-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UrhU0Sm5Pxmu8Fhx8yn+Voxcs8RBrqgj5VxTa2wQ+znTSFwJ+8XKlIgjXrd/6xtv 1gpQqY6vhymWBzrxVfQZBA== 0000310142-99-000004.txt : 19990517 0000310142-99-000004.hdr.sgml : 19990517 ACCESSION NUMBER: 0000310142-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL FOODS CORP CENTRAL INDEX KEY: 0000310142 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 390561070 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07626 FILM NUMBER: 99621822 BUSINESS ADDRESS: STREET 1: 433 EAST MICHIGAN ST CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142716755 MAIL ADDRESS: STREET 1: PO BOX 737 CITY: MILWAUKEE STATE: WI ZIP: 53201 10-Q 1 ======================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 1999 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-7626 ------ UNIVERSAL FOODS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Wisconsin 39-0561070 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 433 East Michigan Street, Milwaukee, Wisconsin 53202 ----------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (414) 271-6755 ---------------- NONE - --------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date. Class Outstanding at April 30, 1999 - --------------------------------------- ----------------------------- Common Stock, par value $0.10 per share 50,268,527 shares ======================================================================= UNIVERSAL FOODS CORPORATION INDEX Page No. ------- PART I, FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Condensed Balance Sheets - March 31, 1999 and September 30, 1998. 1 Consolidated Condensed Statements of Earnings - Three and Six Months Ended March 31, 1999 and 1998. 2 Consolidated Condensed Statements of Cash Flows - Three and Six Months Ended March 31, 1999 and 1998. 3 Notes to Consolidated Condensed Financial Statements. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk 9 PART II, OTHER INFORMATION: Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K. 10 Signatures. 11 Exhibit Index. 12
PART I FINANCIAL INFORMATION UNIVERSAL FOODS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands) March 31 September 30 ASSETS 1999 1998 ------ -------- -------- CURRENT ASSETS: Cash and cash equivalents $ 8,848 $ 1,632 Trade accounts receivable 127,271 121,833 Inventory: Finished and in-process products 136,389 145,135 Raw materials and supplies 65,741 51,954 Prepaid expenses and other current assets 44,520 37,201 -------- -------- TOTAL CURRENT ASSETS 382,769 357,755 INVESTMENTS AND OTHER ASSETS 65,633 60,885 INTANGIBLES 235,018 217,007 PROPERTY, PLANT AND EQUIPMENT: Cost: Land and buildings 160,661 155,685 Machinery and equipment 477,809 469,915 -------- -------- 638,470 625,600 Less accumulated depreciation 280,704 270,021 -------- -------- 357,766 355,579 -------- -------- TOTAL ASSETS $1,041,186 $991,226 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term borrowings $ 19,679 $42,773 Accounts payable and accrued expenses 112,519 122,297 Salaries, wages and withholdings from employees 14,068 15,744 Income taxes 28,387 22,066 Current maturities of long-term debt 6,868 6,940 -------- -------- TOTAL CURRENT LIABILITIES 181,521 209,820 DEFERRED INCOME TAXES 25,336 25,489 OTHER DEFERRED LIABILITIES 20,496 22,619 ACCRUED EMPLOYEE AND RETIREE BENEFITS 35,840 36,065 LONG-TERM DEBT 372,358 291,588 SHAREHOLDERS' EQUITY Common stock 5,396 5,396 Additional paid-in capital 74,657 74,663 Earnings reinvested in the business 439,343 416,949 -------- -------- 519,396 497,008 Less:Treasury stock, at cost 72,777 51,979 Accumulated other comprehensive income 39,650 37,845 Other 1,334 1,539 -------- -------- 405,635 405,645 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,041,186 $991,226 ========= ========= See accompanying notes to Consolidated Condensed Financial Statements.
-1- UNIVERSAL FOODS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (In Thousands Except Per Share Amounts) Three Months Six Months Ended March 31 Ended March 31 ------------------ ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Revenue $219,914 $205,015 $437,449 $413,904 Cost of products sold 143,777 132,574 285,624 269,581 Selling and administrative expenses 41,152 40,815 85,631 84,417 -------- -------- -------- -------- Operating income 34,985 31,626 66,194 59,906 Interest expense 6,149 5,508 11,906 10,474 -------- -------- -------- -------- Earnings before income taxes 28,836 26,118 54,288 49,432 Income taxes 9,804 8,764 18,381 16,807 -------- -------- -------- -------- Net earnings $19,032 $17,354 $35,907 $ 32,625 ======== ======== ======== ======== Average number of common shares outstanding: Basic 50,678 51,158 50,858 51,069 ====== ====== ====== ====== Diluted 51,278 51,902 51,507 51,724 ====== ====== ====== ====== Net earnings per common share: Basic $ .38 $ .34 $ .71 $ .64 ====== ====== ====== ====== Diluted $ .37 $ .33 $ .70 $ .63 ====== ====== ====== ====== Dividends per common share $.1325 $.1325 $ .265 $ .265 ====== ====== ====== ====== See accompanying notes to Consolidated Condensed Financial Statements.
-2- UNIVERSAL FOODS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) Six Months Ended March 31 -------------------- 1999 1998 ---- ---- Net cash provided by operating activities $31,959 $20,774 Cash flows from investing activities: Acquisition of property, plant and equipment (21,266) (29,160) Acquisition of new businesses (net of cash acquired) (23,381) (24,800) Other items, net (1,973) (3,674) --------- --------- Net cash used in investing activities (46,620) (57,634) Cash flows from financing activities: Proceeds from additional borrowings 155,715 51,781 Reduction in debt (100,549) (934) Purchase of treasury stock (22,242) (7,556) Dividends (13,513) (13,530) Proceeds from options exercised and other 2,477 7,599 --------- --------- Net cash provided by financing activities 21,888 37,360 Effect of exchange rate changes on cash and cash equivalents (11) (38) Net increase in cash and cash equivalents 7,216 462 Cash and cash equivalents at beginning of period 1,632 1,258 --------- --------- Cash and cash equivalents at end of period $8,848 $1,720 ========= ========= Cash paid during the period for: Interest $11,488 $10,474 Income taxes 11,392 16,369 See accompanying notes to Consolidated Condensed Financial Statements.
-3- UNIVERSAL FOODS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 1999 and September 30, 1998 and the results of operations for the three and six month periods ended March 31, 1999 and 1998 and cash flows for the six month periods ended March 31, 1999 and 1998. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full fiscal year. 2. Refer to the footnotes in the Company's annual financial statements for the year ended September 30, 1998, for a description of the accounting policies, which have been continued without change (except as discussed in Note 6), and additional details of the Company's financial condition. The details in those notes have not changed except as a result of normal transactions in the interim. 3. Expenses are charged to operations in the year incurred. However, for interim reporting purposes, certain of these expenses are charged to operations based on an estimate rather than as expenses are actually incurred. 4. During the six months ended March 31, 1999 and 1998, the Company repurchased 1,084,000 and 180,111 shares of common stock for an aggregate price of $24,344,794 and $7,556,000, respectively. 5. For the six months ended March 31, 1999, depreciation and amortization were $21,469,000 and $3,431,000, respectively. For the six months ended March 31, 1998, depreciation and amortization were $18,970,000 and $2,940,000, respectively. 6. In the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which establishes standards for reporting comprehensive income in financial statements. Comprehensive income includes all changes in equity during a period except those resulting from investments by or distributions to stockholders. The adoption of this statement had no impact on net earnings. Comprehensive income for all periods presented consists of net earnings and foreign currency translation adjustments. The Company deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting the investment in a foreign currency to U.S. dollars. There are no reclassification adjustments to be reported. The components of comprehensive income for the periods presented are as follows (in thousands): Three Months Six Months Ended March 31 Ended March 31 ----------------- ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Net earnings $19,032 $17,354 $35,907 $32,625 Other comprehensive income (loss): Foreign currency translation adjustment (2,523) (1,450) (1,805) (5,847) -------- -------- -------- -------- Comprehensive income $16,509 $15,904 $34,102 $26,778 ======== ======== ======== ========
7. The Financial Accounting Standards Board has issued statement No. 131 "Disclosures about Segments of an Enterprise and Related Information." This statement is effective for the Company in fiscal 1999 but does not require interim disclosure in the year of adoption. The Company is currently evaluating the impact of this new pronouncement. -4- 8. During the second quarter, the Company acquired for cash Les Colorants Wackherr located in Paris, France, and certain assets of Quimica Universal located in Lima, Peru. Les Colorants Wackherr formulates and produces colors for major cosmetic houses throughout Europe, Asia and North America. Quimica Universal specializes in the production of carminic acid and annatto, natural colors used in food and other applications. The two companies have annual combined revenues of approximately $18 million. 9. On March 25, 1999, the Company issued $150,000,000 of Notes due April 1, 2009, with an annual stated interest rate of 6.50%. The Notes are unsecured and pay interest semi-annually on April 1 and October 1 of each year. 10.On April 19, 1999, the Company acquired Pointing Holdings, Ltd., a manufacturer of food colors, flavors and specialty chemicals headquartered in the United Kingdom. Annual revenue is approximately $43 million with 60% of sales from Europe and the remaining 40% in North America, South America and Australia. The purchase price was paid with a combination of cash, notes and the assumption of debt. -5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Revenue for the three and six months ended March 31, 1999 was $219,914,000 and $437,449,000, respectively, compared with $205,015,000 and $413,904,000 a year ago. Revenue for the three months ended March 31, 1999 increased by 7.3% as all divisions recorded increases over the prior year. The Color division, up 14.3%, achieved gains in domestic volumes along with increased international sales which benefited from recent acquisitions. The Flavor division revenue increased 7.6% as a result of strong domestic sales. For the six months ended March 31, 1999, all divisions reported revenue increases from last year resulting in an overall 5.7% increase in revenue. Gross profit margins were 34.6% for the second quarter of fiscal 1999 compared with 35.3% for the same period last year. For the first six months, gross profit margins were 34.7% compared to 34.9% during the same period last year. The decrease in gross margins resulted primarily from higher raw material and processing costs of garlic products in the Dehydrated division and product mix in the other divisions. Selling and administrative expenses decreased to 18.7% of revenue during the second quarter from 19.9% during the same period last year. For the first six months of fiscal 1999, selling and administrative expenses decreased to 19.6% of revenue from 20.4% last year. The benefits from business and plant consolidations continue to favorably impact selling and administrative expenses. Interest expense in the second quarter increased to $6,149,000 from $5,508,000 in the same period last year. Interest expense was $11,906,000 and $10,474,000 for the six months ended March 31, 1999 and 1998, respectively. The increase in interest expense is the result of additional debt outstanding to fund acquisitions. FINANCIAL CONDITION: The current ratio increased to 2.1 at March 31, 1999 from 1.7 at September 30, 1998. Net working capital increased $53,313,000 from September 30, 1998 to $201,248,000 at March 31, 1999. The increase in net working capital is primarily due to the reduction in short-term borrowings as a result of their refinancing in connection with the issuance of the Notes. Net cash provided by operating activities was $31,959,000 for the six months ended March 31, 1999, compared to $20,774,000 for the six months ended March 31, 1998. The increase in cash provided by operating activities in fiscal 1999 was primarily due to higher earnings and depreciation and amortization combined with lower income tax payments and benefit plan contributions. Net cash used in investing activities was $46,620,000 for the six months ended March 31, 1999 compared with $57,634,000 in fiscal 1998. The majority of the decrease was caused by the timing of capital expenditure projects in fiscal 1999. Net cash provided by financing activities was $21,888,000 for the six months ended March 31, 1999 compared with $37,360,000 last year. Proceeds from the issuance of $150,000,000 of Notes were used to reduce short-term borrowings which were previously incurred to fund acquisitions and capital expenditures and for general corporate purposes. Dividends of $13,513,000 and $13,530,000 were paid during the first six months of fiscal 1999 and 1998, respectively. -6- YEAR 2000: With the new millennium approaching, organizations are examining their installed computer systems, network elements, software applications, and other business systems to ensure that they are Year 2000 ("Y2K") compliant. This issue occurs because many computers and computer applications define the year using only the last two digits. The assumption is that the first two digits are always 19. Therefore, the year 2000 would be stored as "00" and could be mistakenly identified as 1900 by the computer. This mistake could lead to errors in calculations, comparisons, and the sorting of data. If not remedied, the potential risks to the Company range from minor business interruptions to, in the worst-case scenario, a complete shutdown of various operations. The Company has developed a comprehensive Project Plan ("the Plan") for addressing the Y2K issue. The Plan includes the following components: 1) Vendor and system surveys, including an assessment of Company systems, applications, and business-critical third-party systems; 2) Development of action plans to remedy business critical, non-compliant systems; 3) Implementation of those action plans; 4) System testing using multiple critical dates; 5) Creation of Y2K rollover and contingency plans; 6) Implementation of the Y2K rollover and contingency plans; and 7) Post Y2K strategies. The Company is implementing the Plan primarily using internal personnel. The Company has engaged certain outside consultants with recognized expertise in assessing and dealing with Y2K needs to assist in the management of the Plan. Each division is responsible for identifying and fixing the problems within its operations. Plan coordination is being overseen by the Corporate executive staff and the Board of Directors. To date, key financial, operational, and informational systems, including equipment with embedded microprocessors, have been inventoried and assessed. Detailed plans have been developed, and implementation of those plans has occurred or is occurring. System implementation at the Company has included upgrading system code and/or replacing hardware, and upgrading or replacing current systems. The Plan also includes an evaluation of the Company's communication systems, security systems and other non-IT systems for purposes of determining whether Y2K issues exist. Since most of the business critical systems at Universal Foods have been purchased from third party vendors, the majority of remedies have been through upgrades. When available, written certifications of Y2K compliance for these systems are being obtained. Because of the nature of action plan implementation and system testing, system testing activities will overlap implementation activities. System testing has begun at many of the divisions. All business critical systems as well as all interfaces between the various systems will be tested. Once a system has been tested, no upgrades or modifications will be made to that system until after March 2000. It is expected that Y2K testing will be substantially completed by September 1999. The creation of rollover and contingency plans began in March 1999 and is expected to be completed by July 1999. The purpose of the rollover and contingency plans will be to reduce or mitigate the risk to the Company from Y2K factors beyond the Company's control. The Company has also explored with vendors the impact that the Y2K issue will have on their ability to source products for the Company. Major suppliers of raw materials and other goods and services have been sent a questionnaire regarding their Y2K compliance and their plans to be Y2K compliant. If it is determined that a critical vendor is not adequately addressing the Y2K issue, a contingency plan for that vendor has been or will be developed. -7- The engagement of outside consultants to assist with software remediation and project management has not been and is not expected to be material. During fiscal year 1999, the Company estimates that it will incur capital expenditures of approximately $10.0 million as a result of accelerating the rollout of computer operating systems and the replacement of non-compliant process control systems in various plants. In addition, the Company estimates that during 1999, approximately 30% of its Information Technology ("IT") personnel will be dedicated to implementation of the Company's Plan. The foregoing allocation of resources is not expected to significantly impact other IT projects as many of the planned and in process projects are normal business system migrations that upgrade and improve the Company's current systems in addition to resolving the Y2K issues. The Company believes it is taking reasonable steps which, when fully implemented, will prevent major business interruptions and will minimize the Company's risk of exposure to liability to third parties due to Y2K issues. There can be no assurance, however, that the Company will be successful in its efforts. Further, the costs of the Company's efforts to address Y2K issues and the dates on which the Company believes it will complete the Plan described above are based upon management's best estimates. There can be no assurance that these estimates will prove to be accurate, and the actual cost and progress on these projects could differ materially from those currently anticipated. At the present time, the Company does not expect Y2K issues to have a material effect on the Company's results of operations, liquidity or financial condition. The Company believes the decentralized environment of the Company's information systems reduces its overall risk of noncompliance with Y2K issues. The effect, if any, on the Company's results of operations if the Company's customers or its suppliers are not fully Y2K compliant is not reasonably estimable and, therefore, the Company is unable to predict and thus describe its most likely worst case Y2K scenario. -8- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risk during the six months ended March 31, 1999. For additional information on market risk, refer to pages 14 and 15 of the Company's 1998 Annual Report. FORWARD-LOOKING INFORMATION This document contains forward-looking statements that reflect management's current assumptions and estimates of future economic circumstances, industry conditions, Company performance and financial results, and Year 2000 compliance. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that could cause actual events to differ materially from those expressed in those statements. A variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results. These factors and assumptions include the pace and nature of new product introductions by the Company's customers; execution of the Company's acquisition program; industry and economic factors related to the Company's domestic and international business; the timely resolution of the Year 2000 issue by the Company and its customers and suppliers; and the outcome of various productivity-improvement and cost-reduction efforts. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. -9- PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The information responsive to this item was provided in, and is incorporated by reference from the Company's quarterly report on Form 10-Q for the quarter ended December 31, 1998, filed on February 12, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 Financial Data Schedule (b) A report on Form 8-K dated March 24, 1999, was filed on March 25, 1999, in connection with the Company's issuance of its 6.50% Notes due April 1, 2009. -10- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNIVERSAL FOODS CORPORATION Date: May 14, 1999 By: /s/ John L. Hammond --------------------------------------- John L. Hammond, Vice President, Secretary and General Counsel Date: May 14, 1999 By: /s/ Michael L. Hennen --------------------------------------- Michael L. Hennen, Corporate Controller -11- UNIVERSAL FOODS CORPORATION EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 Exhibit Incorporated by Filed Number Description Reference From Herewith - ------- ------------------- -------------------- -------- 3.1 Universal Foods Exhibit A to the Corporation Amended and Registrant's Restated Articles of Definitive Proxy Incorporation adopted Statement filed on January 21, 1998 Schedule 14A on December 15, 1998 (Commission File No. 1-7626) 3.2 Universal Foods Exhibit 3.2 to Annual Corporation Restated Report on Form 10-K Bylaws for the fiscal year ended September 30, 1995 (Commission File No. 1-7626) 4.1 Rights Agreement dated Exhibit 1.1 to as of August 6, 1998, Registration Statement between Registrant and on Form 8-A dated July Firstar Trust Company 20, 1998 (Commission File No. 1-7626) 4.2 Indenture between Exhibit 4.1 to Registrant and The Registration Statement First National Bank of on Form S-3 dated Chicago, as Trustee, November 9, 1998 relating to the (Commission as Trustee Registrant's 6.50% Notes File 333-67015) due April 1, 2009. 4.3 Pricing Agreement dated Exhibit 99.1 to as of March 22, 1999, Registrant's Current between the Registrant Report on Form 8-K and Goldman, Sachs & dated March 24, 1999 Co., First Chicago and filed March 25, Capital Markets, Inc., 1999 (Commission File and ABN AMRO No. 1-7626) Incorporated relating to the Registrant's 6.50% Notes due April 1, 2009. 10.3 Underwriting Agreement Exhibit 1.1 to dated as of March 22, Registrant's Current 1999, between the Report on Form 8-K Registrant and Goldman, dated March 24, 1999 Sachs & Co., First and filed March 25, Chicago Capital 1999 (Commission File Markets, Inc., and ABN No. 1-7626) AMRO Incorporated 27 Financial Data Schedule X -12- EX-27 2
5 1000 6-MOS SEP-30-1999 MAR-31-1999 8,848 0 132,130 4,859 202,130 382,769 638,470 280,704 1,041,186 181,521 372,358 0 0 5,396 400,239 1,041,186 437,449 437,449 285,624 285,624 0 280 11,906 54,288 18,381 35,907 0 0 0 35,907 0.71 0.70
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