SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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
incorporation or organization) Identification No.)
200 East Lake Street, Wayzata, Minnesota 55391
(Address of principal executive offices) (Zip Code)
(612) 594-3300
(Registrant's telephone number, including area code)
(not applicable)
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- ----
The number of shares outstanding of the registrant's Common
Stock, par value $.10 per share, as of December 31, 1998 was
18,737,494.
PART I. FINANCIAL INFORMATION
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
(in thousands, except per share amounts)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 611,147 $ 593,633 $ 1,723,420 $ 1,700,101
Cost of materials and
production (520,729) (499,469) (1,472,735) (1,444,842)
Delivery and distribution (38,573) (38,453) (111,380) (110,527)
- -------------------------------------------------------------------------------
Gross profit 51,845 55,711 139,305 144,732
Selling, general
and administrative (34,318) (34,979) (101,771) (108,912)
Unusual items - - (28,963) -
- -------------------------------------------------------------------------------
Operating earnings 17,527 20,732 8,571 35,820
Interest, net (2,705) (757) (7,731) (5,409)
Other income (expense), net 541 (242) 42 (101)
- -------------------------------------------------------------------------------
Earnings from
continuing operations
before income taxes 15,363 19,733 882 30,310
Income taxes (5,548) (6,650) (1,094) (10,214)
- -------------------------------------------------------------------------------
Earnings (loss) from
continuing operations 9,815 13,083 (212) 20,096
- -------------------------------------------------------------------------------
Discontinued operations:
Operating loss, net of tax - (3,672) (14,068) (4,146)
Net loss on disposition,
after tax (7,244) - (122,098) -
- -------------------------------------------------------------------------------
Loss from discontinued
operations (7,244) (3,672) (136,166) (4,146)
- -------------------------------------------------------------------------------
Net earnings (loss) $ 2,571 $ 9,411 $ (136,378) $ 15,950
===============================================================================
Basic earnings (loss) per
share:
Continuing operations $ .52 $ .70 $ (.01) $ 1.10
Discontinued operations (.38) (.19) (7.26) (.23)
- -------------------------------------------------------------------------------
Total $ .14 $ .51 $ (7.27) $ .87
===============================================================================
Diluted earnings (loss) per
share:
Continuing operations $ .52 $ .69 $ (.01) $ 1.09
Discontinued operations (.38) (.19) (7.26) (.23)
- -------------------------------------------------------------------------------
Total $ .14 $ .50 $ (7.27) $ .86
===============================================================================
Average shares of common
stock outstanding:
Basic 18,743 18,570 18,758 18,273
Diluted 18,770 18,865 18,758 18,516
- -------------------------------------------------------------------------------
Dividends per share of
common stock $ .20 $ .20 $ .60 $ .60
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands)
Condensed
from audited
financial
(Unaudited) statements
Nov. 30, Feb. 28,
1998 1998
- ------------------------------------------------------------------------
<TABLE>
Assets
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,767 $ 9,126
Trade accounts receivable, net 123,489 111,944
Inventories 166,742 156,335
Net current assets of
discontinued operations - 62,962
Other current assets 69,362 53,379
- -----------------------------------------------------------------------
Total current assets 373,360 393,746
- -----------------------------------------------------------------------
Property, plant and equipment, net 156,933 169,982
Goodwill, net 82,595 84,911
Net noncurrent assets of
discontinued operations 45,626 7,976
Other assets 36,552 36,194
- -----------------------------------------------------------------------
Total assets $695,066 $ 692,809
=======================================================================
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Notes payable $ 36,357 $ 1,025
Current portion of long-term debt 3,000 24,500
Accounts payable 161,373 132,401
Net current liabilities of
discontinued operations 3,596 -
Other current liabilities 72,055 63,839
- -----------------------------------------------------------------------
Total current liabilities 276,381 221,765
- -----------------------------------------------------------------------
Long-term debt 121,199 120,951
Employee benefits and other liabilities 40,774 40,740
- -----------------------------------------------------------------------
Total liabilities 438,354 383,456
- -----------------------------------------------------------------------
Shareholders' equity:
Common stock 2,184 2,184
Accumulated other comprehensive income:
Foreign currency translation adjustments (15,357) (110,812)
Minimum pension liability adjustment (3,499) (3,499)
Other shareholders' equity 273,384 421,480
- -----------------------------------------------------------------------
Total shareholders' equity 256,712 309,353
- -----------------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------------
Total liabilities and shareholders' equity $695,066 $ 692,809
=======================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
NINE MONTHS ENDED
---------------------
Nov. 30, Nov. 30,
1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operations:
Earnings(loss) from continuing operations $ (212) $ 20,096
Adjustments to reconcile earnings (loss) from
continuing operations to cash provided by
(used for) operations:
Depreciation and amortization 16,676 17,874
Deferred income tax expense (benefit) (9,561) 3,084
Provision for losses on (recoveries of)
receivables 172 (45)
Provision for unusual charges 28,963 -
Changes in operating assets and liabilities:
Accounts receivable (16,009) 46,655
Inventories (13,732) (3,694)
Other current assets (5,490) 2,348
Accounts payable 30,881 (19,805)
Other current liabilities (18,174) (5,615)
Other, net (539) 3,490
- ---------------------------------------------------------------------------
Cash provided by continuing operations 12,975 64,388
Cash provided by (used for) discontinued
operations (28,092) 22,037
- ---------------------------------------------------------------------------
Cash provided by(used for) all operations (15,117) 86,425
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (16,043) (13,269)
Proceeds from sale of investment 2,340 -
Discontinued operations (4,832) (5,089)
Proceeds from property disposals 1,593 331
- ---------------------------------------------------------------------------
Cash used for investing activities (16,942) (18,027)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Net increase(decrease) in notes payable 35,410 (14,331)
Net decrease in long-term debt (20,302) (39,032)
Dividends paid (11,252) (10,929)
Proceeds from issuance of common stock 3,355 15,970
Purchase of treasury stock (4,617) (799)
Discontinued operations 34,667 (18,805)
Other, net (15) (16)
- ---------------------------------------------------------------------------
Cash provided by (used for)
financing activities 37,246 (67,942)
- ---------------------------------------------------------------------------
(Increase)decrease in cash from discontinued
operations (533) 3,017
- ---------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (13) (41)
- ---------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,641 3,432
Cash and cash equivalents at beginning of period 9,126 5,446
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 13,767 $ 8,878
===========================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) In the Company's opinion, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring adjustments, except as noted elsewhere in the
notes to the consolidated condensed financial statements) necessary to
present fairly its financial position as of November 30, 1998, and the
results of its operations for the three and nine months ended November
30, 1998 and 1997, and cash flows for the nine months ended November
30, 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 nine months ended November 30, 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 Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which must be adopted by the Company no later than
March 1, 2000. SFAS No. 133 requires that all derivative instruments
be recorded on the consolidated balance sheet at their fair value.
Changes in fair value 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 and results of operations.
(3) Discontinued operations - In August 1998, the Company decided to
sell its Venezuela Foods business and, accordingly, has classified this
business as discontinued operations in the consolidated financial
statements. The Company recognized an estimated loss on disposition of
$114.9 million in the second quarter. The loss was based on the terms
set forth in a letter of intent with a prospective buyer. During the
third quarter, the Company announced that the prospective buyer had
decided not to proceed with the acquisition of the business. As a
result, the Company recorded an additional loss of $7.2 million in the
third quarter to reflect estimated operating losses through fiscal year
1999 and to adjust the estimated income taxes on the sale. The
adjustment was necessary as the expected sale date and estimated future
operating losses had changed from the assumptions used in the original
loss provision. In estimating the loss from discontinued operations,
considerable management judgment is necessary, and actual results could
differ materially from current estimates.
The estimated loss on disposition was $122.1 million (after taxes of
$6.7 million), which consisted of $93.3 million for the recognition of
the unrealized foreign currency translation loss in shareholders'
equity, a provision of $17.4 million for operating losses until
disposal and an $11.4 million estimated loss on disposal. The loss was
based on an estimated sale price that approximated the net book value
of the business.
The $14.1 million fiscal 1999 operating loss of the Venezuela Foods
business reflected in the Consolidated Statements of Operations are the
results through July 31, 1998, the measurement date. The estimated
operating loss from the measurement date to the anticipated sale date
is reflected in the net loss on disposition. The operating results
below are through November 30, 1998 and are exclusive of loss
provisions related to the disposal.
<TABLE>
Three Months Ended Nine Months Ended
-------------------- -------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
(in thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 86,165 $83,170 $266,953 $273,101
Operating loss (8,948) (2,623) (24,340) (929)
Interest, net 983 1,133 2,996 4,014
Net loss (10,629) (3,672) (27,841) (4,146)
- -------------------------------------------------------------------------------
The net assets of the Venezuela Foods business were as follows:
Nov. 30, Feb 28,
(in thousands) 1998 1998
- -------------------------------------------------------------------------------
Cash and cash equivalents $ 1,542 $ 1,237
Trade accounts receivable, net 38,236 32,258
Inventories 80,796 109,654
Other current assets 6,610 10,471
Notes payable (73,215) -
Current portion of long-term debt (587) (542)
Accounts payable (51,426) (85,099)
Other current liabilities (5,552) (5,017)
- -------------------------------------------------------------------------------
Net current assets (liabilities) of discontinued operations $ (3,596) $ 62,962
===============================================================================
Property, plant and equipment, net $ 46,149 $ 50,585
Other assets 1,837 1,310
Long-term debt (840) (41,906)
Employee benefits and other liabilities (1,520) (2,013)
- -------------------------------------------------------------------------------
Net noncurrent assets of discontinued operations $ 45,626 $ 7,976
===============================================================================
</TABLE>
(4) Comprehensive income - In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income."
The Company adopted SFAS 130 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:
<TABLE>
Three Months Ended Nine Months Ended
-------------------- ------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
(in thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 2,571 $ 9,411 $(136,378) $ 15,950
Foreign currency translation
adjustments 9,526 (1,928) 95,455 (2,902)
Reclassification adjustment due to
foreign currency translation
adjustment recognized (8,204) - (101,555) -
- -------------------------------------------------------------------------------
Comprehensive income (loss) $ 3,893 $ 7,483 $(142,478) $ 13,048
===============================================================================
</TABLE>
(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 a
24-month period ended June 2000.
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 SFAS
No. 121, the Company evaluated the carrying value of its long-lived
assets as a result of these 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 economic difficulties in Russia. Accordingly, the
Company believes that remaining amounts due from the customer are not
collectible.
(6) Interest, net
<TABLE>
Three Months Ended Nine Months Ended
--------------------- ------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
(in thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $ 2,880 $ 3,012 $ 8,239 $ 10,055
Capitalized interest (23) - (54) (9)
Non-operating interest income (152) (2,255) (454) (4,637)
- -------------------------------------------------------------------------------
Interest, net $ 2,705 $ 757 $ 7,731 $ 5,409
===============================================================================
</TABLE>
Cash payments for interest, net of amounts capitalized, were $9.4
million and $11.5 million for the nine months ended November 30, 1998
and 1997, respectively.
(7) Income taxes - Cash payments for income taxes for the nine months
ended November 30, 1998, were $11.1 million, while cash refunds for the
nine months ended November 30, 1997, were $0.6 million.
(8) Supplemental balance sheet information
Nov. 30, Feb. 28,
(in thousands) 1998 1998
- -----------------------------------------------------------------------
Trade accounts receivable, net:
Trade $ 126,082 $ 116,261
Allowance for doubtful accounts (2,593) (4,317)
- ----------------------------------------------------------------------
Total trade accounts receivable, net $ 123,489 $ 111,944
======================================================================
Inventories:
Raw materials, excluding grain $ 11,093 $ 8,234
Grain 4,555 6,258
Finished and in-process goods 145,557 137,569
Packages and supplies 5,537 4,274
- ----------------------------------------------------------------------
Total inventories $ 166,742 $ 156,335
======================================================================
Property, plant and equipment, net:
Land $ 11,513 $ 11,389
Buildings and improvements 78,796 80,173
Machinery and equipment 184,380 190,324
Transportation equipment 2,418 4,876
Improvements in progress 10,042 5,958
- ----------------------------------------------------------------------
287,149 292,720
Accumulated depreciation (130,216) (122,738)
- ----------------------------------------------------------------------
Total property, plant and equipment, net $ 156,933 $ 169,982
======================================================================
(9) Segment information
<TABLE>
Operating
Net Operating Unusual Earnings
(in millions) Sales Costs Items (Loss)
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three Months Ended Nov. 30, 1998
Multifoods Distribution Group $ 483.8 $ (475.4) $ - $ 8.4
North America Foods 127.3 (115.9) - 11.4
Corporate Expenses - (2.2) - (2.2)
- -------------------------------------------------------------------------
Total $ 611.1 $ (593.5) $ - $17.6
=========================================================================
Three Months Ended Nov. 30, 1997
Multifoods Distribution Group $ 456.8 $ (449.0) $ - $ 7.8
North America Foods 133.4 (119.4) - 14.0
Divested Business 3.4 (2.1) - 1.3
Corporate Expenses - (2.4) - (2.4)
- -------------------------------------------------------------------------
Total $ 593.6 $ (572.9) $ - $20.7
=========================================================================
Nine Months Ended Nov. 30, 1998
Multifoods Distribution Group $1,380.6 $(1,360.2) $(11.5) $ 8.9
North America Foods 342.8 (319.9) (7.2) 15.7
Divested Business - .8 (10.3) (9.5)
Corporate Expenses - (6.5) - (6.5)
- -------------------------------------------------------------------------
Total $1,723.4 $(1,685.8) $(29.0) $ 8.6
=========================================================================
Nine Months Ended Nov. 30, 1997
Multifoods Distribution Group $1,325.7 $(1,309.3) $ - $16.4
North America Foods 365.6 (343.3) - 22.3
Divested Business 8.8 (4.8) - 4.0
Corporate Expenses - (6.9) - (6.9)
- -------------------------------------------------------------------------
Total $1,700.1 $(1,664.3) $ - $35.8
=========================================================================
</TABLE>
(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.
As of November 30, 1998, the Company had guaranteed and provided
standby letters of credit totaling $78.4 million related to bank loans
and trade obligations of its Venezuelan 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
Net earnings for the third quarter of fiscal 1999 were $2.5 million, or
14 cents per diluted share, compared with net earnings of $9.4 million,
or 50 cents per diluted share, a year ago. Net earnings for both
periods were affected by losses from discontinued operations.
For the nine months ended November 30, 1998, the Company recognized a
net loss of $136.4 million, or $7.27 per diluted share, compared with
net earnings of $15.9 million, or 86 cents per diluted share, a year
ago. The current period included a $136.2 million loss from
discontinued operations, which consisted of an estimated $122.1 million
loss on disposition and $14.1 million of operating losses. The
disposition loss included a $93.3 million non-cash charge for the
recognition of unrealized foreign currency translation losses. The
unrealized translation losses were previously classified in
shareholders' equity. In addition, the current nine-month period
included $18.7 million, or $1.00 per share, of after-tax unusual
charges related to continuing operations.
The Company expects that savings achieved in fiscal 1999 from actions
associated with the unusual charges will be offset by one-time costs
incurred to consolidate 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 third-quarter earnings from continuing operations were $9.8
million, or 52 cents per share, compared with $13.1 million, or 69
cents per diluted share, a year ago. The decline was due to lower
North America Foods operating earnings and the benefit of non-recurring
items in the prior year. These non-recurring items included the
operating profit of the Company's former food exporting business and
interest income on tax refunds. In addition, last year's earnings
benefited from a low effective tax rate. The decline in earnings was
partially offset by higher operating earnings in Multifoods
Distribution Group.
The Company reported a loss from continuing operations of $0.2 million
for the nine months ended November 30, 1998. Current year results
included after-tax unusual charges of $18.7 million, or $1.00 per
share. Excluding unusual charges, current period earnings were $18.5
million, or 99 cents per share, compared with $20.1 million, or $1.09
per diluted share, a year ago.
Segment Results
Multifoods Distribution Group: Net sales in the third quarter
increased 6% to $483.8 million, primarily as a result of higher sales
volumes. Sales increased in the independent vending and pizza customer
segments. The increase also was due to higher foodservice prices that
resulted from an increase in cheese costs. Operating earnings
increased 8% to $8.4 million, primarily as a result of the higher sales
volumes.
Net sales for the nine-month period increased 4% to $1.38 billion as a
result of the same factors as described above for the third quarter.
Operating earnings before unusual items increased 24% to $20.4 million,
compared with $16.4 million last year. Operating earnings increased
because of the higher sales volumes and lower administrative costs.
The increase was partially offset by higher delivery and distribution
costs. Last year's results benefited from the purchase of coffee at
favorable prices and from a reduction in bad debt expense.
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 third quarter declined 5% to
$127.3 million, primarily due to unfavorable currency translation,
lower prices that resulted from a reduction in wheat costs and lower
volumes in certain product lines. The volume declines occurred in
consumer branded flour and commercial bakery ingredients in Canada.
Operating earnings declined 19% to $11.4 million, as a result of the
lower sales volumes and unfavorable currency translation.
Net sales for the nine-month period decreased 6% to $342.8 million, as
a result of essentially the same factors as described above for the
third quarter. Operating earnings before unusual items increased 3% to
$22.9 million, compared with $22.3 million last year. The increase was
the result of a decline in selling and administrative costs that offset
the affect of unfavorable currency translation and lower sales volumes
in Canada. An unusual charge of $7.2 million for the current year was
related to the write-down of assets and costs 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
Third-quarter net interest expense for continuing operations increased
to $2.7 million, compared with $0.8 million last year. The increase
was the result of interest income on U.S. federal income tax refunds
recognized in the prior year. For the nine-month periods, net interest
expense increased to $7.7 million, from $5.4 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 nine months ended November 30, 1998 and 1997, were $3 million and
$4 million, respectively.
In the third quarter of fiscal 1999, the Company recognized a gain of
$0.8 million from the sale of its investment in a Mexican animal feed
business.
Income Taxes
For the nine-month periods, the Company's effective tax rate on
earnings before unusual items was 38% 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
In August 1998, the Company announced its decision to sell its
Venezuela Foods business and recognized an estimated loss on
disposition of $114.9 million. The loss was based on the terms set
forth in a letter of intent with a prospective buyer. During the third
quarter, the Company announced that the prospective buyer had decided
not to proceed with the acquisition of the business. As a result, the
Company recorded an additional loss of $7.2 million in the third
quarter to reflect estimated operating losses through fiscal year 1999
and to adjust the estimated income taxes on the sale. The adjustment
was necessary as the expected sale date and estimated future operating
losses had changed from the assumptions used in the original loss
provision. In estimating the loss from discontinued operations,
considerable management judgment is necessary, and actual results could
differ materially from current estimates.
The estimated after tax disposition loss of $122.1 million consisted of
$93.3 million for the recognition of the unrealized foreign currency
translation loss in shareholders' equity, a provision of $17.4 million
for operating losses until disposal and an $11.4 million estimated loss
on disposal. The loss was based on an estimated sale price that
approximated the net book value of the business.
Net sales of the Venezuelan business were $86.2 million and $83.2
million for the three months ended November 30, 1998 and 1997,
respectively. The sales increase was primarily the result of an
increase in corn flour sales volumes and price increases in wheat
flour. Excluding loss provisions related to the disposal, operating
losses were $8.9 million and $2.6 million for the three months ended
November 30, 1998 and 1997, respectively. The current year operating
loss was primarily the result of a significant decline in gross profit
margins. The decline resulted from difficult economic conditions that
prevented the Company from raising prices to cover higher raw material
and operating costs.
Net sales for the nine months ended November 30, 1998, declined 2% to
$267 million as a result of lower sales volumes. Excluding the loss
provisions related to the sale, operating losses were $24.3 million.
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 also were
affected by the same factors as described above for the third quarter.
Financial Condition:
- --------------------
The Company's debt-to-total capitalization ratio increased to 38% at
November 30, 1998, compared with 32% at February 28, 1998. The ratios
for both periods exclude debt obligations of the Company's Venezuelan
business that 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
48%, 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 unusual charges.
Based on current estimates management believes that the sale of the
Venezuelan business will result in net proceeds of approximately $31
million, after payment of transaction costs and taxes. Actual net
proceeds from the sale could differ materially from 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 general corporate purposes.
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 a 24-month period ended June
2000. In addition, the Company estimates it will incur capital
expenditures of $15 million to $20 million over the 24-month period
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 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 and Canada. 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 November 30, 1998, the Company filed a
report on Form 8-K dated September 29, 1998 regarding discontinuation
of discussions with Archer-Daniels-Midland Company and GRUMA, S.A. de
C.V. related to the 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: January 11, 1999 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
11. Computation of Earnings Per Common Share.
12. Computation of Ratio of Earnings to Fixed Charges.
27. Financial Data Schedule.
Exhibit 11
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Computation of Earnings (Loss) per Common Share
(unaudited)
(in thousands, except per share amounts)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- --------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<C> <S> <S> <S> <S>
Average shares of
common stock outstanding 18,743 18,570 18,758 18,273
Dilutive potential common shares 27 295 - 243
- --------------------------------------------------------------------------------
Average shares outstanding
assuming full dilution 18,770 18,865 18,758 18,516
================================================================================
Earnings (loss) from continuing
operations $ 9,815 $13,083 $ (212) $20,096
Loss from discontinued operations (7,244) (3,672) (136,166) (4,146)
- --------------------------------------------------------------------------------
Net earnings (loss)
applicable to common stock $ 2,571 $ 9,411 $(136,378) $15,950
================================================================================
Basic earnings (loss) per share:
Continuing operations $ .52 $ .70 $ (.01) $ 1.10
Discontinued operations (.38) (.19) (7.26) (.23)
- --------------------------------------------------------------------------------
Total $ .14 $ .51 $ (7.27) $ .87
====================================================================================
Diluted earnings (loss) per share:
Continuing operations $ .52 $ .69 $ (.01) $ 1.09
Discontinued operations (.38) (.19) (7.26) (.23)
- --------------------------------------------------------------------------------
Total $ .14 $ .50 $ (7.27) $ .86
================================================================================
Basic earnings (loss) per share are computed by dividing net earnings (loss) by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share are computed similar to basic earnings per share except that
the weighted average shares outstanding are increased to include additional shares from
the assumed exercise of stock options, if dilutive. The number of additional shares is
calculated by assuming that outstanding stock options were exercised and the proceeds
from such exercises were used to acquire shares of common stock at the average market
price during the period.
</TABLE>
Exhibit 12
INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(unaudited)
(in thousands)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- ------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
<C> <S> <S> <S> <S>
Earnings from continuing operations
before income taxes $15,363 $19,733 $ 882 $30,310
Plus: Fixed charges (1) 6,343 6,495 18,271 21,303
Less: Capitalized interest (50) - (81) (9)
- --------------------------------------------------------------------------------
Earnings available to cover
fixed charges $21,656 $26,228 $19,072 $51,604
================================================================================
Ratio of earnings to fixed charges 3.41 4.04 1.04 2.42
================================================================================
(1) Fixed charges consisted of the following:
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- -----------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
Interest expense, gross $ 4,003 $ 4,162 $11,438 $14,120
Rentals (Interest factor) 2,340 2,333 6,833 7,183
- -------------------------------------------------------------------------------
Total fixed charges $ 6,343 $ 6,495 $18,271 $21,303
===============================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET, STATEMENTS OF OPERATIONS AND CASH FLOWS
AND ACCOMPANYING NOTES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 13,767
<SECURITIES> 0
<RECEIVABLES> 126,082
<ALLOWANCES> 2,593
<INVENTORY> 166,742
<CURRENT-ASSETS> 373,360
<PP&E> 287,149
<DEPRECIATION> 130,216
<TOTAL-ASSETS> 695,066
<CURRENT-LIABILITIES> 276,381
<BONDS> 121,199
0
0
<COMMON> 2,184
<OTHER-SE> 254,528
<TOTAL-LIABILITY-AND-EQUITY> 695,066
<SALES> 1,723,420
<TOTAL-REVENUES> 1,723,420
<CGS> 1,584,115
<TOTAL-COSTS> 1,584,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 172
<INTEREST-EXPENSE> 8,185
<INCOME-PRETAX> 882
<INCOME-TAX> 1,094
<INCOME-CONTINUING> (212)
<DISCONTINUED> (136,166)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136,378)
<EPS-PRIMARY> (7.27)
<EPS-DILUTED> (7.27)
</TABLE>
