**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** |

** **

**For thequarterly period ended November 30, 2002**

** **

**OR**

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

 

**For thetransition periodfrom            to            **

** **

**CommissionFile Number****1-6699**

** **

**INTERNATIONAL MULTIFOODSCORPORATION**

(Exact name of registrantas 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 check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes  ý     No  o

 

The number of shares outstanding of the registrant’sCommon Stock, par value $.10 per share, as of December 28, 2002 was 19,167,061.

 

 

----

 

**PART I. FINANCIAL INFORMATION**

 

INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIES

 

Consolidated CondensedStatements of Operations

(unaudited)

(inthousands, except per share amounts)

 
|                                                                        |   | **THREE  MONTHS ENDED** |    | **NINE  MONTHS ENDED** |   |
|-----------------------------------------------------------------------------|--------|-------------------------|---------|------------------------|--------|
|                                                                        |   | **Nov. 30,  2002**      |    | **Dec. 1,  2001**      |   | **Nov. 30,  2002** |   | **Dec. 1,  2001** |   |
| Net sales                                                                   |   | $                       | 301,218 |                   | $      | 148,522 |   | $ | 721,700 |   | $ | 381,906 |   |
| Cost of goods  sold                                                         |   | (236,037                | )       | (123,315               | )      | (573,027 | ) | (322,261 | ) |
| Gross profit                                                                |   | 65,181                  |    | 25,207                 |   | 148,673 |   | 59,645 |   |
| Selling, general  and administrative                                        |   | (33,777                 | )       | (16,440                | )      | (92,152 | ) | (43,637 | ) |
| Unusual items                                                               |   | —                  |    | 1,232                  |   | — |   | 888 |   |
| Operating  earnings                                                         |   | 31,404                  |    | 9,999                  |   | 56,521 |   | 16,896 |   |
| Interest, net                                                               |   | (6,081                  | )       | (2,391                 | )      | (18,845 | ) | (4,906 | ) |
| Other income  (expense), net                                                |   | (4,671                  | )       | (11,038                | )      | (4,671 | ) | (11,407 | ) |
| Earnings (loss)  from continuing operations before income taxes             |   | 20,652                  |    | (3,430                 | )      | 33,005 |   | 583 |   |
| Income taxes                                                                |   | (7,898                  | )       | 1,594                  |   | (12,592 | ) | 159 |   |
| Earnings (loss)  from continuing operations                                 |   | 12,754                  |    | (1,836                 | )      | 20,413 |   | 742 |   |
| Discontinued  operations:                                                   |   |                    |    |                   |   |   |   |   |   |
| Operating  earnings (loss), after tax                                       |   | (2,155                  | )       | 1,283                  |   | (7,025 | ) | 3,585 |   |
| Cumulative  effect of change in accounting principle, net of tax of $23,781 |   | —                  |    | —                 |   | (41,342 | ) | — |   |
| Net loss on  disposition, net  of tax of $14,362                            |   | —                  |    | —                 |   | (25,922 | ) | — |   |
| Earnings (loss) from discontinued operations                                |   | (2,155                  | )       | 1,283                  |   | (74,289 | ) | 3,585 |   |
| Net earnings  (loss)                                                        |   | $                       | 10,599  |                   | $      | (553 | ) | $ | (53,876 | ) | $ | 4,327 |   |
|                                                                        |   |                    |    |                   |   |   |   |   |   |
| Basic earnings  (loss) per share:                                           |   |                    |    |                   |   |   |   |   |   |
| Continuing  operations                                                      |   | $                       | 0.67    |                   | $      | (0.10 | ) | $ | 1.07 |   | $ | 0.04 |   |
| Discontinued  operations                                                    |   | (0.12                   | )       | 0.07                   |   | (3.89 | ) | 0.19 |   |
| Total                                                                       |   | $                       | 0.55    |                   | $      | (0.03 | ) | $ | (2.82 | ) | $ | 0.23 |   |
|                                                                        |   |                    |    |                   |   |   |   |   |   |
| Diluted earnings  (loss) per share:                                         |   |                    |    |                   |   |   |   |   |   |
| Continuing  operations                                                      |   | $                       | 0.66    |                   | $      | (0.10 | ) | $ | 1.05 |   | $ | 0.04 |   |
| Discontinued  operations                                                    |   | (0.11                   | )       | 0.07                   |   | (3.83 | ) | 0.19 |   |
| Total                                                                       |   | $                       | 0.55    |                   | $      | (0.03 | ) | $ | (2.78 | ) | $ | 0.23 |   |
|                                                                        |   |                    |    |                   |   |   |   |   |   |
| Average shares  of common stock outstanding:                                |   |                    |    |                   |   |   |   |   |   |
| Basic                                                                       |   | 19,131                  |    | 18,862                 |   | 19,085 |   | 18,813 |   |
| Diluted                                                                     |   | 19,327                  |    | 18,862                 |   | 19,413 |   | 19,041 |   |
|                                                                             |        |                         |         |                        |        |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated condensed financial statements.

 

2

----

 

INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIES

 

Consolidated CondensedBalance Sheets

(in thousands)

 
|                                             |   | **(Unaudited)  Nov. 30,  2002** |    | **Condensed  from audited  financial  statements  March 2,  2002** |   |
|--------------------------------------------------|--------|---------------------------------|---------|--------------------------------------------------------------------|--------|
| **Assets**                                       |   |                            |    |                                                               |   |
| Current assets:                                  |   |                            |    |                                                               |   |
| Cash and cash  equivalents                       |   | $                               | 1,835   |                                                               | $      | 26,459 |   |
| Trade accounts  receivable, net                  |   | 53,433                          |    | 45,319                                                             |   |
| Inventories                                      |   | 123,104                         |    | 104,756                                                            |   |
| Current assets  of discontinued operations       |   | —                          |    | 258,108                                                            |   |
| Other current  assets                            |   | 49,556                          |    | 34,582                                                             |   |
| Total current  assets                            |   | 227,928                         |    | 469,224                                                            |   |
| Property, plant  and equipment, net              |   | 166,236                         |    | 147,991                                                            |   |
| Goodwill, net                                    |   | 43,710                          |    | 43,412                                                             |   |
| Other intangible  assets, net                    |   | 137,833                         |    | 138,247                                                            |   |
| Noncurrent  assets of discontinued operations    |   | —                          |    | 151,164                                                            |   |
| Other assets                                     |   | 174,386                         |    | 174,632                                                            |   |
| Total assets                                     |   | $                               | 750,093 |                                                               | $      | 1,124,670 |   |
|                                             |   |                            |    |                                                               |   |
| **Liabilities and Shareholders’  Equity**   |   |                            |    |                                                               |   |
| Current  liabilities:                            |   |                            |    |                                                               |   |
| Notes payable                                    |   | $                               | 15,229  |                                                               | $      | — |   |
| Current portion  of long-term debt               |   | 1,467                           |    | 24,508                                                             |   |
| Accounts payable                                 |   | 62,973                          |    | 51,254                                                             |   |
| Current  liabilities of discontinued operations  |   | —                          |    | 143,111                                                            |   |
| Other current  liabilities                       |   | 68,976                          |    | 51,186                                                             |   |
| Total current  liabilities                       |   | 148,645                         |    | 270,059                                                            |   |
| Long-term debt                                   |   | 328,533                         |    | 514,541                                                            |   |
| Employee  benefits and other liabilities         |   | 50,577                          |    | 68,000                                                             |   |
| Total  liabilities                               |   | 527,755                         |    | 852,600                                                            |   |
|                                             |   |                            |    |                                                               |   |
| Shareholders’  equity:                      |   |                            |    |                                                               |   |
| Common stock                                     |   | 2,184                           |    | 2,184                                                              |   |
| Accumulated  other comprehensive loss            |   | (14,705                         | )       | (14,840                                                            | )      |
| Other  shareholders’ equity                 |   | 234,859                         |    | 284,726                                                            |   |
| Total  shareholders’ equity                 |   | 222,338                         |    | 272,070                                                            |   |
|                                             |   |                            |    |                                                               |   |
| Commitments and  contingencies                   |   |                            |    |                                                               |   |
| Total  liabilities and shareholders’ equity |   | $                               | 750,093 |                                                               | $      | 1,124,670 |   |

 

See accompanying notes to consolidated condensed financial statements.

 

3

----

 

INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIES

 

Consolidated CondensedStatements of Cash Flows

(unaudited)

(in thousands)

 
|                                                                                                                 |   | **NINE  MONTHS ENDED** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                                 |   | **Nov. 30,  2002**     |   | **Dec. 1,  2001** |   |
| Cash flows from  operations:                                                                                         |   |                   |   |   |   |
| Earnings from  continuing operations                                                                                 |   | $                      | 20,413 |   | $ | 742 |   |
| Adjustments to  reconcile earnings from continuing operations to cash provided by (used for)  continuing operations: |   |                   |   |   |   |
| Depreciation and  amortization                                                                                       |   | 10,647                 |   | 8,950 |   |
| Deferred income tax expense (benefit)                                                                                |   | 9 944                  |   | (2,396 | ) |
| Increase in  prepaid pension assets                                                                                  |   | (8,731                 | )      | (10,303 | ) |
| Unusual items                                                                                                        |   | —                 |   | (1,114 | ) |
| Loss on early  payment of debt                                                                                       |   | 4,671                  |   | 721 |   |
| Provision for  losses on receivables                                                                                 |   | 863                    |   | 326 |   |
| Changes in  working capital:                                                                                         |   |                   |   |   |   |
| Accounts  receivable                                                                                                 |   | (7,865                 | )      | (28,268 | ) |
| Inventories                                                                                                          |   | (17,633                | )      | (9,785 | ) |
| Other current  assets                                                                                                |   | (16,393                | )      | (16,241 | ) |
| Accounts payable                                                                                                     |   | 9,565                  |   | 8,998 |   |
| Other current  liabilities                                                                                           |   | 7,503                  |   | (2,174 | ) |
| Other, net                                                                                                           |   | 6,441                  |   | 7,377 |   |
| Cash provided by  (used for) continuing operations                                                                   |   | 19,425                 |   | (43,167 | ) |
| Cash provided by  (used for) discontinued operations                                                                 |   | 4,591                  |   | (26,013 | ) |
| Cash provided by  (used for) operations                                                                              |   | 24,016                 |   | (69,180 | ) |
| Cash flows from investing activities:                                                                                |   |                   |   |   |   |
| Acquisition of  business                                                                                             |   | —                 |   | (310,210 | ) |
| Proceeds from  disposition of business                                                                               |   | 165,774                |   | — |   |
| Capital expenditures                                                                                                 |   | (19,257                | )      | (14,543 | ) |
| Proceeds from  property disposals                                                                                    |   | 93                     |   | 5,023 |   |
| Payment received  on note receivable                                                                                 |   | —                 |   | 17,512 |   |
| Discontinued  operations                                                                                             |   | (1,577                 | )      | (4,783 | ) |
| Cash provided by  (used for) investing activities                                                                    |   | 145,033                |   | (307,001 | ) |
| Cash flows from  financing activities:                                                                               |   |                   |   |   |   |
| Net increase  (decrease) in notes payable                                                                            |   | 15,244                 |   | (11,773 | ) |
| Additions to  long-term debt                                                                                         |   | —                 |   | 550,192 |   |
| Reductions in  long-term debt                                                                                        |   | (209,967               | )      | (145,563 | ) |
| Proceeds from  issuance of common stock                                                                              |   | 1,108                  |   | 1,203 |   |
| Other, net                                                                                                           |   | (240                   | )      | (12,757 | ) |
| Cash provided by  (used for) financing activities                                                                    |   | (193,855               | )      | 381,302 |   |
| Decrease in cash  from discontinued operations                                                                       |   | 14                     |   | — |   |
| Effect of  exchange rate changes on cash and cash equivalents                                                        |   | 168                    |   | 4 |   |
| Net increase  (decrease) in cash and cash equivalents                                                                |   | (24,624                | )      | 5,125 |   |
| Cash and cash  equivalents at beginning of period                                                                    |   | 26,459                 |   | 10,232 |   |
| Cash and cash  equivalents at end of period                                                                          |   | $                      | 1,835  |   | $ | 15,357 |   |

 

See accompanying notes to consolidated condensed financial statements.

 

4

----

 

INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIES

Notes to ConsolidatedCondensed Financial Statements

(unaudited)

 

**(1)**Inour opinion, the accompanying unaudited consolidated condensed financial statementscontain all adjustments (consisting of only normal recurring adjustments,except as noted elsewhere in the notes to the consolidated condensed financialstatements) necessary to present fairly our financial position as of November30, 2002, and the results of our operations and cash flows for the interimperiods presented.  These statements arecondensed and, therefore, do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  The statements should beread in conjunction with the consolidated financial statements and footnotesincluded in our Annual Report on Form 10-K for the year ended March 2, 2002.  The results of operations for the three andnine months ended November 30, 2002, are not necessarily indicative of theresults to be expected for the full year.

 

**(2) Newaccounting pronouncements**

 

Statement of FinancialAccounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets”

 

We adopted SFAS 142, “Goodwill and Other Intangible Assets,” on March3, 2002.  Under SFAS 142, goodwill andother intangible assets that have indefinite lives will no longer be amortized,but rather will be tested for impairment at least annually in accordance withthe provisions of the standard.  SeeNote 6 for further information on the adoption of SFAS 142.

 

## **SFAS 144, “Accounting for the Impairment or Disposal of Long-LivedAssets”**

 

We adopted SFAS 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” on March 3, 2002. SFAS 144, which supersedes SFAS 121, “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of,” providesguidance on the accounting for and reporting of the impairment of long-livedassets.  Although SFAS 144 retains manyof the fundamental recognition and measurement provisions of SFAS 121, it alsoestablishes certain criteria that would have to be met in order to classify anasset as held-for-sale.  With the exceptionof a certain key provision on classification, SFAS 144 also supersedesAccounting Principles Board (APB) No. 30, “Reporting the Results ofOperations-Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions.”  The adoption of SFAS 144 did not impact ourconsolidated financial statements.

 

SFAS 145, “Rescission of FASB Statements No. 4, 44 and64, Amendment of FASBStatement No. 13, and TechnicalCorrections”

 

In April 2002, FASB issued SFAS 145, “Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections.”  SFAS No.145 rescinds SFAS No. 4, which required gains and losses from theextinguishment of debt to be classified as an extraordinary item. These gainsand losses must now be included in income from continuing operations.  The rescission of SFAS No. 4 is effectivefor fiscal years beginning after May 15, 2002, with earlier applicationencouraged.  We adopted the provisions of SFAS No.145 that rescind SFAS No. 4 in the three-month period ended November 30,2002.  As a result, we reclassified a$0.7 million extraordinary loss on the early extinguishment of debt recognizedin last year’s third quarter to other expense from continuing operations.

 

5

----

 

## **SFAS 146, “Accounting forCosts Associated with Exit or Disposal Activities**”

 

In June 2002, the FASB issued SFAS 146, “Accounting for CostsAssociated with Exit or Disposal Activities.” The standard requires that a liability for a cost associated with anexit or disposal activity be recognized and measured initially at fair valuewhen the liability is incurred.  Underexisting accounting literature, certain costs for exit activities wererecognized at the date a company committed to an exit plan.  The provisions of the standard are effectivefor exit or disposal activities initiated after December 31, 2002.  The standard is generally expected to delayrecognition of certain exit related costs.

 

Emerging Issues Task Force (EITF) No. 01-9,“Accounting for Consideration Given by a Vendor to a Customer or a Reseller ofthe Vendor’s Products”

 

We adopted Emerging Issues Task Force (EITF) No. 01-9, “Accounting forConsideration Given by a Vendor to a Customer or a Reseller of the Vendor’sProducts” on March 3, 2002.  The purposeof the EITF is to codify and reconcile the consensus reached on accounting forconsideration paid from a vendor to a retailer, including slotting fees,cooperative advertising arrangements and buy-downs.  The EITF also addresses accounting for coupons.  The guidance generally requires that theseincentives be classified as a reduction of sales.  In addition, EITF 01-9 requires reclassification of prior-periodfinancial statements to comply with its guidance.  As a result, we reclassified $3.7 million and $7.8 million,respectively, of promotional expenses to reduction of net sales for the threemonths and nine months ended December 1, 2001. The reclassification had no impact on our reported earnings.

 

FASB Interpretation No. 45 (“FIN 45”), “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others”

 

In November 2002, FASB issued FIN 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others.” FIN 45 provides guidance on recognition and disclosureof certain types of guarantees.  Inconnection with the sale of our foodservice distribution business to WellspringDistribution Corp, we continue to guarantee certain real estate, informationsystem and tractor/trailer fleet lease obligations of our former business. Inaccordance with the provisions of FIN 45, we have disclosed the nature of theguarantee, maximum potential amount of future payments, and recourseprovisions.  See Note 12 for furtherinformation.

 

## **(3)Discontinued operations**

 

On July 29, 2002, we entered into an agreement to sell our foodservicedistribution business to Wellspring Distribution Corp.  In accordance with SFAS 144, we havereported the results of operations of the business in discontinuedoperations.  On September 9, 2002, wecompleted the sale of our foodservice distribution business for $166 million incash.  We recorded a net after-tax losson the disposition of $25.9 million.  Weused the proceeds from the sale along with available cash balances to repaydebt obligations.

 

We continue to guarantee certain real estate, information system andtractor/trailer lease obligations of the foodservice distributionbusiness.  See Note 12 for furtherinformation.

 

6

----

 

The following are the operating results of the discontinued operations:

 
|                        |   | **Three  Months Ended** |   | **Nine  Months Ended** |   |
|-----------------------------|--------|-------------------------|--------|------------------------|--------|
| **(in  thousands)**         |   | **Nov. 30,  2002**      |   | **Dec. 1,  2001**      |   | **Nov. 30,  2002** |   | **Dec. 1,  2001** |   |
| Net sales                   |   | $                       | 37,450 |                   | $      | 576,958 |   | $ | 1,149,128 |   | $ | 1,690,499 |   |
| Earnings (loss)  before tax |   | (3,341                  | )      | 2,160                  |   | (9,742 | ) | 6,017 |   |
| Earnings (loss)  after tax  |   | (2,155                  | )      | 1,283                  |   | (7,025 | ) | 3,585 |   |
|                             |        |                         |        |                        |        |  |  |  |  |  |  |  |  |

 

We allocated interest expense to discontinued operations based on netassets that were specifically identifiable to the operation.  The operating results of the business infiscal 2003 included a $6 million pre-tax loss from the curtailment and settlementof pension obligations, which resulted from the sale of the business.  In addition, we recorded a $3.7 millionpre-tax charge in fiscal 2003 primarily for severance costs.

 

We also recorded an after-tax loss of $41.3 million for the cumulativeeffect of change in accounting principle due to goodwill impairment.  The charge was recognized in the firstquarter of fiscal 2003.  See Note 6 forfurther information.

 

The current and noncurrent assets and liabilities of the foodservicedistribution business as of March 2, 2002, were as follows:

 
| **(in thousands)**                             |   | **March 2,  2002** |    |
|------------------------------------------------|--------|--------------------|---------|
| Cash and cash  equivalents                     |   | $                  | 15      |   |
| Trade accounts  receivables, net               |   | 104,595            |    |
| Inventories                                    |   | 134,445            |    |
| Other current  assets                          |   | 19,053             |    |
| Current assets  of discontinued operations     |   | $                  | 258,108 |   |
|                                           |   |               |    |
| Property, plant  and equipment, net            |   | $                  | 82,292  |   |
| Goodwill, net                                  |   | 65,123             |    |
| Other assets                                   |   | 3,749              |    |
| Noncurrent  assets of discontinued operations  |   | $                  | 151,164 |   |
|                                           |   |               |    |
| Accounts payable                               |   | $                  | 131,019 |   |
| Other current  liabilities                     |   | 12,092             |    |
| Current liabilities of discontinued operations |   | $                  | 143,111 |   |

 

## **(4) Acquisition**

 

On November 13, 2001, we acquired the Pillsbury dessert and specialtyproducts business, the Pillsbury non-custom foodservice baking mix and frostingproducts business, and certain regional flour and side-dish brands of General Mills(the Acquisition).  The cash purchaseprice for the Acquisition paid at closing was $304.5 million.  The transaction was accounted for under thepurchase method in accordance with SFAS 141, “Business Combinations.”

 

As part of the $304.5 million purchase price, General Mills isinstalling processing and packaging equipment at a plant in Toledo, Ohio inorder for the plant to be able to produce certain Pillsbury products.  We agreed to purchase the Toledo plant, aspart of the acquisition, for an additional $11.5 million.  We currently expect to take possession ofthe plant by the end of fiscal 2003. Included in the preliminary allocation of the purchase price was anestimate of the value of the equipment at the Toledo plant.  The allocation of the purchase price will berevised when we purchase the plant and receive the equipment and appraisals onthe plant and equipment are completed. The revisions, which may be significant, will be reported in the futureas changes to various assets, including goodwill; property, plant andequipment; and other noncurrent assets.

 

7

----

 

Assuming the Acquisition had occurred on March 3, 2001, the unauditedpro forma results of operations are as follows:

 
| **(in thousands,  except per share amounts)**          |   | **Three  Months Ended  Dec. 1, 2001** |    | **Nine  Months Ended  Dec. 1, 2001** |   |
|--------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
| Net sales                                              |   | $                                     | 305,504 |                                 | $      | 727,301 |   |
| Earnings from  continuing operations                   |   | 12,831                                |    | 27,157                               |   |
| Basic earnings  per share from continuing operations   |   | 0.68                                  |    | 1.44                                 |   |
| Diluted earnings  per share from continuing operations |   | 0.68                                  |    | 1.43                                 |   |
|                                                        |        |                                       |         |                                      |        |  |  |

 

The pro forma results of operations are based on our historicalfinancial statements and those of the acquired businesses.  We believe that costs under our ownership,including marketing and product development, will exceed those included in thehistorical financial statements of the acquired businesses. Accordingly, thepro forma results do not purport to represent what our results of operationswould have been had the Acquisition occurred on March 3, 2001.

 

**(5)Comprehensive income (loss) –**The components of totalcomprehensive income (loss) were as follows:

 
|                                                        |   | **Three  Months Ended** |   | **Nine  Months Ended** |   |
|-------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
| **(in  thousands)**                                         |   | **Nov. 30,  2002**      |   | **Dec. 1,  2001**      |   | **Nov. 30,  2002** |   | **Dec. 1,  2001** |   |
| Net earnings  (loss)                                        |   | $                       | 10,599 |                   | $      | (553 | ) | $ | (53,876 | ) | $ | 4,327 |   |
| Foreign currency  translation adjustment                    |   | (704                    | )      | (1,691                 | )      | 1,717 |   | (1,608 | ) |
| Net unrealized  gain (loss) on cash flow hedges             |   | (508                    | )      | 3,466                  |   | (1,945 | ) | 3,652 |   |
| Reclassification  adjustment for amounts in earnings (loss) |   | 177                     |   | (326                   | )      | 363 |   | (755 | ) |
| Comprehensive  income (loss)                                |   | $                       | 9,564  |                   | $      | 896 |   | $ | (53,741 | ) | $ | 5,616 |   |

 

**(6) Goodwill and other intangibleassets –** As discussed in Note 2, we adopted SFAS 142,“Goodwill and Other Intangible Assets” on March 3, 2002.  Under SFAS 142, goodwill and otherintangible assets that have indefinite lives will no longer be amortized, butrather will be tested for impairment at least annually in accordance with theprovisions of the standard.

 

The test for goodwill impairment is a two-step process.  The first step is a comparison of the fairvalue of the reporting unit (as defined) with its carrying amount, includinggoodwill.  If this step reflectsimpairment, then the loss would be measured as the excess of recorded goodwillover its implied fair value.  Impliedfair value is the excess of fair value of the reporting unit over the fairvalue of all identified assets and liabilities.

 

In the first quarter of fiscal 2003, we completed the initial testingof our existing goodwill and other intangible assets that have indefinitelives. Based on valuations provided by an independent third-party usingprimarily discounted cash flows, we determined that all the goodwill associatedwith our Multifoods Distribution Group (MDG) business was impaired.  As a result, we recorded a $65.1 million($41.3 million after tax) goodwill impairment charge in the first quarter offiscal 2003.  We classified theimpairment charge as a cumulative effect of change in accounting principle inthe consolidated statement of operations. On July 29, 2002, we entered into an agreement to sell MDG.  In accordance with SFAS 144, we havereported the results of operations of MDG in discontinued operations, includingthe impairment charge.  No otherimpairment charges resulted from the required impairment evaluations on therest of the reporting units, which were

 

8

----

 

determined using discounted cash flow analyses.  The assumptions used in these analyses wereconsistent with our internal plans.

 

The changes in the carrying amount of goodwill by segment for the ninemonths ended November 30, 2002, are as follows:

 
| **(in thousands)**               |   | **U.S.  Consumer  Products** |   | **U.S.  Foodservice  Products** |   | **Canadian  Foods** |   | **Total** |   |
|----------------------------------|--------|------------------------------|--------|---------------------------------|--------|---------------------|--------|-----------|--------|
| Balance as of  March 3, 2002     |   | $                            | 24,715 |                            | $      | 12,643              |   | $         | 6,054  |   | $ | 43,412 |   |
| Addition                         |   | 178                          |   | —                          |   | —              |   | 178       |   |
| Foreign currency  translation    |   | —                       |   | —                          |   | 120                 |   | 120       |   |
| Balance as of  November 30, 2002 |   | $                            | 24,893 |                            | $      | 12,643              |   | $         | 6,174  |   | $ | 43,710 |   |

 

Other intangible assets as of November 30, 2002, and March 2, 2002, areas follows:

 
|                           |   | **Nov. 30,  2002**          |    | **March 2,  2002**            |   |
|--------------------------------|--------|-----------------------------|---------|-------------------------------|--------|
| **(in  thousands)**            |   | **Gross  Carrying  Amount** |    | **Accumulated  Amortization** |   | **Net** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Net** |   |
| Amortized  intangible assets   |   |                        |    |                          |   |   |   |   |   |   |   |   |   |
| Trademarks                     |   | $                           | 9,090   |                          | $      | 1,873 |   | $ | 7,217 |   | $ | 9,090 |   | $ | 1,394 |   | $ | 7,696 |   |
| Non-compete  agreements        |   | 1,198                       |    | 1,175                         |   | 23 |   | 1,162 |   | 1,162 |   | — |   |
| Customer lists                 |   | 5,800                       |    | 4,208                         |   | 1,592 |   | 5,800 |   | 3,997 |   | 1,803 |   |
| Other                          |   | 772                         |    | 743                           |   | 29 |   | 772 |   | 710 |   | 62 |   |
| Total                          |   | $                           | 16,860  |                          | $      | 7,999 |   | $ | 8,861 |   | $ | 16,824 |   | $ | 7,263 |   | $ | 9,561 |   |
|                           |   |                        |    |                          |   |   |   |   |   |   |   |   |   |
| Unamortized  intangible assets |   |                        |    |                          |   |   |   |   |   |   |   |   |   |
| Trademarks                     |   | $                           | 128,886 |                          | $      | — |   | $ | 128,886 |   | $ | 128,600 |   | $ | — |   | $ | 128,600 |   |
| Other                          |   | 86                          |    | —                        |   | 86 |   | 86 |   | — |   | 86 |   |
| Total                          |   | $                           | 128,972 |                          | $      | — |   | $ | 128,972 |   | $ | 128,686 |   | $ | — |   | $ | 128,686 |   |

 

Amortization expense related to amortizable intangibles assets for thenine months ended November 30, 2002, and December 1, 2001, was $734,000 and$361,000, respectively.  The estimatedamortization expense for fiscal 2003 to fiscal 2007 is as follows:

 
| **(in  thousands)** |   | **Amounts** |   |
|---------------------|--------|-------------|--------|
| 2003                |   | $           | 979    |   |
| 2004                |   | 955         |   |
| 2005                |   | 924         |   |
| 2006                |   | 921         |   |
| 2007                |   | 921         |   |
|                     |        |             |        |  |

 

9

----

 

The following provides a reconciliation of reported earnings to proforma amounts adjusted for the elimination of amortization of goodwill:

 
|                                                                     |   | **Three  Months Ended** |   | **Nine  Months Ended** |   |
|--------------------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
| **(in  thousands)**                                                      |   | **Nov. 30,  2002**      |   | **Dec. 1,  2001**      |   | **Nov. 30,  2002** |   | **Dec. 1,  2001** |   |
| Reported  earnings (loss) from continuing operations                     |   | $                       | 12,754 |                   | $      | (1,836 | ) | $ | 20,413 |   | $ | 742 |   |
| Amortization of  goodwill                                                |   | —                  |   | 76                     |   | — |   | 228 |   |
| Adjusted  earnings (loss) from continuing operations                     |   | 12,754                  |   | (1,760                 | )      | 20,413 |   | 970 |   |
|                                                                     |   |                    |   |                   |   |   |   |   |   |
| Reported  earnings (loss) from discontinued operations                   |   | (2,155                  | )      | 1,283                  |   | (74,289 | ) | 3,585 |   |
| Amortization of  goodwill                                                |   | —                  |   | 364                    |   | — |   | 1,092 |   |
| Adjusted  earnings (loss) from discontinued operations                   |   | (2,155                  | )      | 1,647                  |   | (74,289 | ) | 4,677 |   |
|                                                                     |   |                    |   |                   |   |   |   |   |   |
| Adjusted net  earnings (loss)                                            |   | $                       | 10,599 |                   | $      | (113 | ) | $ | (53,876 | ) | $ | 5,647 |   |
|                                                                     |   |                    |   |                   |   |   |   |   |   |
|                                                                     |   | **Three Months Ended**  |   | **Nine Months Ended**  |   |
|                                                                     |   | **Nov. 30,  2002**      |   | **Dec. 1,  2001**      |   | **Nov. 30,  2002** |   | **Dec. 1,  2001** |   |
| Basic earnings  (loss) per share                                         |   |                    |   |                   |   |   |   |   |   |
| Reported basic  earnings (loss) per share from continuing operations     |   | $                       | 0.67   |                   | $      | (0.10 | ) | $ | 1.07 |   | $ | 0.04 |   |
| Amortization of  goodwill                                                |   | —                  |   | —                 |   | — |   | 0.01 |   |
| Adjusted basic  earnings (loss) per share from continuing operations     |   | 0.67                    |   | (0.10                  | )      | 1.07 |   | 0.05 |   |
|                                                                     |   |                    |   |                   |   |   |   |   |   |
| Reported basic  earnings (loss) per share from discontinued operations   |   | (0.12                   | )      | 0.07                   |   | (3.89 | ) | 0.19 |   |
| Amortization of  goodwill                                                |   | —                  |   | 0.02                   |   | — |   | 0.06 |   |
| Adjusted basic  earnings (loss) per share from discontinued operations   |   | (0.12                   | )      | 0.09                   |   | (3.89 | ) | 0.25 |   |
|                                                                     |   |                    |   |                   |   |   |   |   |   |
| Adjusted basic  earnings (loss) per share                                |   | $                       | 0.55   |                   | $      | (0.01 | ) | $ | (2.82 | ) | $ | 0.30 |   |
|                                                                     |   |                    |   |                   |   |   |   |   |   |
|                                                                     |   | **Three Months Ended**  |   | **Nine Months Ended**  |   |
|                                                                     |   | **Nov. 30,  2002**      |   | **Dec. 1,  2001**      |   | **Nov. 30,  2002** |   | **Dec. 1,  2001** |   |
| Diluted earnings  (loss) per share                                       |   |                    |   |                   |   |   |   |   |   |
| Reported diluted  earnings (loss) per share from continuing operations   |   | $                       | 0.66   |                   | $      | (0.10 | ) | $ | 1.05 |   | $ | 0.04 |   |
| Amortization of  goodwill                                                |   | —                  |   | —                 |   | — |   | 0.01 |   |
| Adjusted diluted  earnings (loss) per share from continuing operations   |   | 0.66                    |   | (0.10                  | )      | 1.05 |   | 0.05 |   |
|                                                                     |   |                    |   |                   |   |   |   |   |   |
| Reported diluted  earnings (loss) per share from discontinued operations |   | (0.11                   | )      | 0.07                   |   | (3.83 | ) | 0.19 |   |
| Amortization of  goodwill                                                |   | —                  |   | 0.02                   |   | — |   | 0.06 |   |
| Adjusted diluted  earnings (loss) per share from discontinued operations |   | (0.11                   | )      | 0.09                   |   | (3.83 | ) | 0.25 |   |
|                                                                     |   |                    |   |                   |   |   |   |   |   |
| Adjusted diluted  earnings (loss) per share                              |   | $                       | 0.55   |                   | $      | (0.01 | ) | $ | (2.78 | ) | $ | 0.30 |   |

 

10

----

 

**(7)Interest, net**

 
|                                                   |   | **Three  Months Ended** |   | **Nine  Months Ended** |   |
|--------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
| **(in thousands)**                                     |   | **Nov. 30,  2002**      |   | **Dec. 1,  2001**      |   | **Nov. 30,  2002** |   | **Dec. 1,  2001** |   |
| Interest expense                                       |   | $                       | 6,630  |                   | $      | 5,128 |   | $ | 24,709 |   | $ | 13,418 |   |
| Capitalized  interest                                  |   | (177                    | )      | (69                    | )      | (367 | ) | (323 | ) |
| Interest income                                        |   | (203                    | )      | (280                   | )      | (323 | ) | (1,161 | ) |
|                                                   |   | 6,250                   |   | 4,779                  |   | 24,019 |   | 11,934 |   |
| Interest expense  allocated to discontinued operations |   | (169                    | )      | (2,388                 | )      | (5,174 | ) | (7,028 | ) |
| Interest, net                                          |   | $                       | 6,081  |                   | $      | 2,391 |   | $ | 18,845 |   | $ | 4,906 |   |

 

Cash payments for interest, net of amounts capitalized, were $22.8million and $16.2 million for the nine months ended November 30, 2002, andDecember 1, 2001, respectively.

 

We allocated interest expense to discontinued operations based on netassets that were specifically identifiable to the operation.

 

**(8)Other income (expense), net****–**For the nine months ended November 30, 2002, other income (expense), netincluded a $4.7 million lossassociated with the early repayment of term notes.  In the prior year, we recorded a $10.3 million loss on thecancellation of a $200 million high-yield debt offering.

 

**(9)Income taxes****–**Cash payments for income taxes were $4.1 million and $7.3 million for the ninemonths ended November 30, 2002, and December 1, 2001, respectively.

 

**(10)****Supplementalbalance sheet information**

 
| **(in  thousands)**                         |   | **Nov. 30,  2002** |    | **March 2,  2002** |   |
|---------------------------------------------|--------|--------------------|---------|--------------------|--------|
| Trade accounts  receivable, net:            |   |               |    |               |   |
| Trade                                       |   | $                  | 53,896  |               | $      | 45,619 |   |
| Allowance for  doubtful accounts            |   | (463               | )       | (300               | )      |
| Total trade  accounts receivable, net       |   | $                  | 53,433  |               | $      | 45,319 |   |
|                                        |   |               |    |               |   |
| Inventories:                                |   |               |    |               |   |
| Raw materials,  excluding grain             |   | $                  | 14,897  |               | $      | 13,781 |   |
| Grain                                       |   | 5,300              |    | 4,360              |   |
| Finished and  in-process goods              |   | 98,151             |    | 82,629             |   |
| Packages and  supplies                      |   | 4,756              |    | 3,986              |   |
| Total  inventories                          |   | $                  | 123,104 |               | $      | 104,756 |   |
|                                        |   |               |    |               |   |
| Property, plant  and equipment, net:        |   |               |    |               |   |
| Land                                        |   | $                  | 2,186   |               | $      | 2,152 |   |
| Buildings and  improvements                 |   | 50,366             |    | 49,078             |   |
| Machinery and  equipment                    |   | 190,592            |    | 183,674            |   |
| Improvements in  progress                   |   | 33,913             |    | 14,857             |   |
|                                        |   | 277,057            |    | 249,761            |   |
| Accumulated  depreciation                   |   | (110,821           | )       | (101,770           | )      |
| Total property,  plant and equipment, net   |   | $                  | 166,236 |               | $      | 147,991 |   |
|                                        |   |               |    |               |   |
| Accumulated  other comprehensive loss:      |   |               |    |               |   |
| Foreign currency  translation adjustment    |   | $                  | (16,530 | )                  | $      | (18,247 | ) |
| Minimum pension  liability adjustment       |   | (2,566             | )       | (2,566             | )      |
| Derivative hedge  accounting adjustment     |   | 4,391              |    | 5,973              |   |
| Total  accumulated other comprehensive loss |   | $                  | (14,705 | )                  | $      | (14,840 | ) |

 

11

----

 

**(11)Segment information**

 

We manage the company through three operating segments:  U.S. Consumer Products, U.S. FoodserviceProducts and Canadian Foods.  Ourorganizational structure is the basis for reporting business results tomanagement and the segment data presented in this Note.  We formed the U.S. Consumer Productsbusiness in fiscal 2002 as a result of our acquisition of certain retail brandsfrom Pillsbury and General Mills.

 
| **(in  millions)**                |   | **Net  Sales** |   | **Operating  Costs** |   | **Unusual  Items** |   | **Operating  Earnings** |   |
|-----------------------------------|--------|----------------|--------|----------------------|--------|--------------------|--------|-------------------------|--------|
| Three Months  Ended Nov. 30, 2002 |   |           |   |                 |   |               |   |                    |   |
| U.S. Consumer  Products           |   | $              | 151.8  |                 | $      | (128.5             | )      | $                       | — |   | $ | 23.3 |   |
| U.S. Foodservice  Products        |   | 59.4           |   | (57.8                | )      | —             |   | 1.6                     |   |
| Canadian Foods                    |   | 90.0           |   | (81.1                | )      | —             |   | 8.9                     |   |
| Corporate                         |   | —         |   | (2.4                 | )      | —             |   | (2.4                    | )      |
| Total                             |   | $              | 301.2  |                 | $      | (269.8             | )      | $                       | — |   | $ | 31.4 |   |
|                              |   |           |   |                 |   |               |   |                    |   |
| Three Months  Ended Dec. 1, 2001  |   |           |   |                 |   |               |   |                    |   |
| U.S. Consumer  Products           |   | $              | 16.3   |                 | $      | (13.5              | )      | $                       | — |   | $ | 2.8 |   |
| U.S. Foodservice  Products        |   | 55.2           |   | (54.0                | )      | (0.3               | )      | 0.9                     |   |
| Canadian Foods                    |   | 77.0           |   | (69.5                | )      | 1.5                |   | 9.0                     |   |
| Corporate                         |   | —         |   | (2.7                 | )      | —             |   | (2.7                    | )      |
| Total                             |   | $              | 148.5  |                 | $      | (139.7             | )      | $                       | 1.2    |   | $ | 10.0 |   |
|                              |   |           |   |                 |   |               |   |                    |   |
| Nine Months Ended Nov. 30, 2002   |   |           |   |                 |   |               |   |                    |   |
| U.S. Consumer  Products           |   | $              | 317.7  |                 | $      | (273.6             | )      | $                       | — |   | $ | 44.1 |   |
| U.S. Foodservice  Products        |   | 176.0          |   | (171.4               | )      | —             |   | 4.6                     |   |
| Canadian Foods                    |   | 228.0          |   | (210.0               | )      | —             |   | 18.0                    |   |
| Corporate                         |   | —         |   | (10.2                | )      | —             |   | (10.2                   | )      |
| Total                             |   | $              | 721.7  |                 | $      | (665.2             | )      | $                       | — |   | $ | 56.5 |   |
|                              |   |           |   |                 |   |               |   |                    |   |
| Nine Months  Ended Dec. 1, 2001   |   |           |   |                 |   |               |   |                    |   |
| U.S. Consumer  Products           |   | $              | 16.3   |                 | $      | (13.5              | )      | $                       | — |   | $ | 2.8 |   |
| U.S. Foodservice  Products        |   | 160.6          |   | (156.4               | )      | (0.3               | )      | 3.9                     |   |
| Canadian Foods                    |   | 205.0          |   | (187.8               | )      | 1.5                |   | 18.7                    |   |
| Corporate                         |   | —         |   | (8.2                 | )      | (0.3               | )      | (8.5                    | )      |
| Total                             |   | $              | 381.9  |                 | $      | (365.9             | )      | $                       | 0.9    |   | $ | 16.9 |   |

 

**(12) Contingencies****–** In fiscal 1998, we were notified thatapproximately $6 million of our inventory was taken from a ship in the port ofSt. Petersburg, Russia.  The ship hadbeen chartered by a major customer of our former food-exporting business.  Following submission of a claim forindemnity, the insurance carrier denied our claim for coverage, and wecommenced a lawsuit seeking to obtain coverage under the insurance carrier’spolicy.  In October 2001, the U.S.District Court of the Southern District of New York granted us summary judgmenton our claim, which is carried on our books as a $6 million receivable, andawarded us interest to the date of judgment. The interest has not been recognized on our books.  On October 17, 2002, following an appeal bythe insurance carrier, the U.S. Court of Appeals for the Second Circuitpartially affirmed the summary judgment with respect to the amount of loss andheld that such loss is within the scope of the policy.  The Court of Appeals, however, remanded thecase back to the District Court for further proceedings to determine whethercertain provisions of the policy had the effect of excluding coverage.  We continue to believe that the loss wascovered by the insurance policy and we will continue to aggressively pursue ourclaim against the insurer.  If we areultimately unable to collect on the policy, we would record a loss of $6million to write off the receivable for the estimated recovery of the claim.

 

On September 9, 2002, we completedthe sale of our foodservice distribution business to Wellspring DistributionCorp.  We continue to guarantee certainreal estate, information system and tractor/trailer fleet lease obligations ofour

 

12

----

 

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.

 

The outstanding guarantees for thelease obligations of our former subsidiaries as of November 30, 2002, are asfollows:

 
| **(in  millions)**   |   | **Gross  amount** |   | **Net  present value @ 7%** |   |
|----------------------|--------|-------------------|--------|-----------------------------|--------|
| Tractor/trailer      |   | $                 | 27.6   |                        | $      | 23.0 |   |
| Real estate          |   | 17.1              |   | 13.5                        |   |
| Information  systems |   | 0.5               |   | 0.4                         |   |
| Total                |   | $                 | 45.2   |                        | $      | 36.9 |   |

 

If Wellspring Distribution Corp. wasunable to meet its obligations that we have guaranteed, any loss would bereduced by the amount generated from the liquidation of the tractor/trailerfleet and income from the sub-lease of real estate space.

 

The possibility of the Companyhaving to honor our contingent liabilities under the guaranties is largelydependent upon the future operations of our former subsidiaries and the valueof the underlying leased properties. Should a reserve be required in the future, it would be recorded at thetime the obligation was determined to be probable.

 

13

----

 

INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIES

Management’s Discussionand Analysis of Results ofOperations and Financial Condition

 

**OVERVIEW**

 

International Multifoods is a North American producer of brandedconsumer foods and foodservice products, including baking mixes, frozen bakeryproducts, flour, ready-to-spread frostings, condiments, potato and pancake mixofferings.  We manage the companythrough three operating segments–U.S. Consumer Products, U.S. FoodserviceProducts and Canadian Foods.

 

On July 29, 2002, we entered into an agreement to sell our foodservicedistribution business to Wellspring Distribution Corp.  We completed the sale on September 9, 2002,for $166 million in cash.  Thefoodservice distribution business is classified as discontinued operations inthe consolidated financial statements and in the following managementdiscussion and analysis.

 

On November 13, 2001, we completedour acquisition of the Pillsbury desserts and specialty products business, thePillsbury non-custom foodservice baking mix and frosting products business, andcertain regional flour and side-dish brands of General Mills.  The acquisition makes InternationalMultifoods a leading marketer of U.S. consumer baking products and enhances ourexisting U.S. foodservice manufacturing business.

 

**Resultsof Operations**

 

Continuing Operations

 

Earnings from continuing operations were $12.8 million, or 66 cents perdiluted share, in the third quarter ended November 30, 2002, compared with aloss of $1.8 million, or 10 cents per share, in the same period last year.  The improvement in current year resultsprimarily reflects the contribution from the Pillsbury and General Millsbusinesses that we acquired in November 2001. The improvement was partially offset by higher interest expense, whichresulted from the debt we incurred to pay for the acquisition, and a pre-taxnon-cash loss of $4.7 million associated with the early repayment of debtobligations.  Our third quarter resultslast year were impacted by a $10.3 million pre-tax loss due to a cancellationof $200 million high-yield debt offering that was planned as part of theacquisition.  We canceled the debtoffering when, as part of the acquisition, more favorable financing becameavailable.

 

For the nine months ended November 30, 2002, earnings from continuingoperations were $20.4 million, or $1.05 per diluted share, compared withearnings of $0.7 million, or 4 cents per share, a year ago.

 

Segment Results

 

U.S. Consumer Products:  Thisbusiness segment was formed last year as a result of our acquisition of certainretail brands of The Pillsbury Company and General Mills.  The operating results of the acquired brandshave been included in our results since the date of acquisition.

 

Third quarter net sales were $151.8 million, compared with $16.3million in the year-earlier period, which included only two weeks of results ofthe acquired brands.  On a comparablepro forma basis, as if we owned the retail brands in last year’s third quarter,unit volume declined about 1%.  For thenine months ended November 30, 2002, comparable unit volume increasedapproximately 1% on more effective merchandising, success in emerging channelsand brand-building initiatives.

 

14

----

 

U.S. Foodservice Products:  Netsales increased 8% to $59.4 million, which reflects the incrementalcontribution from the Pillsbury foodservice brands that we acquired lastyear.  The increase in net sales waspartially offset by volume declines in our foodservice baking mix andready-to-bake products. Sales of ready-to-bake products were affected by softdemand at a national foodservice chain.

 

Operating earnings were $1.6 million, compared with $1.2 million beforeunusual items last year. The earnings contribution from the acquired Pillsburybrands was offset by competitive pressures, the volume declines and highersales and marketing expenses.

 

Net sales for the nine-month period ended November 30, 2002, increased10% to $176 million, compared with $160.6 million a year ago.  The increase in sales was essentially due tothe same factors discussed for the third quarter.  Operating earnings were $4.6 million, compared with $4.2 millionbefore unusual items last year.  Inaddition to the factors described in the discussion of the third quarter,operating earnings in the nine-month period were impacted by higher sugar costsand a loss on an advance to a supplier that filed for bankruptcy.

 

Canadian Foods:  Net salesincreased 17% to $90 million, due to the effects of higher selling prices,which was driven by higher commodity costs, and unit volume growth.  We had unit volume growth in commercialflour, consumer condiments, and grain-based export products.  Consumer condiment unit volumes increaseddue to a new product offering, which was introduced last year.

 

Operating earnings before unusual items increased 19% to $8.9 million,compared with $7.5 million last year. The earnings increase was driven by higher unit volumes, a morefavorable product mix and productivity improvements in the condiments business.  Our prior year results were impacted byinefficiencies in manufacturing costs associated with the consolidation of ourcondiments processing operations.

 

Net sales for the nine-month period ended November 30, 2002, increased11% to $228 million, compared with $205 million a year ago.  Sales increased on unit volume growth incommercial flour, consumer condiments, and export products.  The increase was also due to higher pricesin grain-based products sold to commercial customers, which resulted primarilyfrom higher commodity costs.  Operatingearnings before unusual items increased 5% to $18 million, compared with $17.2million last year.  The increase inearnings was driven by the same factors discussed for the third quarter.

 

Non-operating Expense and Income

 

Net interest expense in the third quarter was $6.1 million, comparedwith $2.4 million last year.  Thesignificant increase was primarily due to the debt we incurred in November 2001to finance the acquisition of the Pillsbury and General Mills businesses.

 

In the third quarter of fiscal 2003, we recorded a $4.7 million chargeassociated with the early repayment of $194 million in term notes.

 

In the third quarter of fiscal 2002, we wrote off $10.3 million ofunderwriting and other direct costs associated with the planned issuance of$200 million in high-yield unsecured notes. We cancelled the debt offering as more favorable financing becameavailable when, as part of the acquisition, Diageo plc agreed to guarantee $200million of our debt obligations.  Inaddition, we also recorded a charge of $0.7 million for direct costs incurredfor the early redemption of our outstanding medium-term notes and write-off ofunamortized bank fees that resulted from the refinancing of our debtfacilities. These costs are included in “other income (expense), net” in theconsolidated condensed statements of operations.

 

15

----

 

Discontinued Operations

 

Our discontinued foodservice distribution business had a pre-taxoperating loss of $9.7 million ($7 million after tax) for the nine months endedNovember 30, 2002.  Operating resultsincluded a $6 million pre-tax loss from the curtailment and settlement ofpension obligations, which resulted from the sale of the business.  In addition, we recorded a $3.7 millionpre-tax charge primarily for severance costs.

 

We also recorded a net after-tax loss of $25.9 million in the secondquarter for the disposition of the business. OnSeptember 9, 2002, we completed the sale of our foodservice distributionbusiness for $166 million in cash.

 

As a result of our adoption of Statement of Accounting Standards No.142 (SFAS 142), *Goodwill and otherIntangible Assets*, we recorded a cumulative effect of a change inaccounting principle of $41.3 million to write off the goodwill associated withMultifoods Distribution Group.  Seeadditional discussion in Note 6 to the consolidated condensed financialstatements.

 

Pension Plans

 

Net earnings in both fiscal 2003 and 2002 included income from ourdefined benefit pension plans.  Stronginvestment performance in the 1990s caused pension assets to increasesignificantly, which resulted in pension income.  Pension plans will contribute approximately $9 million of pre-taxincome in fiscal 2003, compared with $12.1 million in fiscal 2002.  However, continued poor performance in theequity markets has adversely impacted the value of our pension assets.  In addition, our pension obligations areexpected to increase as a result of a decline in the discount rate used tovalue pension plan liabilities.  As aresult, we expect that pension income will significantly decline in fiscal2004.  Despite the decline in pensionassets, our defined benefit pension plans are generally fully funded and arenot expected to require significant contributions in either fiscal 2003 orfiscal 2004.  In fiscal 2003,contributions to qualified defined benefit plans are expected to beapproximately $2 million to $3 million.

 

**FinancialCondition**

 

Our major sources of liquidity are cash flows from operations andborrowings from our $100 million revolving credit facility.  As of November 30, 2002, we had $76 millionavailable under the revolving credit facility.

 

We believe that cash flows from operations and borrowings from ourexisting revolving credit facility will be sufficient to meet our operatingrequirements and debt service obligations for the foreseeable future.

 

Cash provided by continuing operations was $19.4 million for the firstnine months of fiscal 2003, compared with cash used of $43.2 million in theprior-year nine-month period.  Operatingcash flows in the current period exceeded the prior year as a result offavorable working capital movements, higher earnings from continuing operationsand payments received from an escrow account established as part of theacquisition.  Cash flows from operationslast year were impacted by an increase in accounts receivable, which waspartially due to the termination of a receivable securitization program inCanada.

 

In the third quarter of 2003, we used the proceeds from the sale of ourfoodservice distribution business and available cash balances to repay $194million of term notes.  We repaid allour Term A notes and $68 million of our Term B notes.  As a result, our debt-to-total-capitalization ratio declined to 61% at November30, 2002, compared with 66% at March 2, 2002.

 

16

----

 

Under a transition servicesagreement, General Mills provides us various services for the acquiredPillsbury and General Mills retail businesses. These services include the invoicing and collection of trade accountsreceivable and payment of certain trade accounts payable.  The effect of the transition servicesagreement is that trade receivables and payables associated with the acquiredretail businesses are currently carried by General Mills.  We expect that transition services will endin the first quarter of fiscal 2004, and that our net working capital needswill increase by approximately $15 million to $20 million during thefirst quarter as we become directly responsible for all billing, collection andpayment activities of the acquired businesses.

 

**CautionaryStatement Relevant to Forward-Looking Information**

 

This document contains forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on currentexpectations or beliefs, including, but not limited to, statements concerningour operations and financial performance and condition.  For this purpose, statements that are notstatements of historical fact may be deemed to be forward-lookingstatements.  We caution that thesestatements by their nature involve risks and uncertainties, and actual resultsmay differ materially depending on a variety of important factors, including,among others, successful completion of the integration of the acquiredbusinesses; reliance on General Mills, Inc., to provide material transition andco-pack services to our U.S. Consumer Products division, including theconversion of the General Mills Toledo plant for our use; the impact ofcompetitive products and pricing; changes in consumer preferences and tastes orperceptions of health-related issues; effectiveness of advertising ormarket-spending programs; market or weather conditions that may affect thecosts of grain, other raw materials, fuel and labor; changes in laws andregulations; fluctuations in interest rates; the potential inability to collecton a $6 million insurance claim receivable related to the loss of product in St.Petersburg, Russia; collection is sought under our guarantees of leaseobligations of our former Multifoods Distribution Group subsidiaries;fluctuations in foreign exchange rates; risks commonly encountered ininternational trade; and other factors as may be discussed in our reports filedwith the Securities and Exchange Commission.

 

17

----

 

**Item4.  Controls and Procedures**

 
|   | (a) Evaluation of disclosure controls and procedures.  The term “disclosure controls and  procedures” is defined in Rules 13a-14(c) and 15d-14(c) of the Securities and  Exchange Act of 1934 (“Exchange Act”).   These rules refer to the controls and other procedures of a company  that are designed to ensure that information required to be disclosed by 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 chief  financial officer have evaluated the effectiveness of the Company’s  disclosure controls and procedures as of a date within 90 days before the  filing of this quarterly report (the “Evaluation Date”), and, they have  concluded that, as of the Evaluation Date, such controls and procedures were  effective at ensuring that required information will be disclosed on a timely  basis in our reports filed under the Exchange Act. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | (b) Changes in internal controls.  For the quarter ended November 30, 2002, there were no  significant changes to our internal controls or in other factors that could  significantly affect our internal controls, and we have not identified any  significant deficiencies or material weaknesses in our internal controls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

18

----

 

**PART II**

 

**OTHER INFORMATION**

 
| **Item  6.** |   | **Exhibits  and Reports on Form 8-K**                                                                     |
|--------------|--------|-----------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                      |   |
|         | (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 November 30, 2002, the  Company filed the following Current Reports on Form 8-K: |
|         |   |                                                                                                      |   |
|         |   | (1)                                                                                                       | Current Report on Form 8-K dated September 9, 2002,  relating to the Company’s sale of the issued and outstanding shares of  Multifoods Distribution Management, Inc., a wholly-owned subsidiary of the  Company, to Wellspring Distribution Corp., and including pro forma financial  statements reflecting the disposition. |
|         |   |                                                                                                      |   |
|         |   | (2)                                                                                                       | Current Report on Form 8-K dated September 24, 2002,  relating to the submission of sworn statements by each of the Principal  Executive Officer and the Principal Financial Officer of the Company to the  Securities and Exchange Commission pursuant to Commission Order  No. 4-460. |
|              |        |                                                                                                           |  |  |

 

19

----

 

**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:   January 10, 2003 | By:                                       | /s/ John E. Byom |   |
|                          |                                      | John E. Byom |
|                          |                                      | Vice President - Finance and Chief Financial Officer |
|                          |                                      | *(Principal  Financial Officer and Duly Authorized Officer)* |

 

**CERTIFICATION**

 

I, Gary E. Costley, certify that:

 

1.                    Ihave reviewed this quarterly report on Form 10-Q of International MultifoodsCorporation;

 

2.                    Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                    Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                    Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 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 disclosure controlsand procedures based on our evaluation as of the Evaluation Date;

 

20

----

 

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 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,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                    Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:   January 10, 2003 | /s/ Gary E. Costley                                                                     |
|-------------------------------|-----------------------------------------------------------------------------------------|
|                          | **Gary  E. Costley**                                                                    |
|                          | **Chairman  of the Board & Chief Executive Officer  (Principal Executive Officer)** |

 

**CERTIFICATION**

 

I, John E. Byom, certify that:

 

1.                    Ihave reviewed this quarterly report on Form 10-Q of International MultifoodsCorporation;

 

2.                    Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                    Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this quarterly report.

 

4.                    Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 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;

 

21

----

 

(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.                    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 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,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                    Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:   January 10, 2003 | /s/ John E. Byom                                                                          |
|-------------------------------|-------------------------------------------------------------------------------------------|
|                          | **John  E. Byom**                                                                         |
|                          | **Vice  President, Finance & Chief Financial Officer  (Principal Financial Officer)** |

 

22

----

 

**EXHIBIT INDEX**

 
| 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. |

 

----