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 September 1, 2001
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)
110 CHESHIRE LANE, SUITE 300, MINNETONKA, MINNESOTA 55305
(Address of principal executive offices) (Zip Code)
(952) 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 October 5, 2001 was 18,844,303.
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
--------------------- --------------------------
Sept. 1, Aug. 26, Sept. 1, Aug. 26,
2001 2000 2001 2000
-------------------------------------------------------------------------------
Net sales $ 684,889 $ 585,350 $ 1,350,981 $ 1,195,610
Cost of materials and
production (590,418) (496,802) (1,164,843) (1,018,886)
Delivery and distribution (50,906) (43,524) (100,358) (87,030)
-------------------------------------------------------------------------------
Gross profit 43,565 45,024 85,780 89,694
Selling, general
and administrative (34,919) (33,240) (70,041) (66,752)
Unusual items (344) 5,275 (344) 5,275
-------------------------------------------------------------------------------
Operating earnings 8,302 17,059 15,395 28,217
Interest, net (3,578) (3,301) (7,155) (6,516)
Other income (expense), net (218) (300) (369) (582)
-------------------------------------------------------------------------------
Earnings before income taxes 4,506 13,458 7,871 21,119
Income taxes (1,712) (8,179) (2,991) (11,090)
-------------------------------------------------------------------------------
Net earnings $ 2,794 $ 5,279 $ 4,880 $ 10,029
===============================================================================
Earnings per share:
Basic $ .15 $ .28 $ .26 $ .54
Diluted .15 .28 .26 .53
-------------------------------------------------------------------------------
Average shares of common
stock outstanding:
Basic 18,816 18,740 18,789 18,738
Diluted 19,061 18,884 19,017 18,821
-------------------------------------------------------------------------------
Dividends per share of
common stock $ - $ .20 $ - $ .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
SEPT. 1, MARCH 3,
2001 2001
------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,157 $ 10,247
Trade accounts receivable, net 150,436 131,780
Inventories 207,947 185,207
Other current assets 61,948 51,083
------------------------------------------------------------------------
Total current assets 431,488 378,317
Property, plant and equipment, net 208,544 206,160
Goodwill, net 80,627 81,919
Other assets 100,171 98,229
------------------------------------------------------------------------
Total assets $820,830 $764,625
========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $102,472 $ 39,542
Current portion of long-term debt - 1,000
Accounts payable 205,724 216,050
Other current liabilities 39,683 42,288
------------------------------------------------------------------------
Total current liabilities 347,879 298,880
Long-term debt 145,462 145,420
Employee benefits and other liabilities 65,214 64,343
------------------------------------------------------------------------
Total liabilities 558,555 508,643
------------------------------------------------------------------------
Shareholders' equity:
Common stock 2,184 2,184
Accumulated other comprehensive loss (17,830) (17,670)
Other shareholders' equity 277,921 271,468
------------------------------------------------------------------------
Total shareholders' equity 262,275 255,982
------------------------------------------------------------------------
Commitments and contingencies
------------------------------------------------------------------------
Total liabilities and shareholders' equity $820,830 $764,625
========================================================================
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
---------------------
Sept. 1, Aug. 26,
2001 2000
-------------------------------------------------------------------------
Cash flows from operations:
Net earnings $ 4,880 $ 10,029
Adjustments to reconcile net earnings
to cash used for operations:
Depreciation and amortization 12,974 12,431
Deferred income tax expense 1,133 2,419
Increase in prepaid pension asset (6,878) (7,282)
Unusual items - (5,275)
Provision for losses on receivables 1,192 902
Changes in working capital:
Accounts receivable (19,850) (8,939)
Inventories (22,751) (16,572)
Other current assets (12,267) (6,104)
Accounts payable (10,278) 11,353
Other current liabilities (2,598) 1,821
Other, net 4,465 38
--------------------------------------------------------------------------
Cash used for continuing operations (49,978) (5,179)
Cash provided by discontinued operations - 1,418
-------------------------------------------------------------------------
Cash used for operations (49,978) (3,761)
-------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (13,473) (16,628)
Proceeds from property disposals 89 12,203
Payment received on note receivable 1,422 948
-------------------------------------------------------------------------
Cash used for investing activities (11,962) (3,477)
-------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in notes payable 62,859 21,724
Net decrease in long-term debt (1,000) (10,000)
Dividends paid - (7,479)
Proceeds from issuance of common stock 1,000 -
Purchase of treasury stock (1) -
Other, net (2) (17)
-------------------------------------------------------------------------
Cash provided by financing activities 62,856 4,228
-------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (6) (7)
-------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 910 (3,017)
Cash and cash equivalents at beginning of period 10,247 11,224
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 11,157 $ 8,207
=========================================================================
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 contained in this report reflect 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, results of its operations and cash flows
for the interim periods presented. 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 March 3, 2001. The results of operations for the three and
six months ended September 1, 2001, are not necessarily indicative of the
results to be expected for the full year.
(2) PENDING ACQUISITION - On February 4, 2001, the Company entered into an asset
purchase and sale agreement with The Pillsbury Company and General Mills, Inc.
to acquire Pillsbury's desserts and specialty products business, Pillsbury's
non-custom foodservice baking mix business and General Mills' Robin Hood
business for approximately $304.6 million in cash. The assets being acquired
include certain equipment and inventory of the Pillsbury businesses, inventory
of the General Mills' Robin Hood business, and certain trademarks and trademark
licenses. The acquisition is subject to a number of conditions, including
provisional consent by the Federal Trade Commission (FTC) of the acquisition and
completion of the merger of General Mills and Pillsbury. The FTC continues to
review the proposed General Mills/Pillsbury merger and the Company's pending
acquisition.
(3) ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES"
The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities", as
amended, effective March 4, 2001. SFAS 133 requires that companies record
derivative instruments on the consolidated balance sheet at their fair value.
Changes in fair value will be recorded each period in earnings or other
comprehensive income (OCI), depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. Gains
and losses on derivative instruments reported in OCI will be reclassified as
earnings in the period in which earnings are affected by the hedged item.
The impact of this change resulted in a pre-tax charge of approximately $1
million to OCI and an increase to liabilities of approximately $1 million. The
balance in OCI will be reclassified to earnings over the life of the derivative
instruments, which primarily have maturity terms of one year or less.
The Company is exposed to market risks resulting from changes in foreign
currency exchange rates, interest rates and commodity prices. Changes in these
factors could adversely affect the Company's results of operations and financial
position. To minimize these risks, the Company utilizes derivative financial
instruments, such as currency forward contracts, interest rate swaps and
commodity futures contracts. The Company uses derivative financial instruments
as risk management tools and not for speculative or trading purposes. For
derivative instruments that are accounted for as hedges pursuant to SFAS 133,
the Company formally documents the hedge at inception. The formal documentation
includes identification of the hedging instrument, the hedged item, nature of
the risk being hedged and how the hedging instrument's effectiveness will be
assessed.
Foreign currency forward contracts
The Company's Canadian operations use foreign currency forward contracts to
minimize the exposure to foreign currency fluctuations as a result of U.S.
dollar-denominated sales. These contracts are accounted for as foreign currency
cash flow hedges of forecasted transactions. To qualify for hedge accounting
treatment, these transactions are specifically identified in terms of the
customers and the period and the likelihood in which the sales and subsequent
collections are expected to occur. The time value component of the foreign
currency forward contracts is deemed ineffective, and is recorded in earnings.
The unrealized gain (loss) due to the movements in the spot exchange rates,
which represents the effective portion of the hedge, is initially recorded as a
component of accumulated OCI until the underlying hedged transaction occurs. For
the six months ended September 1, 2001, approximately $0.5 million of pre-tax
loss was reclassified from OCI to earnings.
Interest rate swap
The Company has an interest rate swap agreement to manage its exposure to
changes in interest rates on a portion of its variable-rate debt. The swap
agreement qualifies for cash flow hedge accounting. Approximately $0.2 million
was reclassified into interest expense during the six months ended September 1,
2001. There was no ineffectiveness related to the hedge.
Other derivative instruments that are not designated as hedges
The Company utilizes commodity futures contracts, primarily wheat futures
contracts, to reduce the risks associated with price fluctuations on the wheat
inventories and other major bakery ingredients, such as flour and soybean oil.
The futures contracts are not designated as hedges under SFAS 133. The futures
contracts are marked-to-market each month and the gains and losses are
recognized in earnings. On an ongoing basis, the Company also enters into
foreign currency forward contracts that are not designated as hedges. Changes in
the fair value are recognized in earnings.
EITF NO. 00-25,"VENDOR INCOME STATEMENT CHARACTERIZATION OF CONSIDERATION TO A
RESELLER OF THE VENDOR'S PRODUCTS"
In April 2001, the Emerging Issue Task Force (EITF) issued a consensus on EITF
No. 00-25, "Vendor Income Statement Characterization of Consideration to a
Reseller of the Vendor's Products." EITF No. 00-25 deals with the accounting for
consideration paid from a vendor (typically a manufacturer or distributor) to a
retailer, including slotting fees, cooperative advertising arrangements, and
buy-downs. The guidance in EITF 00-25 generally requires that these incentives
be classified as a reduction of sales. The consensus is effective for the
Company in the first quarter of fiscal 2003. For fiscal 2001, the Company
expects to reclassify approximately $10 million in promotional expenses to a
reduction of sales. For fiscal 2002, the projected amount to be reclassified is
also approximately $10 million. These costs are currently classified as selling
expense. The Company does not expect the adoption of this consensus to have an
impact on net earnings.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 141, "BUSINESS COMBINATIONS"
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations."
SFAS 141 requires that all business combinations initiated after June 30, 2001
be accounted for using the purchase method. In addition, intangible assets
acquired are only recognized and accounted for separately from goodwill if they
arise from either contractual or other legal rights or are capable of being
separated.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142, "GOODWILL AND OTHER
INTANGIBLE ASSETS"
In July 2001, FASB also issued Statement of Financial Accounting Standards No.
142 (SFAS 142), "Goodwill and Other Intangible Assets." Under the provisions of
SFAS 142, goodwill and other intangible assets that have indefinite lives will
no longer be amortized, but subjected to impairment testing. Goodwill
amortization expense in fiscal 2001 was $2.6 million pretax, $1.7 million after
tax. SFAS 142 is effective for the Company in the first quarter of fiscal 2003.
However, any goodwill and any intangible assets determined to have an indefinite
life that are acquired in a business combination completed after June 30, 2001
will not be amortized. The Company is currently evaluating the impact of the
standard and may be required to recognize an impairment loss associated with its
Multifoods Distribution Group business upon adoption of the standard. As of
September 1, 2001, the unamortized goodwill balance of the Multifoods
Distribution Group business was $66.2 million.
(4) COMPREHENSIVE INCOME - The components of total comprehensive income were as
follows:
Three Months Ended Six Months Ended
------------------ -------------------
Sept. 1, Aug. 26, Sept. 1, Aug. 26,
(in thousands) 2001 2000 2001 2000
--------------------------------------------------------------------------
Net earnings $2,794 $5,279 $4,880 $10,029
Foreign currency translation
adjustment (662) 1,610 83 (2,175)
Derivative hedge accounting
adjustment 10 - (243) -
--------------------------------------------------------------------------
Comprehensive income $2,142 $6,889 $4,720 $ 7,854
==========================================================================
(5) UNUSUAL ITEMS - In the second quarter of fiscal 2002, the Company recognized
an unusual charge of $0.3 million for termination benefits for 57 former hourly
employees of its divested U.S. flour milling business. As part of the sale
agreement, the Company is obligated to provide, under certain conditions,
severance payments for eligible former employees who are involuntarily
terminated by the buyer.
The liability balance associated with previously recognized unusual items was
$1.6 million as of September 1, 2001. This liability balance was primarily
related to severance payments associated with the Company's condiments facility
consolidation project. The difference from the March 3, 2001 balance of $1.9
million was primarily due to cash payments for employee termination benefits.
(6) INTEREST, NET
Three Months Ended Six Months Ended
------------------ ------------------
Sept. 1, Aug. 26, Sept. 1, Aug. 26,
(in thousands) 2001 2000 2001 2000
--------------------------------------------------------------------------
Interest expense $4,131 $ 4,468 $8,290 $ 8,675
Capitalized interest (100) (111) (254) (342)
Non-operating interest income (453) (1,056) (881) (1,817)
--------------------------------------------------------------------------
Interest, net $3,578 $ 3,301 $7,155 $ 6,516
==========================================================================
Cash payments for interest, net of amounts capitalized, were $8.1 million and
$8.7 million for the six months ended September 1, 2001 and August 26, 2000,
respectively.
(7) INCOME TAXES - Cash payments for income taxes were $5.5 million and $3.1
million for the six months ended September 1, 2001 and August 26, 2000,
respectively.
(8) SUPPLEMENTAL BALANCE SHEET INFORMATION
Sept. 1, March 3,
(IN THOUSANDS) 2001 2001
---------------------------------------------------------------------------
Trade accounts receivable, net:
Trade $ 153,742 $ 135,991
Allowance for doubtful accounts (3,306) (4,211)
---------------------------------------------------------------------------
Total trade accounts receivable, net $ 150,436 $ 131,780
===========================================================================
Inventories:
Raw materials, excluding grain $ 16,694 $ 12,667
Grain 5,876 3,784
Finished and in-process goods 180,668 164,600
Packages and supplies 4,709 4,156
---------------------------------------------------------------------------
Total inventories $ 207,947 $ 185,207
===========================================================================
Property, plant and equipment, net:
Land $ 13,082 $ 13,079
Buildings and improvements 111,909 106,470
Machinery and equipment 239,957 234,203
Improvements in progress 13,788 14,756
---------------------------------------------------------------------------
378,736 368,508
Accumulated depreciation (170,192) (162,348)
---------------------------------------------------------------------------
Total property, plant and equipment, net $ 208,544 $ 206,160
===========================================================================
Accumulated other comprehensive loss:
Foreign currency translation adjustment $ (15,296) $ (15,379)
Minimum pension liability adjustment (2,291) (2,291)
Derivative hedge accounting adjustment (243) -
---------------------------------------------------------------------------
Total accumulated other comprehensive loss $ (17,830) $ (17,670)
===========================================================================
(9) SEGMENT INFORMATION
Net Operating Unusual Operating
(in millions) Sales Costs Items Earnings
----------------------------------------------------------------------------
Three Months Ended Sept. 1, 2001
Multifoods Distribution Group $ 561.6 $ (558.0) $ - $ 3.6
North America Foods 123.3 (116.1) - 7.2
Corporate Expenses - (2.2) (0.3) (2.5)
----------------------------------------------------------------------------
Total $ 684.9 $ (676.3) $(0.3) $ 8.3
============================================================================
Three Months Ended Aug. 26, 2000
Multifoods Distribution Group $ 468.8 $ (465.0) $(0.3) $ 3.5
North America Foods 116.5 (107.4) - 9.1
Corporate Expenses - (1.2) 5.6 4.4
----------------------------------------------------------------------------
Total $ 585.3 $ (573.6) $ 5.3 $17.0
============================================================================
Six Months Ended Sept. 1, 2001
Multifoods Distribution Group $1,113.5 $(1,105.6) $ - $ 7.9
North America Foods 237.5 (224.8) - 12.7
Corporate Expenses - (4.9) (0.3) (5.2)
----------------------------------------------------------------------------
Total $1,351.0 $(1,335.3) $(0.3) $15.4
============================================================================
Six Months Ended Aug. 26, 2000
Multifoods Distribution Group $ 964.7 $ (955.7) $(0.3) $ 8.7
North America Foods 230.9 (214.3) - 16.6
Corporate Expenses - (2.7) 5.6 2.9
----------------------------------------------------------------------------
Total $1,195.6 $(1,172.7) $ 5.3 $28.2
============================================================================
(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. However, following
submission of a claim for indemnity, the insurance carrier denied the Company's
claim for coverage and the Company commenced a lawsuit seeking to obtain
coverage under the insurance carrier's policy. If the loss from the theft of
product is not covered by insurance, the Company would recognize a material
charge to its results of operations.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Results of
Operations and Financial Condition
(Unaudited)
RESULTS OF OPERATIONS
OVERVIEW
Net earnings in the second quarter ended September 1, 2001, were $2.8 million,
or 15 cents per share, compared with $5.3 million, or 28 cents per share, a year
ago. The decline in net earnings was partially driven by lower operating
earnings in both our Multifoods Distribution Group and North America Foods
business segments. Both business segments were impacted by start-up costs and
inefficiencies associated with several large new customer accounts. In addition,
net earnings were impacted by costs associated with the consolidation of our two
condiments processing facilities and our pending acquisition of assets from
Pillsbury and General Mills.
Second-quarter 2002 results included a pre-tax unusual charge of $0.3 million,
or 1 cent per share, for severance costs related to a previously divested
business. Included in last year's second quarter results was a net after tax
gain of $0.2 million, or 1 cent per share, from unusual items and tax expense
associated with a dividend from our Canadian subsidiary. Unusual items included
a gain from the sale of the Company's corporate headquarters building and
charges for the closure of two distribution centers.
For the six months ended September 1, 2001 net earnings were $4.9 million, or 26
cents per diluted share, compared with $10 million, or 53 cents per diluted
share, a year ago.
Segment Results
Multifoods Distribution Group: Net sales in the second quarter increased 20% to
$561.6 million, compared with $468.8 million a year ago. Sales volumes increased
approximately 15%. We achieved substantial growth in the sandwich and pizza
restaurant customer segments due to the addition of several large new customer
accounts and by growth in existing accounts. We also had increased sales to
independent vending operators.
Operating earnings before unusual items declined 5% to $3.6 million, compared
with $3.8 million a year ago. Operating earnings were impacted by a
year-over-year increase in labor rates and utility costs, as well as start-up
costs and inefficiencies associated with the significant new business accounts.
Our labor costs increased as we had to raise pay rates in certain job categories
and in certain regions last year because of the tight labor market. In vending
distribution, we experienced competitive pricing pressures and lower industry
demand in certain regions of the United States due to the weakening economy.
Net sales for the six-month period increased 15% to $1,113.5 million, compared
with $964.7 million a year ago. Operating earnings before unusual items declined
12% to $7.9 million, compared with $9 million a year ago. Net sales and
operating earnings for the six months ended September 1, 2001 were impacted by
essentially the same factors as described in the discussion of second quarter
results.
North America Foods: Net sales in the second quarter increased 6% to $123.3
million, compared with $116.5 million a year ago. The increase was primarily the
result of higher sales of flour to commercial and consumer customers in Canada
and the addition of a large new customer account in the United States. The
increase in net sales was partially offset by unfavorable currency translation
and the loss of a large bakery mix customer in the United States, which was
purchased by a competitor last year.
Operating earnings decreased 21% to $7.2 million, compared with $9.1 million in
the second quarter last year. Operating earnings were affected by start-up costs
and inefficiencies associated with the large new account in the United States,
higher fixed costs resulting from investment in new production lines and costs
for our condiments facility consolidation project. In order to support future
growth in the United States, we made capital investments in new production lines
that increased our manufacturing cost structure. In addition, operating earnings
were impacted by higher commodity costs, competitive pricing pressures and
unfavorable currency translation.
Net sales for the six-month period increased 3% to $237.5 million, compared with
$230.9 million a year ago. In addition to the factors described for the second
quarter, sales in the six-month period improved on higher sales of commercial
bakery mixes in Canada. Operating earnings decreased 23% to $12.7 million,
compared with $16.6 million last year. The decline resulted from essentially the
same factors as described in the discussion of second quarter results.
Corporate: Corporate expenses before unusual items for the second quarter were
$2.2 million, compared with $1.2 million a year ago. The increase was primarily
the result of costs related to our pending acquisition of assets from Pillsbury
and General Mills.
In the second quarter of fiscal 2002, we recognized an unusual charge of $0.3
million for termination benefits for 57 former hourly employees of our divested
U.S. flour milling business. As part of the sale agreement, we are obligated to
provide, under certain conditions, severance payments for eligible former
employees who are involuntarily terminated by the buyer.
Non-operating Expense and Income
Second quarter net interest expense increased to $3.6 million, compared with
$3.3 million a year ago. The increase in net interest expense was due to higher
average debt balances, which resulted from increased working capital levels and
capital expenditures. The increase was partially offset by lower average
borrowing rates on our variable rate debt obligations.
Income Taxes
In the second quarter last year, we recognized income tax expense of $3.1
million associated with a dividend from our Canadian subsidiary. Our effective
tax rate before the impact of the Canadian dividend and unusual items was 38% in
the first six months of fiscal 2002 and 2001.
FINANCIAL CONDITION
Our short-term financing is provided by borrowings against our U.S. and Canadian
revolving credit agreements and an uncommitted line of credit. Our committed
revolving credit agreements totaled $255 million, of which $61 million was
available at September 1, 2001. We also had an uncommitted line of credit of $10
million that was fully utilized at September 1, 2001. As a result of timing of
supplier payments and customer receipts and seasonal working capital
requirements, we will at times utilize most of our available capacity under
these credit agreements. In addition, we have a medium-term note program under
our shelf registration statement filed with the Securities and Exchange
Commission that provides for the issuance of up to $150 million in medium-term
notes in various amounts and maturities. As of September 1, 2001, $140 million
was available under the medium-term note program.
In May 2001, Standard and Poor's lowered our corporate credit rating and the
rating on our existing medium-term note program to "BB" and "BB+", respectively,
as a result of the increased debt leverage we will incur from our pending
acquisition of assets from Pillsbury and General Mills. In addition, Standard
and Poor's assigned a "BB+" bank loan rating to our proposed $450 million senior
secured bank facility and a "B+" rating to our proposed $200 million senior
unsecured notes. Also in May 2001, Moody's Investors Service (Moody's) assigned
a "(P)Ba2" rating and a "(P)B1" rating to the proposed $450 million senior
secured bank facility and the proposed $200 million senior unsecured notes,
respectively. In addition, the "Baa3" unsecured ratings on our medium-term notes
are under review by Moody's for possible downgrade.
Our debt-to-total-capitalization ratio increased to 48.6% at September 1, 2001
compared with 42.1% at March 3, 2001. The increase in the
debt-to-total-capitalization ratio was primarily the result of increased working
capital usage and capital expenditures.
Cash used for operations was $50 million for the first six months of fiscal
2002 compared with $3.8 million for the first six months of fiscal 2001. The
change was primarily due to increased working capital usage. Accounts
receivables and inventories increased due to additional sales volumes.
Accounts payable declined due to timing of payments to suppliers.
Cash used for investing activities was $12 million for the first six months of
fiscal 2002 compared with $3.5 million for the first six months of fiscal 2001.
Activities in the first six months of fiscal 2002 primarily consist of capital
expenditures, which included amounts for the expansion of our condiments
operation in Dunnville, Ontario. The first six months of fiscal 2001 included
$12 million received from the sale of our corporate headquarters building and
capital expenditures of $16.6 million. Capital expenditures in fiscal 2001
included amounts for facility expansion and consolidation projects at Multifoods
Distribution Group.
PENDING ACQUISITION
On February 4, 2001, we entered into an asset purchase and sale agreement with
The Pillsbury Company and General Mills, Inc. to acquire Pillsbury's desserts
and specialty products business, Pillsbury's non-custom foodservice baking mix
business and General Mills' Robin Hood business for approximately $304.6 million
in cash. The assets being acquired include certain equipment and inventory of
the Pillsbury
businesses, inventory of the General Mills' Robin Hood business, and certain
trademarks and trademark licenses. The acquisition is subject to a number of
conditions, including provisional consent by the Federal Trade Commission
(FTC) of the acquisition and completion of the merger of General Mills and
Pillsbury. The FTC continues to review the proposed General Mills/Pillsbury
merger and our pending acquisition.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations."
SFAS 141 requires that all business combinations initiated after June 30, 2001
be accounted for using the purchase method. In addition, intangible assets
acquired are only recognized and accounted for separately from goodwill if they
arise from either contractual or other legal rights or are capable of being
separated.
In July 2001, FASB also issued Statement of Financial Accounting Standards No.
142 (SFAS 142), "Goodwill and Other Intangible Assets." Under the provisions of
SFAS 142, goodwill and other intangible assets that have indefinite lives will
no longer be amortized, but subjected to impairment testing. Goodwill
amortization expense in fiscal 2001 was $2.6 million pretax, $1.7 million after
tax. SFAS 142 is effective for the Company in the first quarter of fiscal 2003.
However, any goodwill and any intangible assets determined to have an indefinite
life that are acquired in a business combination completed after June 30, 2001
will not be amortized. The Company is currently evaluating the impact of the
standard and may be required to recognize an impairment loss associated with its
Multifoods Distribution Group business upon adoption of the standard. As of
September 1, 2001, the unamortized goodwill balance of the Multifoods
Distribution Group business was $66.2 million.
Additional discussion on new accounting pronouncements is included in Note 3 to
the consolidated condensed financial statements.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. In addition, we may from
time-to-time make written and oral forward-looking statements. These
forward-looking statements are based on current expectations or beliefs,
including, but not limited to, statements concerning our operations and
financial performance and condition. For this purpose, statements that are not
statements of historical fact may be deemed to be forward-looking statements. We
caution that these statements by their nature involve risks and uncertainties,
and actual results may differ materially depending on a variety of important
factors, including, among others, the consummation of the proposed acquisition
and the timing of the close; costs associated with the acquisition should it
fail to close; actions in the financial markets; regulatory approval related to
the pending acquisition; integration problems associated with the pending
acquisition; the results of our review of strategic alternatives for our
Multifoods Distribution Group; the impact of competitive products and pricing;
market or weather conditions that may affect the costs of grain, cheese, other
raw materials, fuel and labor; changes in laws and regulations; fluctuations in
interest rates; the inability to collect on a $6 million insurance claim related
to the theft of product in St. Petersburg, Russia; fluctuations in foreign
exchange rates; risks commonly encountered in international trade; and other
factors as may be discussed in our reports filed with the Securities and
Exchange Commission.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 2001 Annual Meeting of Stockholders of International Multifoods
Corporation (the "Company") was held on July 2, 2001 (the "Annual Meeting").
Holders of the Company's common stock, par value $.10 per share, of record on
May 10, 2001, were entitled to one vote per share.
(c) Claire L. Arnold was elected a director for a term of one year at
the Annual Meeting and 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 15,172,222 1,498,775
Lois D. Rice 15,153,093 1,517,904
Dolph W. von Arx 15,172,036 1,498,961
The other directors whose terms of office as directors continued after the
meeting were Gary E. Costley, Nicholas L. Reding, Jack D. Rehm and Richard K.
Smucker.
With respect to the proposal to approve amendments to the 1997
Stock-Based Incentive Plan of International Multifoods Corporation, there were
11,510,893 votes cast for the proposal, 3,492,905 votes cast against the
proposal and 23,481 abstentions. There were 1,428,718 broker nonvotes with
respect to such matter.
With respect to the proposal to approve the appointment of KPMG LLP as
independent auditors of the Company for the fiscal year ending March 2, 2002,
there were 16,551,491 votes cast for the proposal, 79,331 votes cast against the
proposal and 40,175 abstentions. There were no broker nonvotes with respect to
such matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Second Amendment to Asset Purchase and Sale Agreement
by and among General Mills, Inc., The Pillsbury
Company (together, the Sellers) and International
Multifoods Corporation (the Buyer) dated as of July
30, 2001.
11. Computation of Earnings Per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 1, 2001.
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 15, 2001 /s/ John E. Byom
-----------------------------------------
John E. Byom
Vice President - Finance
and Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER
AND DULY AUTHORIZED OFFICER)
EXHIBIT INDEX
2.1 Second Amendment to Asset Purchase and Sale Agreement by and among
General Mills, Inc., The Pillsbury Company (together, the Sellers) and
International Multifoods Corporation (the Buyer) dated as of July 30,
2001.
11. Computation of Earnings Per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.