**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  the quarterly period ended June 1, 2002**                                                                                                                   |
|       |                                                                                                                                                               |
|       | **OR**                                                                                                                                                             |
|       |                                                                                                                                                               |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15 (d)****OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                  |
|       |                                                                                                                                                               |
|       | **For  the transition period from             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’stelephone number, including area code)

 

 

**(not applicable)**

(Former name,former address and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes  ý  No  o

 

The number of shares outstanding of the registrant’sCommon Stock, par value $.10 per share, as of June 28, 2002 was 19,085,026.

 

----

 

 

**PART I.   FINANCIALINFORMATION**

 

INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIES

 

Consolidated CondensedStatements of Operations

(unaudited)

(in thousands, except pershare amounts)

 

 
|                                                                                  |       | **THREE  MONTHS ENDED** |          |
|---------------------------------------------------------------------------------------|------------|-------------------------|---------------|
| ** **                                                                            | ** ** | **June 1,  2002**       | ** **    | **June 2,  2001** | ** ** |
| Net sales                                                                             |       | $                       | 779,638       |   | $ | 664,267 |   |
| Cost of  materials and production                                                     |       | (652,207                | )             | (574,425 | ) |
| Delivery and distribution                                                             |       | (60,704                 | )             | (49,452 | ) |
| Gross profit                                                                          |       | 66,727                  |          | 40,390 |   |
| Selling, general  and administrative                                                  |       | (49,832                 | )             | (33,297 | ) |
| Operating  earnings                                                                   |       | 16,895                  |          | 7,093 |   |
| Interest, net                                                                         |       | (8,985                  | )             | (3,577 | ) |
| Other income  (expense), net                                                          |       | —                  |          | (151 | ) |
| Earnings before  income taxes and cumulative effect of change in accounting principle |       | 7,910                   |          | 3,365 |   |
| Income taxes                                                                          |       | (3,006                  | )             | (1,279 | ) |
| Earnings before  cumulative effect of change in accounting principle                  |       | 4,904                   |          | 2,086 |   |
| Cumulative  effect of change in accountingprinciple,  net of tax of $23,781           |       | (41,342                 | )             | — |   |
| Net earnings  (loss)                                                                  |       | $                       | (36,438  | ) | $ | 2,086 |   |
|                                                                                  |       |                    |          |   |   |
| Basic earnings  (loss) per share:                                                     |       |                    |          |   |   |
| Before  cumulative effect of changein accounting principle                            |       | $                       | .26           |   | $ | .11 |   |
| Cumulative  effect of change in accounting principle                                  |       | (2.17                   | )             | — |   |
| Total                                                                                 |       | $                       | (1.91         | ) | $ | .11 |   |
|                                                                                  |       |                    |          |   |   |
| Diluted earnings  (loss) per share:                                                   |       |                    |          |   |   |
| Before  cumulative effect of changein accounting principle                            |       | $                       | .25           |   | $ | .11 |   |
| Cumulative  effect of change in accounting principle                                  |       | (2.12                   | )             | — |   |
| Total                                                                                 |       | $                       | (1.87         | ) | $ | .11 |   |
|                                                                                  |       |                    |          |   |   |
| Average shares  of common stock outstanding:                                          |       |                    |          |   |   |
| Basic                                                                                 |       | 19,028                  |          | 18,762 |   |
| Diluted                                                                               |       | 19,456                  |          | 18,972 |   |

 

See accompanying notes to consolidated condensed financial statements.

 

 

2

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INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIES

 

Consolidated CondensedBalance Sheets

(in thousands)

 

 
| ** **                                       | ** ** | **(Unaudited)  June 1,  2002** | ** ** | **Condensed  from audited  financial  statements  March 2,  2002** | ** ** |
|--------------------------------------------------|------------|--------------------------------|------------|--------------------------------------------------------------------|------------|
| **Assets**                                       |       |                           |       |                                                               |       |
| Current assets:                                  |       |                           |       |                                                               |       |
| Cash and cash  equivalents                       |       | $                              | 48,746     |                                                               | $          | 26,474 |   |
| Trade accounts  receivable, net                  |       | 146,413                        |       | 149,914                                                            |       |
| Inventories                                      |       | 231,747                        |       | 239,201                                                            |       |
| Other current  assets                            |       | 54,941                         |       | 53,635                                                             |       |
| Total current  assets                            |       | 481,847                        |       | 469,224                                                            |       |
| Property, plant  and equipment, net              |       | 234,417                        |       | 230,283                                                            |       |
| Goodwill, net                                    |       | 43,683                         |       | 108,535                                                            |       |
| Other intangible  assets, net                    |       | 141,844                        |       | 141,858                                                            |       |
| Other assets                                     |       | 174,763                        |       | 174,770                                                            |       |
| Total assets                                     |       | $                              | 1,076,554  |                                                               | $          | 1,124,670 |   |
|                                             |       |                           |       |                                                               |       |
| **Liabilities and Shareholders’  Equity**   |       |                           |       |                                                               |       |
| Current liabilities:                             |       |                           |       |                                                               |       |
| Current portion  of long-term debt               |       | $                              | 24,073     |                                                               | $          | 24,508 |   |
| Accounts payable                                 |       | 175,651                        |       | 182,273                                                            |       |
| Other current  liabilities                       |       | 73,921                         |       | 63,278                                                             |       |
| Total current  liabilities                       |       | 273,645                        |       | 270,059                                                            |       |
| Long-term debt                                   |       | 512,268                        |       | 514,541                                                            |       |
| Employee benefits  and other liabilities         |       | 49,501                         |       | 68,000                                                             |       |
| Total  liabilities                               |       | 835,414                        |       | 852,600                                                            |       |
|                                             |       |                           |       |                                                               |       |
| Shareholders’  equity:                      |       |                           |       |                                                               |       |
| Common stock                                     |       | 2,184                          |       | 2,184                                                              |       |
| Accumulated  other comprehensive loss            |       | (11,144                        | )          | (14,840                                                            | )          |
| Other  shareholders’ equity                 |       | 250,100                        |       | 284,726                                                            |       |
| Total  shareholders’ equity                 |       | 241,140                        |       | 272,070                                                            |       |
|                                             |       |                           |       |                                                               |       |
| Commitments and  contingencies                   |       |                           |       |                                                               |       |
|                                             |       |                           |       |                                                               |       |
| Total  liabilities and shareholders’ equity |       | $                              | 1,076,554  |                                                               | $          | 1,124,670 |   |

 

See accompanying notes to consolidated condensed financial statements.

 

 

3

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INTERNATIONAL MULTIFOODSCORPORATION AND SUBSIDIARIES

 

Consolidated CondensedStatements of Cash Flows

(unaudited)

(in thousands)

 

 
|                                                                                     |       | **THREE  MONTHS ENDED** |       |
|------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                               | ** ** | **June 1,  2002**       | ** ** | **June 2,  2001** | ** ** |
| Cash flows from  operations:                                                             |       |                    |       |   |   |
| Net earnings  (loss)                                                                     |       | $                       | (36,438    | ) | $ | 2,086 |   |
| Adjustments to  reconcile net earnings (loss) to cash provided by (used for) operations: |       |                    |       |   |   |
| Depreciation and  amortization                                                           |       | 6,767                   |       | 6,420 |   |
| Cumulative  effect of change in accounting principle                                     |       | 41,342                  |       | — |   |
| Deferred income  tax expense                                                             |       | 273                     |       | 458 |   |
| Increase in  prepaid pension assets                                                      |       | (2,742                  | )          | (3,584 | ) |
| Changes in  working capital:                                                             |       |                    |       |   |   |
| Accounts  receivable                                                                     |       | 3,888                   |       | 3,442 |   |
| Inventories                                                                              |       | 9,336                   |       | (1,984 | ) |
| Other current  assets                                                                    |       | (1,651                  | )          | (3,154 | ) |
| Accounts payable                                                                         |       | (7,740                  | )          | (37,253 | ) |
| Other current  liabilities                                                               |       | 10,347                  |       | (4,347 | ) |
| Other, net                                                                               |       | 7,948                   |       | (640 | ) |
| Cash provided by  (used for) operations                                                  |       | 31,330                  |       | (38,556 | ) |
| Cash flows from  investing activities:                                                   |       |                    |       |   |   |
| Capital expenditures                                                                     |       | (4,904                  | )          | (7,732 | ) |
| Proceeds from  property disposals                                                        |       | 40                      |       | 22 |   |
| Cash used for  investing activities                                                      |       | (4,864                  | )          | (7,710 | ) |
| Cash flows from  financing activities:                                                   |       |                    |       |   |   |
| Net increase in  notes payable                                                           |       | —                  |       | 45,919 |   |
| Net decrease in  long-term debt                                                          |       | (5,052                  | )          | (1,000 | ) |
| Proceeds from  issuance of common stock                                                  |       | 875                     |       | 877 |   |
| Other, net                                                                               |       | (232                    | )          | (3 | ) |
| Cash provided by  (used for) financing activities                                        |       | (4,409                  | )          | 45,793 |   |
| Effect of  exchange rate changes on cash and cash equivalents                            |       | 215                     |       | (5 | ) |
| Net increase  (decrease) in cash and cash equivalents                                    |       | 22,272                  |       | (478 | ) |
| Cash and cash  equivalents at beginning of period                                        |       | 26,474                  |       | 10,247 |   |
| Cash and cash  equivalents at end of period                                              |       | $                       | 48,746     |   | $ | 9,769 |   |

 

See accompanying notes to consolidated condensed financial statements.

 

 

4

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INTERNATIONALMULTIFOODS CORPORATION AND SUBSIDIARIES

Notes toConsolidated Condensed Financial Statements

(unaudited)

 

**(1)          **In our opinion, the accompanying unauditedconsolidated condensed financial statements contain all adjustments (consistingof only normal recurring adjustments, except as noted elsewhere in the notes tothe consolidated condensed financial statements) necessary to present fairlyour financial position as of June 1, 2002, and the results of our operationsand cash flows for the three months ended June 1, 2002 and June 2, 2001.  These statements are condensed and,therefore, do not include all of the information and footnotes required by generallyaccepted accounting principles for complete financial statements.  The statements should be read in conjunctionwith the consolidated financial statements and footnotes included in our AnnualReport on Form 10-K for the year ended March 2, 2002.  The results of operations for the three months ended June 1,2002, are not necessarily indicative of the results to be expected for the fullyear.

 

**(2)           Newaccounting pronouncements**

 

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

 

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.  See Note 5for 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 theexception of a certain key provision on classification, SFAS 144 alsosupersedes Accounting 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.

 

EmergingIssues Task Force (EITF) No. 01-9, “Accounting for Consideration Given by aVendor or a Reseller of the 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 $1.8 million of promotional expensesto a reduction of net sales for the first quarter ended June 2, 2001.  The reclassification had no impact on ourreported earnings.

 

5

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## **(3)           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 GeneralMills (the Acquisition).  The cashpurchase price 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.”

 

Assumingthe Acquisition had occurred on March 3, 2001, the unaudited pro forma resultsof operations for the three months ended June 2, 2001 are as follows:

 
| **(in  thousands,**                              |   |   |    |
|--------------------------------------------------|--------|--------|---------|
| **except per  share amounts)­­­** |   |   |    |
| Net sales                                        |   | $      | 755,607 |   |
| Net earnings                                     |   | 9,278  |    |
| Basic and  diluted earnings per share            |   | .49    |    |
|                                                  |        |        |         |  |

 

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.

 

**(4)           Comprehensiveincome (loss)**—The components of total comprehensive income (loss) were as follows:

 
|                                                 |       | **Three  Months Ended** |       |
|------------------------------------------------------|------------|-------------------------|------------|
| **(in  thousands)**                                  | ** ** | **June 1,  2002**       | ** ** | **June 2,  2001** | ** ** |
| Net earnings  (loss)                                 |       | $                       | (36,438    | ) | $ | 2,086 |   |
| Foreign currency  translation adjustment             |       | 3,955                   |       | 745 |   |
| Net unrealized  gain (loss) on cash flow hedges      |       | (284                    | )          | 32 |   |
| Reclassification  adjustment for amounts in earnings |       | 25                      |       | (285 | ) |
| Comprehensive  income (loss)                         |       | $                       | (32,742    | ) | $ | 2,578 |   |

 

**(5)           Goodwilland other intangible assets**— 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 goodwillimpairment is a two-step process.  Thefirst step is a comparison of the fair value of the reporting unit (as defined)with its carrying amount, including goodwill. If this step reflects impairment, then the loss would be measured as theexcess of recorded goodwill over its implied fair value.  Implied fair value is the excess of fairvalue of the reporting unit over the fair value of all identified assets andliabilities.

 

In the first quarter offiscal 2003, we completed the initial testing of our existing goodwill andother intangible assets that have indefinite lives. Based on valuationsprovided by an independent third-party using primarily discounted cash flows,we determined that all the goodwill associated with our Multifoods DistributionGroup business was impaired.  As aresult, we recorded a $65.1 million ($41.3 million after tax) goodwillimpairment charge 

 

 

6

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in the first quarter offiscal 2003.  We classified theimpairment charge as a cumulative effect of change in accounting principle inthe consolidated statement of operations. No other impairment charges resulted from the required impairmentevaluations on the rest of the reporting units, which were determined usingdiscounted cash flow analyses.  Theassumptions used in these analyses were consistent with our internal plans.

 

The changes in the carrying amount of goodwill by segment for the threemonths ended June 1, 2002 are as follows:

 
| **(in  thousands)**           | ** ** | **U.S.  Consumer  Products** | ** ** | **U.S.  Foodservice  Products** | ** ** | **Canadian  Foods** | ** ** | **Multifoods  Distribution  Group** | ** ** | **Total** | ** ** |
|-------------------------------|------------|------------------------------|------------|---------------------------------|------------|---------------------|------------|-------------------------------------|------------|-----------|------------|
| Balance as of  March 3, 2002  |       | $                            | 24,715     |                            | $          | 12,643              |       | $                                   | 6,054      |      | $          | 65,123 |   | $ | 108,535 |   |
| Impairment  losses            |       | —                       |       | —                          |       | —              |       | (65,123                             | )          | (65,123   | )          |
| Foreign currency  translation |       | —                       |       | —                          |       | 271                 |       | —                              |       | 271       |       |
| Balance as of  June 1, 2002   |       | $                            | 24,715     |                            | $          | 12,643              |       | $                                   | 6,325      |      | $          | — |   | $ | 43,683 |   |

 

Other intangible assets as of June 1, 2002 and March2, 2002 are as follows:

 
|                           |       | **June 1,  2002**           |       | **March 2,  2002**            |       |
|--------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| **(in  thousands)**            | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Amortized  intangible assets   |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Trademarks                     |       | $                           | 9,090      |                          | $          | 1,541 |   | $ | 7,549 |   | $ | 9,090 |   | $ | 1,394 |   | $ | 7,696 |   |
| Non-compete  agreements        |       | 3,888                       |       | 3,769                         |       | 119 |   | 3,854 |   | 3,756 |   | 98 |   |
| Customer lists                 |       | 11,594                      |       | 6,448                         |       | 5,146 |   | 11,594 |   | 6,278 |   | 5,316 |   |
| Other                          |       | 772                         |       | 722                           |       | 50 |   | 772 |   | 710 |   | 62 |   |
| Total                          |       | $                           | 25,344     |                          | $          | 12,480 |   | $ | 12,864 |   | $ | 25,310 |   | $ | 12,138 |   | $ | 13,172 |   |
|                           |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Unamortized  intangible assets |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Trademarks                     |       | $                           | 128,894    |                          | $          | — |   | $ | 128,894 |   | $ | 128,600 |   | $ | — |   | $ | 128,600 |   |
| Other                          |       | 86                          |       | —                        |       | 86 |   | 86 |   | — |   | 86 |   |
| Total                          |       | $                           | 128,980    |                          | $          | — |   | $ | 128,980 |   | $ | 128,686 |   | $ | — |   | $ | 128,686 |   |

 

Amortization expense related to amortizableintangibles assets for the three months ended June 1, 2002 and June 2, 2001 was$342,000 and $244,000, respectively. The estimated amortization expense for fiscal 2003 to fiscal 2007 is asfollows:

 
| **(in  thousands)** |   | **Amounts** |   |
|---------------------|--------|-------------|--------|
| 2003                |   | $           | 1,372  |   |
| 2004                |   | 1,348       |   |
| 2005                |   | 1,306       |   |
| 2006                |   | 1,233       |   |
| 2007                |   | 1,178       |   |
|                     |        |             |        |  |

 

The following provides a reconciliation of net earnings (loss) to proforma amounts adjusted for the elimination of amortization of goodwill:

 
|                                                                          |   | **Three  Months Ended** |       |
|-------------------------------------------------------------------------------|--------|-------------------------|------------|
| **(in  thousands)**                                                           |   | **June 1,  2002**       | ** ** | **June 2,  2001** | ** ** |
| Reported net  earnings (loss)                                                 |   | $                       | (36,438    | ) | $ | 2,086 |   |
| Addback:  goodwill amortization                                               |   | —                  |       | 444 |   |
| Adjusted net  earnings (loss)                                                 |   | (36,438                 | )          | 2,530 |   |
| Addback:  cumulative effect of change in accounting principle                 |   | 41,342                  |       | — |   |
| Adjusted  earnings before cumulative effect of change in accounting principle |   | $                       | 4,904      |   | $ | 2,530 |   |

 

 

7

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|                                                                                          |       | **Three  Months Ended** |       |
|-----------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| **Basic earnings (loss) per share**                                                           | ** ** | **June 1,  2002**       | ** ** | **June 2,  2001** | ** ** |
| Reported basic  earnings (loss) per share                                                     |       | $                       | (1.91      | ) | $ | .11 |   |
| Addback:  goodwill amortization                                                               |       | —                  |       | .02 |   |
| Adjusted basic  earnings (loss) per share                                                     |       | (1.91                   | )          | .13 |   |
| Addback:  cumulative effect of change in accounting principle                                 |       | 2.17                    |       | — |   |
| Adjusted basic  earnings per share before cumulative effect of change in accounting principle |       | $                       | .26        |   | $ | .13 |   |

 
|                                                                                            |       | **Three  Months Ended** |       |
|-------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| **Diluted  earnings (loss) per share**                                                          | ** ** | **June 1,  2002**       | ** ** | **June 2,  2001** | ** ** |
| Reported diluted  earnings (loss) per share                                                     |       | $                       | (1.87      | ) | $ | .11 |   |
| Addback:  goodwill amortization                                                                 |       | —                  |       | .02 |   |
| Adjusted diluted  earnings (loss) per share                                                     |       | (1.87                   | )          | .13 |   |
| Addback:  cumulative effect of change in accounting principle                                   |       | 2.12                    |       | — |   |
| Adjusted diluted  earnings per share before cumulative effect of change in accounting principle |       | $                       | .25        |   | $ | .13 |   |

 

**(6)           Interest,net**

 
|                           |       | **Three  Months Ended** |       |
|--------------------------------|------------|-------------------------|------------|
| **(in  thousands)**            | ** ** | **June 1,  2002**       | ** ** | **June 2,  2001** | ** ** |
| Interest expense               |       | $                       | 9,099      |   | $ | 4,159 |   |
| Capitalized  interest          |       | (65                     | )          | (154 | ) |
| Non-operating  interest income |       | (49                     | )          | (428 | ) |
| Interest, net                  |       | $                       | 8,985      |   | $ | 3,577 |   |

 

Cashpayments for interest, net of amounts capitalized, were $4.7 million and $4.6million for the three months ended June 1, 2002 and June 2, 2001, respectively.

 

**(7)           Incometaxes** — Cashpayments for income taxes were $2.1 million and $3.3 million for the threemonths ended June 1, 2002 and June 2, 2001, respectively.

 

 

8

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**(8)           Supplementalbalance sheet information**

 
| **(in  thousands)**                         | ** ** | **June 1,  2002** | ** ** | **March 2,  2002** | ** ** |
|---------------------------------------------|------------|-------------------|------------|--------------------|------------|
| Trade accounts  receivable, net:            |       |              |       |               |       |
| Trade                                       |       | $                 | 149,492    |               | $          | 152,295 |   |
| Allowance for  doubtful accounts            |       | (3,079            | )          | (2,381             | )          |
| Total trade  accounts receivable, net       |       | $                 | 146,413    |               | $          | 149,914 |   |
|                                        |       |              |       |               |       |
| Inventories:                                |       |              |       |               |       |
| Raw materials,  excluding grain             |       | $                 | 14,534     |               | $          | 15,478 |   |
| Grain                                       |       | 6,566             |       | 4,360              |       |
| Finished and  in-process goods              |       | 205,614           |       | 215,361            |       |
| Packages and  supplies                      |       | 5,033             |       | 4,002              |       |
| Total inventories                           |       | $                 | 231,747    |               | $          | 239,201 |   |
|                                        |       |              |       |               |       |
| Property, plant  and equipment, net:        |       |              |       |               |       |
| Land                                        |       | $                 | 13,811     |               | $          | 13,735 |   |
| Buildings and  improvements                 |       | 111,595           |       | 110,083            |       |
| Machinery and  equipment                    |       | 270,357           |       | 265,619            |       |
| Improvements in  progress                   |       | 21,232            |       | 15,260             |       |
|                                        |       | 416,995           |       | 404,697            |       |
| Accumulated  depreciation                   |       | (182,578          | )          | (174,414           | )          |
| Total property,  plant and equipment, net   |       | $                 | 234,417    |               | $          | 230,283 |   |
|                                        |       |              |       |               |       |
| Accumulated  other comprehensive loss:      |       |              |       |               |       |
| Foreign currency  translation adjustment    |       | $                 | (14,292    | )                  | $          | (18,247 | ) |
| Minimum pension  liability adjustment       |       | (2,566            | )          | (2,566             | )          |
| Derivative hedge  accounting adjustment     |       | 5,714             |       | 5,973              |       |
| Total  accumulated other comprehensive loss |       | $                 | (11,144    | )                  | $          | (14,840 | ) |

 

**(9)           Segmentinformation**

 

We manage the company through four operating segments: U.S. ConsumerProducts, U.S. Foodservice Products, Canadian Foods and Multifoods DistributionGroup.  Our organizational structure isthe basis for reporting business results to management and the segment datapresented in this Note.  We formed theU.S. Consumer Products business in fiscal 2002 as a result of our acquisitionof certain retail brands from Pillsbury and General Mills.

 
| **(in  millions)**               | ** ** | **Net  Sales** | ** ** | **Operating  Costs** | ** ** | **Operating  Earnings** | ** ** |
|----------------------------------|------------|----------------|------------|----------------------|------------|-------------------------|------------|
| Three  Months Ended June 1, 2002 |       |           |       |                 |       |                    |       |
| U.S.  Consumer Products          |       | $              | 86.0       |                 | $          | (75.5                   | )          | $ | 10.5 |   |
| U.S.  Foodservice Products       |       | 58.3           |       | (56.7                | )          | 1.6                     |       |
| Canadian  Foods                  |       | 66.1           |       | (62.3                | )          | 3.8                     |       |
| Multifoods  Distribution Group   |       | 569.2          |       | (564.6               | )          | 4.6                     |       |
| Corporate                        |       | —         |       | (3.6                 | )          | (3.6                    | )          |
| Total                            |       | $              | 779.6      |                 | $          | (762.7                  | )          | $ | 16.9 |   |
| Three  Months Ended June 2, 2001 |       |           |       |                 |       |                    |       |
| U.S.  Consumer Products          |       | $              | —     |                 | $          | —                  |       | $ | — |   |
| U.S.  Foodservice Products       |       | 52.5           |       | (50.9                | )          | 1.6                     |       |
| Canadian  Foods                  |       | 59.9           |       | (56.0                | )          | 3.9                     |       |
| Multifoods  Distribution Group   |       | 551.9          |       | (547.6               | )          | 4.3                     |       |
| Corporate                        |       | —         |       | (2.7                 | )          | (2.7                    | )          |
| Total                            |       | $              | 664.3      |                 | $          | (657.2                  | )          | $ | 7.1 |   |

 

 

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**(10)         Contingencies** — In fiscal 1998, we were notified thatapproximately $6 million of our inventory was stolen from a ship in the port ofSt. Petersburg, Russia.  The ship hadbeen chartered by a major customer of our former food-exporting business.  We believe, based on the facts known todate, that the loss is covered by insurance. However, following submission of a claim for indemnity, the insurancecarrier denied our claim for coverage and we commenced a lawsuit seeking toobtain coverage under the insurance carrier’s policy.  In October 2001, the U.S. District Court of the Southern Districtof New York granted us summary judgment on our claim and awarded us interest tothe date of judgment.  In November 2001,the insurance carrier appealed the judgment to the U.S. Court of Appeals forthe Second Circuit.  Although we willcontinue to vigorously assert our claim in the litigation, the interest awardedby the U.S. District Court will not be recognized as income until collection isassured.

 

 

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INTERNATIONALMULTIFOODS CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Results of

Operations and Financial Condition

 

 

**OVERVIEW**

 

InternationalMultifoods is a North American producer of branded consumer foods andfoodservice products, including baking mixes, frozen bakery products, flour,ready-to-spread frostings, condiments, potato and pancake mix offerings.  We also are a leading distributor of foodand related products to targeted segments of the foodservice industry,including limited-menu restaurants and vending operators.  We manage the company through four operatingsegments—U.S. Consumer Products, U.S. Foodservice Products, Canadian Foods andMultifoods Distribution Group.

 

In November 2001,we completed our acquisition of the Pillsbury desserts and specialty productsbusiness, the Pillsbury non-custom foodservice baking mix and frosting productsbusiness, and certain regional flour and side-dish brands of GeneralMills.  The acquisition makesInternational Multifoods a leading marketer of U.S. consumer baking productsand enhances our existing U.S. foodservice manufacturing business.

 

**Results of Operations**

 

Overview

 

Earningsbefore cumulative effect of a change in accounting principle were $4.9 million,or 25 cents per diluted share, in the first quarter ended June 1, 2002. Thiscompares with net earnings of $2.1 million, or 11 cents per share, in the sameperiod last year.  The increase inearnings primarily reflects the contribution from the Pillsbury and GeneralMills businesses that we acquired in November 2001.  The increase was partially offset by higher interest expense,which resulted from the debt we incurred to pay for the acquisition, and lowerpension income from our defined benefit plans.

 

Asa result of our adoption of Statement of Accounting Standards No. 142 (SFAS142), *Goodwill and other Intangible Assets*,we recorded a cumulative effect of a change in accounting principle of $41.3million to write off the goodwill associated with Multifoods DistributionGroup.  See additional discussion inNote 5 to the consolidated condensed financial statements.

 

 

Segment Results

 

U.S. Consumer Products: This business segment was formed last year as aresult of our acquisition of certain retail brands of the The Pillsbury Companyand General Mills.  The operatingresults of the acquired brands have been included in our results since the dateof acquisition.

 

U.S. Foodservice Products: Net sales increased 11% to $58.3million.  The increase was primarily dueto the addition of the Pillsbury foodservice brands that we acquired last year.

 

Operating earnings of $1.6 million were even with last year.  The earnings contribution from the acquiredPillsbury brands was offset by higher commodity costs, principally sugar, andthe write-down of an advance to a supplier that filed for bankruptcy.

 

Canadian Foods: Net sales increased 10% to $66.1 million, primarily onvolume growth in commercial flour, consumer ethnic grain-based products andconsumer condiments.  Consumer condimentsales volumes benefited from a new product

 

 

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offering last year.  The increasein sales was also partially due to higher prices in our grain-based products,which resulted from increased commodity costs.

 

Operating earnings declined slightly to $3.8 million, as compared with$3.9 million last year.  The earningscontribution from the higher sales volumes was offset by higher condimentsmanufacturing costs, which resulted from inefficiencies associated with ourfacility consolidation project that took place last year.  We continue to take steps to improve plantproductivity, including added engineering resources to identify opportunitiesto improve yields and reduce costs.

 

MultifoodsDistribution Group: Net sales increased 3% to $569.2 million, compared with$551.9 million a year ago.  We achieveda substantial increase in sales to sandwich shops, primarily with several largeaccounts.  The sales increase waspartially offset by a decline in sales to vending operators and rationalizationof independent pizza accounts.  Vendingdistribution sales continued to be impacted by low industry demand in certainregions of the United States due to the soft economy.

 

Operatingearnings increased 7% to $4.6 million, compared with $4.3 million a yearago.  Operating earnings increased onlower operating costs, primarily in delivery and distribution.  Last year we were impacted by start-up costsand inefficiencies associated with significant new business accounts that weadded late in fiscal 2001.  Operatingearnings also improved due to a $0.6 million reduction in amortization expense,which resulted from the adoption of SFAS 142. See Note 5 to the consolidatedcondensed financial statements for additional discussion on the adoption ofSFAS 142.  The increase in operatingearnings was partially offset by the impact of the decline in vending distributionsales and reduction in pension income.

 

Corporate:Corporate expenses were $3.6 million, compared with $2.7 million lastyear.  The increase was primarily theresult of increased incentive costs along with higher staff costs to supportthe acquired businesses.

 

Non-operating Expense andIncome

 

Netinterest expense increased to $9 million, compared with $3.6 million lastyear.  The significant increase wasprimarily due to the debt we incurred in November 2001 to finance theacquisition of the Pillsbury and General Mills businesses.

 

 

**Financial Condition**

 

Our major sources ofliquidity are cash flows from operations and borrowings from our $100 millionrevolving credit facility.  As of June1, 2002, there were no borrowings outstanding under the revolving creditfacility, although $6.9 million of the facility was unavailable due tooutstanding letters of credit.

 

We believe that cashflows from operations, current cash on hand and borrowings from our existingrevolving credit facility will be sufficient to meet our operating requirementsand debt service obligations during fiscal 2003.

 

Thedebt-to-total capitalization ratio increased to 69% at June 1, 2002, comparedwith 66% at March 2, 2002.  The increasewas primarily the result of a decline in shareholders’ equity, which was causedby the write off of goodwill associated with the adoption of SFAS 142.

 

For the first quarter of fiscal 2003, cash provided by operations was$31.3 million, compared with cash used of $38.6 million in the prior-yearperiod. Operating cash flows last year were adversely impacted by the timing ofpayments 

 

 

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to suppliers.  Operating cashflows in the current period exceeded the prior year as a result of morefavorable working capital movements, payments received from an escrow accountestablished as part of the acquisition and higher earnings.

 

As a result of favorable operating cash flows, we repaid $5 million ofterm notes in the first quarter of fiscal 2003.  In addition, cash and cash equivalents increased to $48.7 millionat June 1, 2002, compared with $26.5 million at March 2, 2002.

 

 

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

 

Thisdocument contains forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations orbeliefs, including, but not limited to, statements concerning our operationsand financial performance and condition. For this purpose, statements that are not statements of historical factmay be deemed to be forward-looking statements.  We caution that these statements by their nature involve risksand uncertainties, and actual results may differ materially depending on avariety of important factors, including, among others, successful completion ofthe integration of the acquired businesses; reliance on General Mills, Inc., toprovide material transition and co-pack services to our U.S. Consumer Productsdivision, including the conversion of the General Mills Toledo plant for ouruse; the results of our review of strategic alternatives for MultifoodsDistribution Group; the impact of competitive products and pricing; changes inconsumer preferences and tastes or perceptions of health-related issues;effectiveness of advertising or market-spending programs; market or weatherconditions that may affect the costs of grain, cheese, other raw materials,fuel and labor; changes in laws and regulations; fluctuations in interestrates; the inability to collect on a $6 million insurance claim related to thetheft of product in St. Petersburg, Russia; fluctuations in foreign exchangerates; risks commonly encountered in international trade; and other factors asmay be discussed in our reports filed with the Securities and ExchangeCommission.

 

 

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**PART II**

 

**OTHER INFORMATION**

 

 

**Item 6.**    **Exhibits andReports on Form 8-K**

 

(a)           Exhibits

 

11.           Computation of Earnings (loss) perCommon Share.

 

12.           Computation of Ratio of Earnings toFixed Charges.

 

 

(b)           Reports on Form 8-K

 

No reports on Form8-K were filed during the quarter ended June 1, 2002.

 

 

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**SIGNATURE**

 

Pursuant to the requirements of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 

 
|                      | **INTERNATIONAL  MULTIFOODS CORPORATION** |
|---------------------------|-------------------------------------------|
|                      |                                      |   |
|                      |                                      |   |
| Date:  July  3, 2002 | By                                        | /s/ John E. Byom |
|                      |                                      | John E. Byom |
|                      |                                      | Vice President, Finance, and Chief Financial Officer |
|                      |                                      | *(Principal  Financial Office**and  Duly Authorized Officer)* |

 

 

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**EXHIBIT INDEX**

 

 

11.           Computation of Earnings (loss) perCommon Share.

 

12.                                 Computation of Ratio of Earnings to FixedCharges.

 

 

 

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