**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 
| **(Mark  One)** |                                                                                           |
|-----------------|------------------------------------------------------------------------------------------------|
| **ý**      | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF  1934** |

 

**Forthe quarterly period ended May 31, 2003**

 

**OR**

 
| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|-------|-------------------------------------------------------------------------------------------------|

 

**Forthe transition period from             to            **

 

**CommissionFile Number**

**1-6699**

 

**INTERNATIONALMULTIFOODS CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                                        |   | **41-0871880**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                |   |                                  |
| **110 Cheshire Lane, Suite 300,  Minnetonka, Minnesota**                            |   | **55305-1060**                        |
| (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 checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes  ý    No  o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes  ý    No  o

 

The number ofshares outstanding of the registrant’s Common Stock, par value $.10 per share,as of June 28, 2003 was 19,233,720.

 

 

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**PART I. FINANCIAL INFORMATION**

 

INTERNATIONALMULTIFOODS CORPORATION AND SUBSIDIARIES

 

ConsolidatedCondensed Statements of Operations

(unaudited)

(in thousands,except per share amounts)

 
|                                                                        |   | **THREE  MONTHS ENDED** |    |
|-----------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                        |   | **May 31,  2003**  |    | **June 1,  2002** | ** ** |
| Net sales                                                                   |   | $                       | 213,898 |   | $ | 210,427 |   |
| Cost  of goods sold                                                         |   | (178,285                | )       | (168,397 | ) |
| Gross profit                                                                |   | 35,613                  |    | 42,030 |   |
| Selling, general and administrative                                         |   | (27,783                 | )       | (30,221 | ) |
| Unusual  items                                                              |   | (3,515                  | )       | — |   |
| Operating earnings                                                          |   | 4,315                   |    | 11,809 |   |
| Interest,  net                                                              |   | (6,234                  | )       | (6,476 | ) |
| Other  income (expense), net                                                |   | 1,421                   |    | — |   |
| Earnings (loss) from continuing operations before  income taxes             |   | (498                    | )       | 5,333 |   |
| Income  taxes                                                               |   | 195                     |    | (2,027 | ) |
| Earnings  (loss) from continuing operations                                 |   | (303                    | )       | 3,306 |   |
| Discontinued  operations:                                                   |   |                    |    |   |   |
| Operating  earnings, after tax                                              |   | —                  |    | 1,598 |   |
| Cumulative  effect of change in accounting principle, net of tax of $23,781 |   | —                  |    | (41,342 | ) |
| Loss from  discontinued operations                                          |   | —                  |    | (39,744 | ) |
| Net  loss                                                                   |   | $                       | (303    | ) | $ | (36,438 | ) |
|                                                                        |   |                    |    |   |   |
| Basic  earnings (loss) per share:                                           |   |                    |    |   |   |
| Continuing operations                                                       |   | $                       | (0.02   | ) | $ | 0.17 |   |
| Discontinued  operations                                                    |   | —                  |    | (2.08 | ) |
| Total                                                                       |   | $                       | (0.02   | ) | $ | (1.91 | ) |
|                                                                        |   |                    |    |   |   |
| Diluted  earnings (loss) per share:                                         |   |                    |    |   |   |
| Continuing operations                                                       |   | $                       | (0.02   | ) | $ | 0.17 |   |
| Discontinued  operations                                                    |   | —                  |    | (2.04 | ) |
| Total                                                                       |   | $                       | (0.02   | ) | $ | (1.87 | ) |
|                                                                        |   |                    |    |   |   |
| Average  shares of common stock outstanding:                                |   |                    |    |   |   |
| Basic                                                                       |   | 19,193                  |    | 19,028 |   |
| Diluted                                                                     |   | 19,193                  |    | 19,456 |   |

 

See accompanying notes toconsolidated condensed financial statements.

 

2

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INTERNATIONALMULTIFOODS CORPORATION AND SUBSIDIARIES

 

ConsolidatedCondensed Balance Sheets

(in thousands)

 
|                                             |   | **(Unaudited)  May 31,  2003** |    | **Condensed  from audited  financial  statements  March 1,  2003** |   |
|--------------------------------------------------|--------|-------------------------------------|---------|-------------------------------------------------------------------------|--------|
| **Assets**                                       |   |                                |    |                                                                    |   |
| Current  assets:                                 |   |                                |    |                                                                    |   |
| Cash  and cash equivalents                       |   | $                                   | 3,214   |                                                                    | $      | 1,203 |   |
| Trade  accounts receivable, net                  |   | 68,673                              |    | 43,909                                                                  |   |
| Inventories                                      |   | 132,224                             |    | 124,659                                                                 |   |
| Other current assets                             |   | 37,171                              |    | 46,242                                                                  |   |
| Total current assets                             |   | 241,282                             |    | 216,013                                                                 |   |
| Property,  plant and equipment, net              |   | 243,433                             |    | 235,118                                                                 |   |
| Goodwill,  net                                   |   | 63,943                              |    | 63,358                                                                  |   |
| Other  intangible assets, net                    |   | 135,765                             |    | 135,986                                                                 |   |
| Other  assets                                    |   | 118,700                             |    | 115,789                                                                 |   |
| Total  assets                                    |   | $                                   | 803,123 |                                                                    | $      | 766,264 |   |
|                                             |   |                                |    |                                                                    |   |
| **Liabilities  and Shareholders’ Equity**   |   |                                |    |                                                                    |   |
| Current  liabilities:                            |   |                                |    |                                                                    |   |
| Notes  payable                                   |   | $                                   | 46,593  |                                                                    | $      | 15,110 |   |
| Current  portion of long-term debt               |   | 1,313                               |    | 1,313                                                                   |   |
| Accounts  payable                                |   | 76,045                              |    | 70,097                                                                  |   |
| Other  current liabilities                       |   | 46,423                              |    | 60,499                                                                  |   |
| Total current liabilities                        |   | 170,374                             |    | 147,019                                                                 |   |
| Long-term  debt                                  |   | 328,030                             |    | 328,030                                                                 |   |
| Employee  benefits and other liabilities         |   | 58,154                              |    | 55,246                                                                  |   |
| Total  liabilities                               |   | 556,558                             |    | 530,295                                                                 |   |
|                                             |   |                                |    |                                                                    |   |
| Shareholders’  equity:                      |   |                                |    |                                                                    |   |
| Common  stock                                    |   | 2,184                               |    | 2,184                                                                   |   |
| Accumulated  other comprehensive loss            |   | (190                                | )       | (10,181                                                                 | )      |
| Other  shareholders’ equity                 |   | 244,571                             |    | 243,966                                                                 |   |
| Total  shareholders’ equity                 |   | 246,565                             |    | 235,969                                                                 |   |
|                                             |   |                                |    |                                                                    |   |
| Commitments  and contingencies                   |   |                                |    |                                                                    |   |
|                                             |   |                                |    |                                                                    |   |
| Total  liabilities and shareholders’ equity |   | $                                   | 803,123 |                                                                    | $      | 766,264 |   |

 

See accompanying notes toconsolidated condensed financial statements.

 

3

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INTERNATIONALMULTIFOODS CORPORATION AND SUBSIDIARIES

 

Consolidated CondensedStatements of Cash Flows

(unaudited)

(in thousands)

 
|                                                                                                                        |   | **THREE  MONTHS ENDED** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                        |   | **May 31,  2003**  |   | **June 1,  2002** |   |
| Cash  flows from operations:                                                                                                |   |                    |   |   |   |
| Earnings (loss) from continuing operations                                                                                  |   | $                       | (303   | ) | $ | 3,306 |   |
| Adjustments  to reconcile earnings (loss) from continuing operations to cash provided by  (used for) continuing operations: |   |                    |   |   |   |
| Depreciation and amortization                                                                                               |   | 5,373                   |   | 3,718 |   |
| Deferred income tax expense (benefit)                                                                                       |   | (304                    | )      | 273 |   |
| Increase  in prepaid pension assets                                                                                         |   | (1,070                  | )      | (2,742 | ) |
| Provision  for losses on receivables                                                                                        |   | 1,748                   |   | 80 |   |
| Changes  in working capital:                                                                                                |   |                    |   |   |   |
| Accounts receivable                                                                                                         |   | (23,926                 | )      | 1,085 |   |
| Inventories                                                                                                                 |   | (2,518                  | )      | (3,819 | ) |
| Other  current assets                                                                                                       |   | 9,744                   |   | 284 |   |
| Accounts  payable                                                                                                           |   | 11,575                  |   | 5,896 |   |
| Other  current liabilities                                                                                                  |   | (14,836                 | )      | 10,329 |   |
| Other,  net                                                                                                                 |   | (1,426                  | )      | 7,187 |   |
| Cash provided by (used for) continuing operations                                                                           |   | (15,943                 | )      | 25,597 |   |
| Cash  provided by discontinued operations                                                                                   |   | —                  |   | 5,733 |   |
| Cash  provided by (used for) operations                                                                                     |   | (15,943                 | )      | 31,330 |   |
| Cash  flows from investing activities:                                                                                      |   |                    |   |   |   |
| Capital  expenditures                                                                                                       |   | (12,006                 | )      | (4,206 | ) |
| Proceeds from property disposals                                                                                            |   | 16                      |   | — |   |
| Discontinued operations                                                                                                     |   | —                  |   | (658 | ) |
| Cash  used for investing activities                                                                                         |   | (11,990                 | )      | (4,864 | ) |
| Cash  flows from financing activities:                                                                                      |   |                    |   |   |   |
| Net  increase in notes payable                                                                                              |   | 29,987                  |   | — |   |
| Reductions  in long-term debt                                                                                               |   | —                  |   | (5,052 | ) |
| Proceeds  from issuance of common stock                                                                                     |   | 62                      |   | 875 |   |
| Other,  net                                                                                                                 |   | (105                    | )      | (232 | ) |
| Cash provided by (used for) financing activities                                                                            |   | 29,944                  |   | (4,409 | ) |
| Effect  of exchange rate changes on cash and cash equivalents                                                               |   | —                  |   | 215 |   |
| Net increase in cash and cash equivalents                                                                                   |   | 2,011                   |   | 22,272 |   |
| Cash  and cash equivalents at beginning of period                                                                           |   | 1,203                   |   | 26,460 |   |
| Cash  and cash equivalents at end of period                                                                                 |   | $                       | 3,214  |   | $ | 48,732 |   |

 

See accompanying notes toconsolidated condensed financial statements.

 

4

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INTERNATIONALMULTIFOODS CORPORATION AND SUBSIDIARIES

 

Notes toConsolidated Condensed Financial Statements

(unaudited)

 

**(1)  **In our opinion, theaccompanying unaudited consolidated condensed financial statements contain alladjustments (consisting of only normal recurring adjustments, except as notedelsewhere in the notes to the consolidated condensed financial statements)necessary to present fairly our financial position as of May 31, 2003, andthe results of our operations and cash flows for the three months endedMay 31, 2003 and June 1, 2002. These statements are condensed and, therefore, do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Thestatements should be read in conjunction with the consolidated financialstatements and footnotes included in our Annual Report on Form 10-K for theyear ended March 1, 2003.  Theresults of operations for the three months ended May 31, 2003, are notnecessarily indicative of the results to be expected for the full year.

 

**(2)  Stock-Based compensation**

 

Our stock-based planspermit awards of restricted stock, incentive units and stock options todirectors and key employees subject to the provisions of the plans and asdetermined by the Compensation and Human Resources Committee of the Board ofDirectors.  See Note 15 to theconsolidated financial statements of our 2003 Annual Report for furtherinformation.

 

We have elected to use the intrinsic value method ofaccounting as prescribed by Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees.” Under theintrinsic value method, compensation expense is recorded only to the extentthat the market price of the common stock exceeds the exercise price of thestock option on the date of grant.

 

The following provides pro forma effect onearnings and earnings per share if we had applied the fair value recognitionprovisions prescribed by SFAS No. 123, “Accounting for Stock-BasedCompensation,” to stock-based employee compensation.

 
|                                                                                                          |   | **Three  Months Ended** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
| **(in thousands, except per share amounts)**                                                                  |   | **May 31,  2003**  |   | **June 1,  2002** | **    ** |
| Net loss as reported                                                                                          |   | $                       | (303   | ) | $ | (36,438 | ) |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method, net of tax |   | (385                    | )      | (459 | ) |
| Pro  forma net loss                                                                                           |   | $                       | (688   | ) | $ | (36,897 | ) |
|                                                                                                          |   |                    |   |   |   |
| Basic loss per share:                                                                                         |   |                    |   |   |   |
| As  reported                                                                                                  |   | $                       | (0.02  | ) | $ | (1.91 | ) |
| Pro  forma                                                                                                    |   | (0.04                   | )      | (1.94 | ) |
|                                                                                                          |   |                    |   |   |   |
| Diluted  loss per share:                                                                                      |   |                    |   |   |   |
| As  reported                                                                                                  |   | $                       | (0.02  | ) | $ | (1.87 | ) |
| Pro  forma                                                                                                    |   | (0.04                   | )      | (1.90 | ) |

 

5

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**(3)  Comprehensive income (loss)**–The components of total comprehensive income (loss) were as follows:

 
|                                                                     |   | **Three  Months Ended** |   |
|--------------------------------------------------------------------------|--------|-------------------------|--------|
| **(in thousands)**                                                       |   | **May 31,  2003**  |   | **June 1,  2002** |   |
| Net loss                                                                 |   | $                       | (303   | ) | $ | (36,438 | ) |
| Foreign currency translation adjustment                                  |   | 9,847                   |   | 3,955 |   |
| Net unrealized gain (loss) on cash flow hedges                           |   | 126                     |   | (284 | ) |
| Reclassification adjustment for cash flow hedges  recognized in earnings |   | (89                     | )      | 25 |   |
| Minimum pension liability adjustment                                     |   | 107                     |   | — |   |
| Comprehensive  income (loss)                                             |   | $                       | 9,688  |   | $ | (32,742 | ) |

 

**(4)  Goodwill and otherintangible assets**

 

The changes in thecarrying amount of goodwill by segment for the three months ended May 31,2003 are as follows:

 
| **(in thousands)**                |   | **U.S.  Consumer  Products** |   | **Foodservice  Products** |   | **Canadian  Foods** |   | **Total** |   |
|-----------------------------------|--------|------------------------------|--------|---------------------------|--------|---------------------|--------|-----------|--------|
| Balance  as of March 2, 2003 |   | $                            | 43,891 |                      | $      | 12,972              |   | $         | 6,495  |   | $ | 63,358 |   |
| Foreign  currency translation     |   | —                       |   | —                    |   | 585                 |   | 585       |   |
| Balance  as of May 31, 2003  |   | $                            | 43,891 |                      | $      | 12,972              |   | $         | 7,080  |   | $ | 63,943 |   |

 

Other intangible assetsas of May 31, 2003 and March 1, 2003 are as follows:

 
|                           |   | **May 31,  2003**      |       | **March 1,  2003**       |       |
|--------------------------------|--------|-----------------------------|------------|-------------------------------|------------|
| **(in thousands)**             |   | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Amortized  intangible assets   |   |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Trademarks                     |   | $                           | 9,090      |                          | $          | 2,193 |   | $ | 6,897 |   | $ | 9,090 |   | $ | 2,033 |   | $ | 7,057 |   |
| Non-compete  agreements        |   | 1,195                       |       | 1,193                         |       | 2 |   | 1,200 |   | 1,181 |   | 19 |   |
| Customer  lists                |   | 5,800                       |       | 4,348                         |       | 1,452 |   | 5,800 |   | 4,278 |   | 1,522 |   |
| Other                          |   | 853                         |       | 790                           |       | 63 |   | 853 |   | 775 |   | 78 |   |
| Total                          |   | $                           | 16,938     |                          | $          | 8,524 |   | $ | 8,414 |   | $ | 16,943 |   | $ | 8,267 |   | $ | 8,676 |   |
|                           |   |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Unamortized  intangible assets |   |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Trademarks                     |   | $                           | 127,343    |                          | $          | — |   | $ | 127,343 |   | $ | 127,302 |   | $ | — |   | $ | 127,302 |   |
| Other                          |   | 8                           |       | —                        |       | 8 |   | 8 |   | — |   | 8 |   |
| Total                          |   | $                           | 127,351    |                          | $          | — |   | $ | 127,351 |   | $ | 127,310 |   | $ | — |   | $ | 127,310 |   |

 

Amortization expense related to amortizableintangibles assets for the three months ended May 31, 2003 andJune 1, 2002 was $0.3 million and $0.2 million, respectively.  The estimated amortization expense forfiscal 2004 to fiscal 2008 is expected to approximate $1.3 million each year.

 

**(5)  Unusual items** – In the firstquarter of fiscal 2004, we recognized unusual charges of $3.5 millionassociated with actions taken to reduce the cost structure and improve thefinancial performance of our Canadian Foods business and our FoodserviceProducts business in the United States. Unusual items included a $2.5 million charge for severance costsassociated with reorganizing our Canadian Foods business.  Cash payments for severance benefits were$0.4 million in the first quarter. Remaining cash payments will besubstantially completed over the next 12 months.   Also included in unusual items was a $1.0

 

6

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million charge primarilyfor severance costs associated with reducing the number of production employeesat our plant in Sedalia, Missouri and closing two small facilities in theeastern United States.  Cash paymentsfor severance benefits were also $0.4 million in the first quarter.  Remaining cash payments will besubstantially completed by the end of our fiscal second quarter.

 

**(6)  Interest,net**

 
|                                                   |   | **Three  Months Ended** |   |
|--------------------------------------------------------|--------|-------------------------|--------|
| **(in thousands)**                                     |   | **May 31,  2003**  |   | **June 1,  2002** | ** ** |
| Interest expense                                       |   | $                       | 6,375  |   | $ | 9,099 |   |
| Capitalized  interest                                  |   | (91                     | )      | (65 | ) |
| Non-operating  interest income                         |   | (50                     | )      | (49 | ) |
|                                                   |   | 6,234                   |   | 8,985 |   |
| Interest  expense allocated to discontinued operations |   | —                  |   | (2,509 | ) |
| Interest,  net                                         |   | $                       | 6,234  |   | $ | 6,476 |   |

 

Cashpayments for interest, net of amounts capitalized, were $2.4 million and $4.7million for the three months ended May 31, 2003 and June 1, 2002,respectively.

 

**(7)  Other income (expense), net**–****In the first quarter of fiscal 2004, werealized a $1.4 million foreign exchange gain on U.S. dollar-denominated debtthat is held by our Canadian business.

 

**(8)  Income taxes** – Cash paymentsfor income taxes were $0.3 million and $2.1 million for the three months endedMay 31, 2003 and June 1, 2002, respectively.

 

**(9)  Supplemental balance sheet information**

 
| **(in thousands)**                         |   | **May 31,  2003** | ** ** | **March 1,  2003** | ** ** |
|--------------------------------------------|--------|------------------------|------------|-------------------------|------------|
| Trade  accounts receivable, net:           |   |                   |       |                    |       |
| Trade                                      |   | $                      | 70,836     |                    | $          | 44,276 |   |
| Allowance  for doubtful accounts           |   | (2,163                 | )          | (367                    | )          |
| Total  trade accounts receivable, net      |   | $                      | 68,673     |                    | $          | 43,909 |   |
|                                       |   |                   |       |                    |       |
| Inventories:                               |   |                   |       |                    |       |
| Raw  materials, excluding grain            |   | $                      | 16,773     |                    | $          | 12,675 |   |
| Grain                                      |   | 4,814                  |       | 6,282                   |       |
| Finished  and in-process goods             |   | 100,589                |       | 99,269                  |       |
| Packages  and supplies                     |   | 10,048                 |       | 6,433                   |       |
| Total  inventories                         |   | $                      | 132,224    |                    | $          | 124,659 |   |
|                                       |   |                   |       |                    |       |
| Property,  plant and equipment, net:       |   |                   |       |                    |       |
| Land                                       |   | $                      | 3,477      |                    | $          | 3,313 |   |
| Buildings  and improvements                |   | 72,730                 |       | 69,309                  |       |
| Machinery  and equipment                   |   | 284,687                |       | 235,570                 |       |
| Improvements  in progress                  |   | 12,379                 |       | 44,889                  |       |
|                                       |   | 373,273                |       | 353,081                 |       |
| Accumulated  depreciation                  |   | (129,840               | )          | (117,963                | )          |
| Total  property, plant and equipment, net  |   | $                      | 243,433    |                    | $          | 235,118 |   |
|                                       |   |                   |       |                    |       |
| Accumulated  other comprehensive loss:     |   |                   |       |                    |       |
| Foreign  currency translation adjustment   |   | $                      | (1,375     | )                       | $          | (11,222 | ) |
| Minimum  pension liability adjustment      |   | (2,971                 | )          | (3,078                  | )          |
| Derivative  hedge accounting adjustment    |   | 4,156                  |       | 4,119                   |       |
| Total accumulated other comprehensive loss |   | $                      | (190       | )                       | $          | (10,181 | ) |

 

7

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**(10)  Segment information**

 

We manage the companythrough three operating segments: U.S. Consumer Products, Foodservice Productsand Canadian Foods.  Our organizationalstructure is the basis for reporting business results to management and thesegment data presented in this Note.

 
| **(in millions)**                     |   | **Net  Sales** |       | **Operating  Costs** |       | **Unusual  Items** |       | **Operating  Earnings** |       |
|---------------------------------------|--------|----------------|------------|----------------------|------------|--------------------|------------|-------------------------|------------|
| Three Months  Ended May 31, 2003 |   |           |       |                 |       |               |       |                    |       |
| U.S. Consumer  Products               |   | $              | 83.2       |                 | $          | (76.6              | )          | $                       | —     |   | $ | 6.6 |   |
| Foodservice  Products                 |   | 55.4           |       | (54.5                | )          | (1.0               | )          | (0.1                    | )          |
| Canadian Foods                        |   | 75.3           |       | (71.7                | )          | (2.5               | )          | 1.1                     |       |
| Corporate                             |   | —         |       | (3.3                 | )          | —             |       | (3.3                    | )          |
| Total                                 |   | $              | 213.9      |                 | $          | (206.1             | )          | $                       | (3.5       | ) | $ | 4.3 |   |
|                                  |   |           |       |                 |       |               |       |                    |       |
| Three Months Ended  June 1, 2002 |   |           | ** ** |                 | ** ** |               | ** ** |                    | ** ** |
| U.S. Consumer Products                |   | $              | 86.0       |                 | $          | (75.5              | )          | $                       | —     |   | $ | 10.5 |   |
| Foodservice Products                  |   | 58.3           |       | (56.7                | )          | —             |       | 1.6                     |       |
| Canadian Foods                        |   | 66.1           |       | (62.3                | )          | —             |       | 3.8                     |       |
| Corporate                             |   | —         |       | (4.1                 | )          | —             |       | (4.1                    | )          |
| Total                                 |   | $              | 210.4      |                 | $          | (198.6             | )          | $                       | —     |   | $ | 11.8 |   |

 

**(11)  Contingencies**– In fiscal 1998, we were notified that approximately $6 million of ourinventory was taken from a ship in the port of St. Petersburg, Russia.  The ship had been chartered by a majorcustomer of our former food-exporting business.  Following submission of a claim for indemnity, the insurancecarrier denied our claim for coverage, and we commenced a lawsuit seeking toobtain coverage under the insurance carrier’s policy.  In October 2001, the U.S. District Court of the SouthernDistrict of New York granted us summary judgment on our claim, which is carriedon our books as a $6 million receivable, and awarded us interest to the date ofjudgment.  The interest has not beenrecognized on our books.  On Oct. 17,2002, following an appeal by the insurance carrier, the U.S. Court of Appealsfor the Second Circuit partially affirmed the summary judgment with respect tothe amount of loss and held that such loss is within the scope of thepolicy.  The Court of Appeals, however,remanded the case back to the District Court for further proceedings todetermine whether certain provisions of the policy had the effect of excludingcoverage.  We continue to believe thatthe loss is covered by the insurance policy, and we will continue toaggressively pursue our claim against the insurer.  If we are ultimately unable to collect on the policy, we wouldrecord a loss of $6 million to write off the receivable for the estimatedrecovery of the claim.

 

OnSept. 9, 2002, we completed the sale of our foodservice distribution businessto Wellspring Distribution Corp.  Wecontinue to guarantee certain real estate, information system andtractor/trailer fleet lease obligations of our former business.  However, at the time of the sale of thebusiness, we renegotiated our guarantee of the business’s fleet leaseobligations.  The guarantee now requiresthe lessor to pursue collection and other remedies against our formersubsidiaries before demanding payment from us. In addition, our guarantee obligation is limited to 75% of the amountoutstanding after the lessor has exhausted its remedies against our formersubsidiaries.  This reduces our riskunder the fleet lease guarantee.  Inaddition, while the initial guarantee was not limited by time, the fleet leaseguarantee will now expire in September 2006.

 

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Theoutstanding guarantees for the lease obligations of our former subsidiaries as ofMay 31, 2003, were as follows:

 
| **(in millions)**    |   | **Amounts** |   |
|----------------------|--------|-------------|--------|
| Tractor/trailer      |   | $           | 24.7   |   |
| Real estate          |   | 15.7        |   |
| Information  systems |   | 0.2         |   |
| Total                |   | $           | 40.6   |   |

 

IfWellspring Distribution Corp. was unable to meet its obligations that we haveguaranteed, any loss would be reduced by the amount generated from theliquidation of the tractor/trailer fleet and income from the sub-lease of realestate space.

 

Thepossibility that we would have to honor our contingent liabilities under theguaranties is largely dependent upon the future operations of our formersubsidiaries and the value of the underlying leased properties.  Should a reserve be required in the future,it would be recorded at the time the obligation was determined to be probable.

 

**(12)  Subsequent event**– On June 26, 2003, we announced that we had reached an agreement to sellthe inventory and other selected assets of our foodservice pie product line forapproximately $2.3 million in cash.  Theproduct line generated annual sales of approximately $10 million in fiscal2003, which were included in our Foodservice Products business segment.  The net book value of the sold assets isapproximately $2 million.

 

In connection with thesale transaction, we plan to close a plant in Simcoe, Ontario, following atransition period of up to five months. The plant closure will result in a pre-tax charge of approximately $1million to $2 million, for exit costs which will be recognized over the balanceof the fiscal year.  The plant currentlyemploys approximately 135 people.

 

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INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIESManagement’s Discussion and Analysis of Results ofOperations and Financial Condition

 

**OVERVIEW**

 

InternationalMultifoods Corporation is a North American producer of branded consumer foodsand foodservice products, including baking mixes, frozen bakery products,flour, ready-to-spread frostings, condiments, and potato and pancake mixofferings.  We manage the companythrough three operating segments–U.S. Consumer Products, Foodservice Productsand Canadian Foods.

 

InSeptember 2002, we sold our foodservice distribution business for $166million in cash to Wellspring Distribution Corp.  The foodservice distribution business is classified as discontinuedoperations in the consolidated condensed financial statements.

 

**Results of Operations**

 

Continuing operations

 

Overview

 

Consolidated net sales inthe first quarter ended May 31, 2003, increased 2% to $213.9 million.  The increase was primarily driven byfavorable currency translation in our Canadian Foods business and higherselling prices in certain product lines, which resulted from increasedcommodity costs.

 

Werecognized a loss from continuing operations of $0.3 million, or 2 cents perdiluted share, in the first quarter ended May 31, 2003.  This compares with earnings from continuingoperations of $3.3 million, or 17 cents per share, in the same period lastyear.  Operating results in the currentyear were adversely affected by a pre-tax charge of $3.5 million, or 12 centsper share, for costs to restructure and increase the competitiveness of ourCanadian Foods business and our Foodservice Products business in the UnitedStates.  We were also adversely affectedby a $1.7 million pre-tax charge, or 6 cents per share, for bad debt reservesassociated with the bankruptcy of Fleming Companies, Inc.  In addition, higher commodity costs andlower pension income reduced our first quarter results.  The decline in earnings was partially offsetby a $1.4 million pre-tax gain, or 5 cents per share, attributable to foreignexchange on U.S. dollar-denominated debt held by our Canadian business.

 

Segment Results

 

U.S. Consumer Products:Net sales declined 3% to $83.2 million, due to an 8% decline in unit volume.  Unit volume was affected by the impact ofretail customers reducing inventories of our products, which we believe werebuilt up at the end of our fiscal year in advance of our conversion to a newmanagement information system.  Unitvolume comparisons were also affected by a decline in sales to FlemingCompanies.

 

Operating earnings were$6.6 million, compared with $10.5 million last year.  The decline in earnings was driven by a $1.7 million bad debtreserve associated with the Fleming Companies bankruptcy, higher commoditycosts, unfavorable product mix and lower unit sales volume.

 

Foodservice Products: Netsales declined 5% to $55.4 million.  Thedecline was driven by lower unit volumes in our bakery mix product lines, whichhave been impacted by ongoing softness in the foodservice industry andcompetitive pressures.  Unit volume inour ready-to-bake products also declined as a result of exiting a largecustomer account, which was not profitable.

 

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We recognized anoperating loss of $0.1 million in the current quarter, compared with operatingearnings of $1.6 million in the same period last year.  Operating earnings in the current year wereaffected by a $1.0 million unusual pre-tax charge for severance costsassociated with reducing the number of production employees at our plant inSedalia, Missouri and closing two small facilities in the eastern UnitedStates.  In addition, current yearoperating results were adversely affected by the sales volume decline.  The earnings decline was partially offset byreduced selling and administrative costs.

 

Canadian Foods: Net salesincreased 14% to $75.3 million primarily on favorable foreign currencytranslation, higher sales prices resulting from higher commodity costs and unitvolume growth in our consumer product lines. Favorable currency translation resulted from a stronger Canadian dollarin the current quarter compared to the same period last year.  Excluding the effects of currencytranslation, net sales increased approximately 6%.  The increase in net sales was partially offset by the impact of adecline in commercial bakery mix unit volume, which resulted from a largecustomer transitioning to a frozen product format.

 

Operating earnings were$1.1 million, as compared with $3.8 million last year.  Operating earnings in the current quarterwere adversely affected by a $2.5 million unusual pre-tax charge for severancecosts associated with reorganizing the Canadian Foods business.  In addition, current year earnings were hurtby the lower commercial bakery mix sales volumes, higher commodity costs andhigher manufacturing costs.  Theoperating earnings decline was partially offset by the earnings contributionfrom the higher consumer product sales volume.

 

Non-operating Expense andIncome

 

Otherincome in the current year consisted of a $1.4 million foreign exchange gain onU.S. dollar-denominated debt that is held by our Canadian business.  The gain resulted from a stronger Canadiandollar, which had the effect of reducing the amount of Canadian dollars ourCanadian business needs in order to repay the U.S. dollar debt obligation.

 

Subsequent Event

 

On June 26, 2003, weannounced that we had reached an agreement to sell the inventory and otherselected assets of our foodservice pie product line for approximately $2.3million in cash.  The product linegenerated annual sales of approximately $10 million in fiscal 2003, which wereincluded in our Foodservice Products business segment.  The net book value of the sold assets isapproximately $2 million.

 

In connection with thesale transaction, we plan to close a plant in Simcoe, Ontario, following atransition period of up to five months. The plant closure will result in a pre-tax charge of approximately $1million to $2 million, for exit costs which will be recognized over the balanceof the fiscal year.  The plant currentlyemploys approximately 135 people.

 

**Financial Condition**

 

Our major sources of liquidity are cash flows from operations andborrowings from our $100 million revolving credit facility.  As of May 31, 2003, there were $46.6million of borrowings outstanding under the revolving credit facility.  In addition, $8.7 million of the facilitywas unavailable due to outstanding letters of credit.

 

We believe that cashflows from operations and borrowings from our existing revolving creditfacility will be sufficient to meet our operating requirements and debt serviceobligations over the next twelve months.

 

For the first quarter offiscal 2004, cash used for continuing operations was $15.9 million, comparedwith cash provided of $25.6 million in the prior-year period.  Operating cash flows in the current periodwere adversely impacted by

 

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the completion of transitionservices for our U.S. Consumer Products business, which had been provided byGeneral Mills since the November 2001 acquisition of the business.  Under a transition services agreement,General Mills handled invoicing and collections and paid certain accountspayable for the business, which resulted in the related trade receivables andpayables being carried by General Mills last year.  During the first quarter, we assumed direct responsibility forall billing, collection and payment activities of the business. As a result, wenow carry on our balance sheet the accounts receivable and payables of theacquired business.  Operating cash flowswere also impacted by a decline in trade promotion liabilities, which areincluded in other current liabilities on the consolidated condensed balancesheet.

 

Capital expenditures inthe first quarter of fiscal 2004 were $12 million and included the first of twopayments for the Toledo, Ohio, plant that we acquired from General Mills.  Capital expenditures also includedadditional investment in equipment at the Toledo plant and an expansion projectat our flour mill in Montreal, Quebec.

 

**Cautionary Statement Relevant to Forward-Looking Information**

 

This document containsforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Theseforward-looking statements are based on current expectations or beliefs,including, but not limited to, statements concerning our operations and financialperformance and condition.  For thispurpose, statements that are not statements of historical fact may be deemed tobe forward-looking statements.  Wecaution that these statements by their nature involve risks and uncertainties,and actual results may differ materially depending on a variety of importantfactors, including, among others, the impact of competitive products andpricing; changes in consumer preferences and tastes or perceptions ofhealth-related issues; effectiveness of advertising or market-spendingprograms; market or weather conditions that may affect the costs of grain,other raw materials and fuel; the impact of labor matters; changes in laws andregulations; fluctuations in foreign exchange and interest rates; the potentialinability to collect on a $6 million insurance claim receivable related to theloss of product in St. Petersburg, Russia; the potential enforcement of ourguarantees on lease obligations of our former foodservice distributionbusiness; risks commonly encountered in international trade; and other factorsas may be discussed in our reports filed with the Securities and ExchangeCommission.

 

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** **

**Item 4.  Controls andProcedures**

 

(a)          Evaluation of disclosure controlsand procedures.  The term “disclosurecontrols and procedures” is defined in Rules 13a-14(c) and 15d-14(c) of theSecurities and Exchange Act of 1934 (“Exchange Act”).  These rules refer to the controls and other procedures of acompany that are designed to ensure that information required to be disclosedby a company in the reports that it files under the Exchange Act is recorded,processed, summarized and reported within required time periods.  Our chief executive officer and our chieffinancial officer have evaluated the effectiveness of the Company’s disclosurecontrols and procedures as of a date within 90 days before the filing of thisquarterly report (the “Evaluation Date”), and, they have concluded that, as ofthe Evaluation Date, such controls and procedures were effective at ensuringthat required information will be disclosed on a timely basis in our reportsfiled under the Exchange Act.

 

(b)         Changes in internal controls.  For the quarter ended May 31, 2003,there were no significant changes to our internal controls or in other factorsthat could significantly affect our internal controls, and we have notidentified any significant deficiencies or material weaknesses in our internalcontrols.

 

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**PART II**

 

**OTHERINFORMATION**

 
| **Item 6.**                                                                                                                                                                                                                                     | **Exhibits and Reports on Form 8K** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
|                                                                                                                                                                                                                                            |                                |
| (a)                                                                                                                                                                                                                                             | Exhibits                            |
|                                                                                                                                                                                                                                            |                                |
|                                                                                                                                                                                                                                            | 11.                                 | Computation of Earnings  (loss) per Common Share. |
|                                                                                                                                                                                                                                            |                                |   |
|                                                                                                                                                                                                                                            | 12.                                 | Computation of Ratio of  Earnings to Fixed Charges. |
|                                                                                                                                                                                                                                            |                                |   |
|                                                                                                                                                                                                                                            | 99.1                                | Certification of the  Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|                                                                                                                                                                                                                                            |                                |   |
|                                                                                                                                                                                                                                            | 99.2                                | Certification of the  Chief Financial Officer Pursuant to 18. U.S.C. Section 1350, As Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|                                                                                                                                                                                                                                            |                                |
| (b)                                                                                                                                                                                                                                             | Reports on Form 8-K                 |
|                                                                                                                                                                                                                                            |
| During the  quarter ended May 31, 2003, Multifoods furnished a Current Report on  Form 8-K dated April 1, 2003, relating to Multifoods’ financial  results for its fourth quarter and fiscal year ended March 1, 2003. |

 

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**SIGNATURE**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                                       | **INTERNATIONAL MULTIFOODS CORPORATION** |
|--------------------------------------------|------------------------------------------|
|                                       |                                     |
|                                       |                                     |
| Date:   July 11,  2003 | By                                       | /s/ John E. Byom |   |
|                                       |                                     | John E. Byom |
|                                       |                                     | Senior Vice President, Finance, and  Chief Financial Officer |
|                                       |                                     |
|                                       |                                     | *(Principal  Financial Officer  and Duly Authorized Officer* |
|                                       |                                     |

 

 

 

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**CERTIFICATION**

** **

I, Gary E. Costley,certify that:

 

1.             I have reviewed this quarterlyreport on Form 10-Q of International Multifoods Corporation;

 

2.             Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.             Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.             The registrant’s other certifyingofficer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

(a)           designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

(b)           evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)           presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.             The registrant’s other certifyingofficer and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

(a)           all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)           any fraud, whetheror not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.             The registrant’s other certifyingofficer and I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| Date:  July 11, 2003 | /s/ Gary E. Costley                                      |
|--------------------------------|----------------------------------------------------------|
|                           | **Gary  E. Costley**                                     |
|                           | **Chairman  of the Board & Chief Executive Officer** |
|                           | **(Principal  Executive Officer)**                       |

 

 

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**CERTIFICATION**

** **

I, John E. Byom, certifythat:

 

1.             I have reviewed this quarterlyreport on Form 10-Q of International Multifoods Corporation;

 

2.             Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.             Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report.

 

4.             The registrant’s other certifyingofficer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

(a)           designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

(b)           evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)           presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.             Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a)           all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

(b)           any fraud, whether or not material,that involves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.             The registrant’s other certifyingofficer and I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| Date:  July 11, 2003 | /s/ John E. Byom                                                  |
|--------------------------------|-------------------------------------------------------------------|
|                           | **John  E. Byom**                                                 |
|                           | **Senior  Vice President, Finance & Chief Financial Officer** |
|                           | **(Principal  Financial Officer)**                                |

 

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**EXHIBITINDEX**

 

11.                                 Computationof Earnings (loss) per Common Share.

 

12.                                 Computationof Ratio of Earnings to Fixed Charges.

 

99.1                           Certificationof the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As AdoptedPursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

99.2                           Certificationof the Chief Financial Officer Pursuant to 18. U.S.C. Section 1350, As AdoptedPursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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