
(in thousands) 1998 1998
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 2,132 $ 1,237
Trade accounts receivable, net 33,532 32,258
Inventories 62,323 109,654
Other current assets 10,219 10,471
Current portion of long-term debt (481) (542)
Accounts payable (38,624) (85,099)
Other current liabilities (4,854) (5,017)
- ------------------------------------------------------------------------------
Net current assets of discontinued operations $ 64,247 $ 62,962
==============================================================================
Property, plant and equipment, net $ 45,867 $ 50,585
Other assets 1,723 1,310
Long-term debt (38,542) (41,906)
Employee benefits and other liabilities (2,743) (2,013)
- ------------------------------------------------------------------------------
Net noncurrent assets of discontinued operations $ 6,305 $ 7,976
==============================================================================
In addition to the net assets above, the Venezuela Foods business
also had an $18.5 million obligation to the parent Company at August 31,
1998.
(4) Comprehensive income - In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130). The Company
adopted SFAS 130 beginning in the first quarter of fiscal 1999.
Comprehensive income is defined as the change in the equity of a
business from all nonowner transactions and events. The Company's
comprehensive income is as follows:
Three Months Ended Six Months Ended
------------------ ------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
(in thousands) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
Net earnings (loss) $(114,648) $4,539 $(138,949) $6,539
Foreign currency translation
adjustments 87,872 (485) 85,929 (974)
Reclassification adjustment due to
foreign currency translation
adjustment recognized (a) (93,351) - (93,351) -
- ------------------------------------------------------------------------------
Comprehensive income (loss) $(120,127) $4,054 $(146,371) $5,565
==============================================================================
(a) Represents the foreign currency translation losses recognized from
the planned sale of the Venezuela Foods business.
(5) Unusual items - The Company's continuing operations recognized
unusual items that resulted in pre-tax charges of $29 million ($18.7
million after-tax or $1.00 per share) and were comprised of the
following:
(in millions) Segment
- ------------------------------------------------------------------------
Business consolidation plan $11.5 Multifoods Distribution Group
Asset impairment and
severance costs 7.2 North America Foods
Receivable write-offs 10.3 Divested Business
- ------------------------------------------------------------------------
Total $29.0
=====================================
Management adopted a plan to consolidate its vending and foodservice
operations into a single business. The plan involves reducing the
number of distribution centers by nine, reducing the size of the work
force by approximately 300 people and reducing the vehicle fleet size
by up to 10 percent. The charge covers losses on lease commitments,
employee termination benefits, costs incurred for outside consultants,
and the write-down of leasehold improvements. The Company believes
that the actions associated with the plan will be completed over the
next 24 months.
The Company recognized a charge of $7.2 million for the write-down of
assets and the cost of work-force reductions associated with its
Canadian frozen bakery business. The charge resulted from the
inability to sell the business at a price acceptable to the Company and
from the loss of a major customer in May 1998. In accordance with
Statement of Financial Accounting Standards No. 121, the Company
evaluated the carrying value of its long-lived assets as a result of
these recent events and recognized a $5.8 million charge for asset
impairment. In addition, a charge of $1.4 million primarily for
employee termination benefits was recognized.
The Company recognized an unusual charge of $10.3 million for the
write-off of receivables from a major customer of its former food
exporting business. The Company had negotiated an exit agreement
with this customer in fiscal 1998, which provided for payments to
the Company for amounts due under notes and accounts receivable.
The agreement had been restructured on several occasions because of
the customer's financial difficulties. As a result of uncertainties
with respect to the customer's ability to meet its obligations, the
Company recognized a $5 million charge in the fourth quarter of fiscal
1998. In June 1998, the Company was notified by the customer that it
would not meet its obligations under the restructured exit agreement.
The Company believes the customer's financial problems were caused by
its difficulty in moving product into the Russian marketplace and were
complicated by recent economic difficulties in Russia. Accordingly,
the Company believes that remaining amounts due from the customer are
not collectible.
(6) Interest, net
Three Months Ended Six Months Ended
--------------------- --------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
(in thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Interest expense $2,513 $ 3,195 $5,359 $ 7,043
Capitalized interest (31) - (31) (9)
Non-operating interest income (261) (1,474) (302) (2,382)
- --------------------------------------------------------------------------------
Interest, net $2,221 $ 1,721 $5,026 $ 4,652
================================================================================
Cash payments for interest, net of amounts capitalized, were $5.7
million and $6.9 million for the six months ended August 31, 1998 and
1997, respectively.
(7) Income taxes - Cash payments for income taxes for the six months
ended August 31, 1998 were $8.5 million while cash refunds for the six
months ended August 31, 1997 were $1.7 million.
(8) Supplemental balance sheet information
Aug. 31, Feb. 28,
(in thousands) 1998 1998
- ----------------------------------------------------------------------
Trade accounts receivable, net:
Trade $ 116,674 $ 116,261
Allowance for doubtful accounts (2,746) (4,317)
- ----------------------------------------------------------------------
Total trade accounts receivable, net $ 113,928 $ 111,944
======================================================================
Inventories:
Raw materials, excluding grain $ 11,427 $ 8,234
Grain 4,208 6,258
Finished and in-process goods 140,937 137,569
Packages and supplies 4,925 4,274
- ----------------------------------------------------------------------
Total inventories $ 161,497 $ 156,335
======================================================================
Property, plant and equipment, net:
Land $ 11,251 $ 11,389
Buildings and improvements 76,467 80,173
Machinery and equipment 177,670 190,324
Transportation equipment 3,235 4,876
Improvements in progress 10,452 5,958
- ----------------------------------------------------------------------
279,075 292,720
Accumulated depreciation (125,934) (122,738)
- ----------------------------------------------------------------------
Total property, plant and equipment, net $ 153,141 $ 169,982
======================================================================
(9) Segment information
Operating
Net Operating Unusual Earnings
(in millions) Sales Costs Items (Loss)
- --------------------------------------------------------------------------
Three Months Ended Aug. 31, 1998
Multifoods Distribution Group $ 442.1 $ (436.6) $ - $ 5.5
North America Foods 105.0 (98.1) - 6.9
Corporate Expenses - (2.3) - (2.3)
- -------------------------------------------------------------------------
Total $ 547.1 $ (537.0) $ - $10.1
=========================================================================
Three Months Ended Aug. 31, 1997
Multifoods Distribution Group $ 422.2 $ (417.1) $ - $ 5.1
North America Foods 116.7 (111.4) - 5.3
Divested Business 2.7 (.6) - 2.1
Corporate Expenses - (1.9) - (1.9)
- -------------------------------------------------------------------------
Total $ 541.6 $ (531.0) $ - $10.6
=========================================================================
Six Months Ended Aug. 31, 1998
Multifoods Distribution Group $ 896.8 $ (884.8) $(11.5) $ .5
North America Foods 215.5 (204.0) (7.2) 4.3
Divested Business - .8 (10.3) (9.5)
Corporate Expenses - (4.3) - (4.3)
- -------------------------------------------------------------------------
Total $1,112.3 $(1,092.3) $(29.0) $(9.0)
=========================================================================
Six Months Ended Aug. 31, 1997
Multifoods Distribution Group $ 868.9 $ (860.3) $ - $ 8.6
North America Foods 232.2 (223.9) - 8.3
Divested Business 5.4 (2.7) - 2.7
Corporate Expenses - (4.5) - (4.5)
- -------------------------------------------------------------------------
Total $1,106.5 $(1,091.4) $ - $15.1
=========================================================================
(10) Contingencies - In fiscal 1998, the Company was notified that
approximately $6 million in Company-owned inventory was stolen from a
ship in the port of St. Petersburg, Russia. The ship had been
chartered by a major customer of the Company's former food exporting
business. The Company believes, based on the facts known to date, that
the loss is covered by insurance. If the loss from the theft of
product is not covered by insurance, the Company would likely recognize
a material charge to its results of operations.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Results of
Operations and Financial Condition
(Unaudited)
In August 1998, the Company announced its decision to sell its
Venezuela Foods business. The decision was based on management's
belief that shareholders would be best served by the more predictable
financial results expected from the Company's remaining businesses. As
a result, the Venezuela Foods business segment has been classified as
discontinued operations in the consolidated financial statements and in
the discussion below.
Results of Operations:
Overview
The net loss for the second quarter of fiscal 1999 was $114.6 million,
or $6.06 per diluted share, compared with net earnings of $4.5 million,
or 25 cents per diluted share a year ago. The net loss was the result
of a $119.2 million loss from discontinued operations. The loss
included a $93.3 million non-cash charge for the recognition of
unrealized foreign currency translation losses associated with the
Venezuela Foods business. The unrealized losses were previously
classified as foreign currency translation in shareholders' equity.
Further discussion of the loss follows in "Discontinued Operations".
For the six months ended August 31, 1998, the Company recognized a net
loss of $138.9 million, or $7.40 per diluted share, compared with net
earnings of $6.5 million, or 36 cents per diluted share a year ago. In
addition to the loss from discontinued operations, the current period
net loss included $18.7 million, or $1.00 per share, of after-tax
unusual charges for continuing operations.
The Company expects that savings achieved in fiscal 1999 from actions
associated with unusual charges will be offset by one-time costs
incurred in consolidating the distribution operations, as described
below. The Company, however, expects these actions to improve
operating earnings of continuing operations by $3 million to $5 million
in fiscal 2000 and $9 million to $12 million in fiscal 2001. Further
discussion of unusual charges follows in "Segment Results" and in Note
5 to the consolidated condensed financial statements.
Continuing Operations
Fiscal 1999 second-quarter earnings from continuing operations were
$4.6 million, or 24 cents per share, compared with $6.1 million, or 33
cents a year ago. The decline was caused by non-recurring earnings in
the prior year, which included the operating profit of the Company's
former food exporting business and interest income on tax refunds. In
addition, last year's net earnings benefited from a lower effective tax
rate. The decline in net earnings was partially offset by higher
operating earnings in the Multifoods Distribution Group and North
America Foods business segments.
The Company reported a loss from continuing operations of $10 million,
or 53 cents per share for the six months ended August 31, 1998.
Current year results were adversely affected by after-tax unusual
charges of $18.7 million, or $1.00 per share. Excluding unusual
charges, current period earnings were $8.7 million, or 47 cents per
share, compared with $7 million, or 38 cents per diluted share a year
ago. The increase was the result of higher operating earnings in the
Multifoods Distribution Group and North America Foods business
segments.
Segment Results
Multifoods Distribution Group: Net sales in the second quarter
increased 5% to $442.1 million primarily as a result of higher sales
volumes, including increased sales to vending's independent and
foodservice's pizza customer segments. The increase was partially
offset by the Company's decision to relinquish several low margin
accounts. Operating earnings increased 8% to $5.5 million, primarily
as a result of lower administrative expenses and higher sales volumes.
The increase in operating earnings was partially offset by higher
delivery and distribution costs. Last year's results also included a
benefit from the purchase of coffee at favorable prices and from a
reduction in bad debt expense.
Net sales for the six-month period increased 3% to $896.8 million.
Operating earnings before unusual items increased 40% to $12 million,
compared with $8.6 million last year. Net sales and operating earnings
were affected by the same factors as described above for the second
quarter. An unusual charge of $11.5 million during the current year
was for actions associated with the Company's plan to consolidate its
vending and foodservice distribution operations into a single business.
The charge covers losses on lease commitments, employee termination
benefits, costs incurred for outside consultants and the write-down of
leasehold improvements.
North America Foods: Net sales in the second quarter declined 10% to
$105 million due primarily to lower prices that resulted from a
reduction in commodity costs and from unfavorable currency translation.
Operating earnings increased 30% to $6.9 million as a result of lower
selling and administrative expenses.
Net sales for the six-month period decreased 7% to $215.5 million,
compared with $232.2 million last year. Operating earnings before
unusual items increased 39% to $11.5 million compared with $8.3 million
last year. Net sales and operating earnings were affected by
essentially the same factors as noted above for the second quarter. An
unusual charge of $7.2 million for the current year resulted from the
write-down of assets and cost of work-force reductions associated with
the Canadian frozen bakery business.
Divested Business: The Company's Divested Business segment represents
its food exporting business, which the Company exited in fiscal 1998.
During the first quarter ended May 31, 1998, the segment recognized
earnings of $0.8 million from a refund of customs tax paid in prior
years. The segment also recognized an unusual charge of $10.3 million
for the write-off of receivables from a major customer.
Non-operating Expense and Income
Second quarter net interest expense for continuing operations increased
to $2.2 million, compared with $1.7 million last year. The increase
was a result of interest income recognized in the prior year from U.S.
federal income tax refunds. For the six-month periods, net interest
expense increased to $5 million from $4.6 million last year.
Interest expense for continuing operations excludes interest associated
with debt obligations of the Company's discontinued Venezuela Foods
business. Interest expense classified in discontinued operations for
the six months ended August 31, 1998 and 1997 were $2 million and $2.9
million, respectively.
Income Taxes
For the six-month periods, the Company's effective tax rate on earnings
before unusual items was 40% in fiscal 1999, compared with 33.7% in
fiscal 1998. The tax rate in fiscal 1998 was affected by a change in
the expected utilization of net operating loss and capital loss
carryforwards of the Company's Canadian business.
Discontinued Operations
On August 4, 1998, the Company announced that it had entered into a
letter of intent with Archer Daniels Midland Co.(ADM) to sell its
Venezuela Foods business. The Company recognized an estimated loss of
$114.9 million consisting of $93.3 million for the recognition of the
unrealized foreign currency translation loss in shareholders' equity, a
provision of $8.2 million for anticipated future operating losses until
disposal and a $13.4 million estimated loss on disposal. The estimated
loss was based on an anticipated sale date of October 31, 1998 and an
estimated sale price that approximated the net book value of the
business.
On September 29, 1998, the Company announced ADM's decision not to
proceed with the acquisition of the Venezuela Foods business. The
Company continues to be committed to selling the business as soon as
practicable. Management is in the process of reviewing the assumptions
used in determining the estimated loss on the sale as a result of this
recent development. It is anticipated that an additional charge will
be required in the third quarter, as the sale is not expected to occur
before the fourth quarter of fiscal 1999. The additional charge may be
material to the Company's consolidated results of operations.
Net sales of the Venezuelan business were $84.9 million and $87.6
million for the three months ended August 31, 1998 and 1997,
respectively, and $180.8 million and $189.9 million for the six months ended
August 31, 1998 and 1997, respectively. The sales declines were
primarily the result of a decrease in sales volumes, particularly corn
flour. Excluding loss provisions related to the disposal, operating
losses were $5.7 million and $1.3 million for the three months ended
August 31, 1998 and 1997, respectively. The current year operating
loss was primarily the result of a significant decline in gross margins
and the lower corn flour volumes. The gross margin decline resulted
from difficult economic conditions that prevented the Company from
raising prices to cover higher raw material and operating costs.
For the six months ended August 31, 1998 the Venezuela Foods business
had an operating loss of $15.4 million, exclusive of loss provisions
related to the sale. The operating loss included a charge of $8.5
million, which consisted of a $5.3 million asset write-down and $3.2
million for employee severance liabilities and costs associated with
the departure of the business segment's former President. The
operating results were also affected by the same factors as described
above for the second quarter.
Financial Condition:
The debt-to-total capitalization ratio increased to 41% at August 31,
1998 compared with 32% at February 28, 1998. The ratios for both
periods excludes debt obligations of the Company's Venezuelan business
which are expected to be assumed by a buyer and that have been
classified as net assets of discontinued operations in the consolidated
condensed balance sheet. Including debt obligations of continuing and
discontinued operations, the debt-to-total capitalization ratio was
46%, compared with 38% at February 28, 1998. The increase in the debt-
to-total capitalization ratio is the result of working capital
requirements of continuing operations, the loss from discontinued
operations and from unusual charges.
Based on the proposed transaction with ADM, the sale of the Venezuelan
business was estimated to provide net proceeds of approximately $38
million, after payment of transaction costs and taxes. Management
believes that proceeds of the actual sale may be lower than this
estimate. The Company expects that the proceeds will initially be used
to reduce debt. The Company is considering using the net proceeds in
the future for acquisitions and a stock repurchase program.
The Company's $29 million unusual charge for continuing operations
included $19.2 million of non-cash costs and $9.8 million of cash
outlays that are expected to occur over the next 24 months. In
addition, the Company estimates it will incur capital expenditures of
$15 million to $20 million over the next 24 months associated with
upgrading the remaining distribution warehouse facilities. The Company
plans to use future cash flows from operations along with available
external financing to fund these estimated cash outlays.
Year 2000
The Company has completed a comprehensive inventory and review of its
computer systems and identified the systems that could be affected by
the "Year 2000" issue. An implementation plan addressing the issues
has been developed and a Year 2000 Project Committee has been
established to oversee the implementation plan.
The North America businesses have completed a comprehensive review of
both computer systems and other non-computer systems that could include
some type of embedded technology. An implementation plan addressing
these issues has been developed with a target date of June 30, 1999 for
Year 2000 compliance for all computer and non-computer systems.
Progress towards compliance has been made in accordance with this plan.
The Company believes that upgrades to existing packaged software will
resolve the Year 2000 issues in the critical computer systems. The
successful upgrading of the packaged systems has been completed in the
United States. The non-computer systems have been inventoried and
evaluated and the Company believes that there are no critical
deficiencies in these systems. Testing of these systems will be
completed by February 28, 1999. The upgrading of the packaged systems
was driven by business needs as well as Year 2000 issues. This project
did not displace any more critical projects because of its Year 2000
implications. Each of the Year 2000 plans includes an evaluation of
critical vendors, suppliers and customers. Information is being
solicited from these critical business partners and will be evaluated
as it is received. The costs associated with the upgrading of the
packaged systems and the testing of these systems are not expected to
be material to the Company's results of operations.
In Venezuela, the Company completed a comprehensive review of its
existing business and financial systems. These systems were not Year
2000 compliant and the Company has chosen to replace these systems with
packaged software that is Year 2000 compliant. The implementation
began in June 1998 and is scheduled to be complete by June 30, 1999.
The capital cost for the new business system is estimated to be $4.6
million. The Company is in the process of inventorying and assessing
the non-computer systems as well as evaluating critical relationships
with vendors, suppliers and customers.
The Company believes that with the upgrading of the packaged software
in North America and with the replacement of the business and financial
systems in Venezuela, the Year 2000 issue will not create significant
operational problems. Based upon the assessment completed at this
time, the Company does not anticipate any significant Year 2000 issues
with non-computer systems. All Year 2000 projects are proceeding
according to plan, however, if there are significant delays in their
completion or if major suppliers or customers experience Year 2000
issues with their systems, the Year 2000 issue may have a material
adverse effect on the operations of the Company. The Company has
requested information from major customers and suppliers and continues
to monitor the completion of the Year 2000 projects. After assessing
the information received from customers and suppliers and evaluating
the successful completion of the Year 2000 projects, the Company will
develop an appropriate contingency plan. It is anticipated that this
plan will be developed by June 30, 1999.
Cautionary Statement Relevant to Forward-Looking Information
This document contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. In
addition, the Company and its representatives may from time-to-time
make written and oral forward-looking statements. These forward-
looking statements are based on current expectations or beliefs,
including, but not limited to, statements concerning the Company's
operations and financial performance and condition. For this purpose,
statements that are not statements of historical fact may be deemed to
be forward-looking statements. The Company cautions that these
statements by their nature involve risks and uncertainties, and actual
results may differ materially depending on a variety of important
factors, including, among others, the impact of competitive products
and pricing; market conditions and weather patterns that may affect the
costs of grain and other raw materials; changes in laws and
regulations; the inability of the Company to either resolve the
Company's "Year 2000" issues or to accurately estimate the cost
associated with "Year 2000" compliance; economic and political
conditions in Venezuela, including inflation, currency volatility,
possible limitations on foreign investment, availability of local
financing, exchangeability of currency, dividend repatriation and
changes in existing tax laws; the Company's ability to complete a sale
of the Venezuela Foods business; the inability of the Company to
collect insurance proceeds related to the theft of inventory from the
port of St. Petersburg, Russia; fluctuations in foreign exchange rates;
the Company's ability to realize the earnings benefits from the
integration of its distribution businesses; and other factors as may be
discussed in the Company's report on Form 10-K for the year ended
February 28, 1998, and other reports filed with the Securities and
Exchange Commission.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1998 Annual Meeting of Stockholders of International
Multifoods Corporation (the "Company") was held on June 19, 1998 (the
"Annual Meeting"). Holders of the Company's common stock, par value
$.10 per share, of record on May 1, 1998 were entitled to one vote per
share.
(c) At the Annual Meeting, Claire L. Arnold, Lois D. Rice and
Dolph W. von Arx 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
Claire L. Arnold 16,320,027 95,741
Lois D. Rice 16,295,150 120,618
Dolph W. von Arx 16,327,139 88,629
The other directors whose term of office as a director continued after
the meeting were Gary E. Costley, James G. Fifield, Robert M. Price,
Nicholas L. Reding, Jack D. Rehm and Richard K. Smucker. Effective
October 1, 1998, James G. Fifield resigned as a director.
With respect to the proposal to approve the amendments to the
Company's 1997 Stock-Based Incentive Plan, there were 15,104,500 votes
cast for the proposal, 1,166,908 votes cast against the proposal and
144,360 abstentions. There were no broker nonvotes with respect to
such matter.
With respect to the proposal to approve the Company's Amended and
Restated Management Incentive Plan, there were 15,766,073 votes cast
for the proposal, 495,980 votes cast against the proposal and 153,715
abstentions. There were no broker nonvotes with respect to such
matter.
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, 1999, there were 16,331,209 votes cast for the
proposal, 42,891 votes cast against the proposal and 41,668
abstentions. There were no broker nonvotes with respect to such
matter.
Item 5. Other Information
On September 18, 1998, the Board of Directors approved amendments
to the Company's Bylaws to revise the "advance notice" bylaw governing
the requirement of prior notice for stockholder proposals being
submitted for annual meetings of stockholders. As a result of such
amendments, the Company's Bylaws now require a stockholder's written
notice to be received by the Company not less than ninety (90) days
prior to the date of the annual meeting. The Company's Bylaws continue
to provide that the annual meeting of stockholders shall be held on the
third Friday in June in each year. Based on the Bylaws, as amended, if
a stockholder desires to submit a proposal for the Company's 1999
Annual Meeting of Stockholders (and such business is not the subject of
a stockholder proposal timely submitted for inclusion in the proxy
statement), written notice of such business containing the information
required under the Company's Bylaws must be received by the Company at
its principal executive offices on or before March 22, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1. International Multifoods Corporation Bylaws, as
amended.
11. Computation of Earnings Per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.
27. Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended August 31, 1998, the Company filed a
report on Form 8-K dated August 4, 1998 relating to the proposed sale
of the Company's Venezuela Foods business.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INTERNATIONAL MULTIFOODS CORPORATION
Date: October 13, 1998 By /s/William L. Trubeck
William L. Trubeck
Senior Vice President - Finance and
Chief Financial Officer and President
Latin America Operations
(Principal Financial Officer
and Duly Authorized Officer)
EXHIBIT INDEX
3.1. International Multifoods Corporation Bylaws, as amended.
11. Computation of Earnings Per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.
27. Financial Data Schedule.