-----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, J42dUt10xpImIGLwgtLVKEUfLym7A6CZgcefJEkv7+5cXmaVIEDBLRcqHM345gcr Gc5ePzhw8iPQTvMwy4NvuA== 0000310142-99-000001.txt : 19990215 0000310142-99-000001.hdr.sgml : 19990215 ACCESSION NUMBER: 0000310142-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 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: 99536785 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: December 31, 1998 ----------------- OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-7626 ------ 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 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 January 31, 1999 - -------------------------------------- -------------------------------- Common Stock,par value $0.10 per share 50,947,929 shares =============================================================================== UNIVERSAL FOODS CORPORATION INDEX Page No. -------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Condensed Balance Sheets - December 31, 1998 and September 30, 1998. 1 Consolidated Condensed Statements of Earnings - Three Months Ended December 31, 1998 and 1997. 2 Consolidated Condensed Statements of Cash Flows - Three Months Ended December 31, 1998 and 1997. 3 Notes to Consolidated Condensed Financial Statements. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 5 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 7 PART II. OTHER INFORMATION: Item 2. Changes in Securities and Use of Proceeds. 8 Item 4. Submission of Matters to a Vote of Security Holders. 8 Item 6. Exhibits and Reports on Form 8-K. 9 Signatures. 10
PART I FINANCIAL INFORMATION --------------------- UNIVERSAL FOODS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) December 31, 1998 September 30, ASSETS (Unaudited) 1998 ------ ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 408 $ 1,632 Trade accounts receivable 119,117 121,833 Inventories: Finished and in-process products 141,720 145,135 Raw materials and supplies 63,222 51,954 Prepaid expenses and other current assets 39,781 37,201 ------- ------- TOTAL CURRENT ASSETS 364,248 357,755 INVESTMENTS AND OTHER ASSETS 60,834 60,885 INTANGIBLES 217,126 217,007 PROPERTY, PLANT AND EQUIPMENT: Cost: Land and buildings 157,967 155,685 Machinery and equipment 477,292 469,915 ------- ------- 635,259 625,600 Less accumulated depreciation 281,602 270,021 ------- ------- 353,657 355,579 ------- ------- TOTAL ASSETS $ 995,865 $ 991,226 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term borrowings $ 49,428 $ 42,773 Accounts payable and accrued expenses 112,490 122,297 Salaries, wages and withholdings from employees 14,225 15,744 Income taxes 25,770 22,066 Current maturities of long-term debt 6,929 6,940 ------- ------- TOTAL CURRENT LIABILITIES 208,842 209,820 DEFERRED INCOME TAXES 25,397 25,489 OTHER DEFERRED LIABILITIES 21,779 22,619 ACCRUED EMPLOYEE AND RETIREE BENEFITS 35,952 36,065 LONG-TERM DEBT 291,304 291,588 SHAREHOLDERS' EQUITY: Common stock 5,396 5,396 Additional paid-in capital 74,751 74,663 Earnings reinvested in the business 427,055 416,949 ------- ------- 507,202 497,008 Less: Treasury stock, at cost 56,047 51,979 Accumulated other comprehensive income 37,127 37,845 Other 1,437 1,539 ------- ------- TOTAL SHAREHOLDERS' EQUITY 412,591 405,645 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 995,865 $ 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) (Unaudited) Three Months Ended December 31 ------------------------- 1998 1997 ---- ---- Revenue $ 217,535 $ 208,889 Cost of products sold 141,847 137,007 Selling and administrative expenses 44,479 43,602 ------- ------- Operating income 31,209 28,280 Interest expense 5,757 4,966 ------- ------- Earnings before income taxes 25,452 23,314 Income taxes 8,577 8,043 ------- ------- Net earnings $ 16,875 $ 15,271 ======= ======= Average number of common shares outstanding: Basic 51,033 50,982 ======= ======= Diluted 51,732 51,547 ======= ======= Earnings per common share: Basic $.33 $.30 ======= ======= Diluted $.33 $.30 ======= ======= Dividends per common share $.1325 $.1325 ======= ======= See accompanying notes to consolidated condensed financial statements.
-2- UNIVERSAL FOODS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Three Months Ended December 31 ---------------------- 1998 1997 ---- ---- Net cash provided by operating activities $ 14,254 $ 4,785 Cash flows from investing activities: Acquisition of property, plant and equipment (11,243) (14,819) Other items, net 172 (278) -------- -------- Net cash used in investing activities (11,071) (15,097) Cash flows from financing activities: Proceeds from additional borrowings 6,974 32,473 Reduction in debt (535) (8,620) Purchase of treasury stock (6,415) (6,832) Dividends (6,769) (6,753) Proceeds from options exercised and other 2,240 704 -------- -------- Net cash (used in) provided by financing activities (4,505) 10,972 Effect of exchange rate changes on cash and cash equivalents 98 (175) -------- -------- Net (decrease) increase in cash and cash equivalents (1,224) 485 Cash and cash equivalents at beginning of period 1,632 1,258 -------- -------- Cash and cash equivalents at end of period $ 408 $ 1,743 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 7,287 $ 5,956 Income taxes 2,961 9,277 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 unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of December 31, 1998 and September 30, 1998 and the results of operations and cash flows for the three month periods ended December 31, 1998 and 1997. 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 three months ended December 31, 1998 and 1997, the Company repurchased 272,100 and 330,222 shares of common stock for an aggregate price of $6,415,000 and $6,832,000, respectively. 5. For the three months ended December 31, 1998, depreciation and amortization were $10,720,000 and $1,722,000, respectively. For the three months ended December 31, 1997, depreciation and amortization were $9,618,000 and $1,415,000, 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 or shareholders' equity. 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: Three Months Ended --------------------------------------- December 31, 1998 December 31, 1997 ----------------- ----------------- Net earnings $ 16,875,000 $ 15,271,000 Other comprehensive income (loss): Foreign currency translation adj. 718,000 (4,397,000) ----------- ----------- Comprehensive income $ 17,593,000 $ 10,874,000 =========== ===========
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. 8. On January 21, 1999, the Company announced agreements to acquire 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. Both transactions are for cash and are expected to be completed during the second quarter. -4- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Revenue from operations during the three months ended December 31, 1998 increased 4.1% to $217,535,000, compared with $208,889,000 a year ago. The Company reported strong revenue increases in the Flavor division as a result of volume gains in the U.S. combined with revenue from recent acquisitions. The Dehydrated division also reported increased domestic volumes. The Company's revenue gains were partially offset by lower sales in the Color division due to softness in the ink jet ink and synthetic dye businesses. Gross profit margins increased to 34.8% for the first quarter of fiscal 1999 compared with 34.4% for the same period last year primarily due to the improvements in the U.S. market for the Flavor division and lower raw material costs at most divisions. Selling and administrative expenses decreased slightly to 20.4% of revenue during the three months ended December 31, 1998, compared to 20.9% for the same period last year as revenue increases significantly exceeded cost increases in the Flavor and Dehydrated divisions. As a result of higher average borrowings outstanding, interest expense in the first quarter increased to $5,757,000 from $4,966,000 in the same period last year. The increased borrowings were used primarily to fund acquisitions. FINANCIAL CONDITION: The current ratio remained constant at 1.7 at December 31, 1998 and September 30, 1998. Net working capital increased $7,471,000 to $155,406,000 at December 31, 1998 from $147,935,000 at September 30, 1998. Net cash provided by operating activities was $14,254,000 for the quarter ended December 31, 1998, compared to $4,785,000 for the quarter ended December 31, 1997. The increase in cash provided by operating activities in fiscal 1999 was primarily due to higher earnings and depreciation and lower income tax payments. Net cash used in investing activities was $11,071,000 for the three months ended December 31, 1998. Included in investing activities were capital additions of $11,243,000. The capital expenditure program reflects the Company's continuing commitment to maintain and enhance product quality, further automate and upgrade manufacturing processes, and expand the business through internal growth. Net cash used in financing activities was $4,505,000 for the quarter, compared with net cash provided by financing activities of $10,972,000 in the comparable period last year. Proceeds from net borrowings of $6,439,000 were used primarily to fund capital expenditures and purchase treasury stock. Dividends of $6,769,000 and $6,753,000 were paid during the first three months of fiscal 1999 and 1998, respectively. 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. -5- 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 repairing system code, upgrading system code or hardware, and 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 will be 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 will begin 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 identified. 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. -6- 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risk during the first quarter ended December 31, 1998. Even though the Company does business in Latin America, it was not significantly impacted by the recent economic difficulties in that region. 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. -7- PART II ----------------- OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS At the Annual Meeting of Shareholders of Universal Foods Corporation held on January 21, 1999, the shareholders approved the Amended and Restated Articles of Incorporation for Universal Foods Corporation, including an amendment to Section 3.1 thereof increasing the number of authorized shares of common stock from 100,000,000 to 250,000,000. The Amended and Restated Articles of Incorporation, in the form as so approved, were included as Exhibit A to the definitive proxy statement for the Company's Annual Meeting and are incorporated by reference therefrom as an exhibit to this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of Universal Foods Corporation was held on Thursday, January 21, 1999. At the meeting the following matters were voted upon by the Shareholders. Shares totaling 51,161,121 were entitled to vote at the meeting, and 45,118,453 shares (88.2%) were voted. The following persons were elected to a three-year term as Directors of the Company: For Against --------- --------- Richard A. Abdoo 44,326,941 791,512 Alberto Fernandez 44,479,689 638,764 James L. Forbes 44,399,083 719,370 Dr. Carol I. Waslien Ghazaii 44,385,597 732,856 The following person was elected to a two-year term as Director of the Company: For Against --------- --------- Dr. Fergus M. Clydesdale 44,538,524 579,929
Dr. Clydesdale was appointed to the Board of Directors in June, 1998 for a three-year term expiring in 2001, subject to ratification of his appointment by the shareholders at the 1999 Annual Meeting. The following persons continued in office as Directors in accordance with their previous election: Michael E. Batten John F. Bergstrom James A. D. Croft William V. Hickey Kenneth P. Manning Essie Whitelaw The Shareholders approved the Amended and Restated Articles of Incorporation for Universal Foods Corporation, including an amendment to Section 3.1 thereof increasing the number of authorized shares of common stock from 100,000,000 to 250,000,000. See Item 2, above. Of the 51,161,121 shares entitled to vote at the meeting, 26,382,454 shares voted for ratification, 18,174,727 shares voted against ratification and 561,272 shares abstained. The Shareholders also approved an amendment to Section 5.1 of the 1998 Stock Option Plan which adds a limitation on the total number of stock options which may be awarded to any person who is granted options or Restricted Stock under the 1998 Plan over the term of the 1998 Plan. Of the 51,161,121 shares entitled to vote at the meeting, 43,240,211 shares voted for ratification, 1,352,326 shares voted against ratification and 525,916 shares abstained. The Shareholders ratified the appointment of Deloitte & Touche LLP, certified public accountants, as the independent auditors of the Company for fiscal 1999. Of the 51,161,121 shares entitled to vote at the meeting, 44,770,164 shares voted for ratification, 209,088 shares voted against ratification and 139,201 shares abstained. -8- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Filed (a) Exhibit Description Herewith Incorporated by Reference From ------ --------------- --------------- ------------------------------ 3.1 Universal Foods Corporation Exhibit A to the Company's Amended and Restated Definitive Proxy Statement Articles of Incorporation filed on Schedule 14A on adopted January 21,1999 December 15, 1998 (Commission File No.1-7626) 27 Financial Data Schedule. X
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1998. -9- 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: February 12, 1999 By: /s/ John L. Hammond ---------------------------- John L. Hammond, Vice President, Secretary and General Counsel Date: February 12, 1999 By: /s/ Michael L. Hennen ---------------------------- Michael L.Hennen, Corporate Controller -10- EX-27 2
5 1000 3-MOS SEP-30-1999 DEC-31-1998 408 0 124,029 4,912 204,942 364,248 635,259 281,602 995,865 208,842 291,304 0 0 5,396 407,195 995,865 217,535 217,535 141,847 141,847 0 157 5,757 25,452 8,577 16,875 0 0 0 16,875 0.33 0.33
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