-----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, BOlnEJ1s0khjpApizAoeosPEBz1VW4J302MDJ4ouCJKyJkp5RNl4OPsUGiKESc/q KRSXmjsgoR/vL4spFmxmuA== 0000950144-98-007839.txt : 19980629 0000950144-98-007839.hdr.sgml : 19980629 ACCESSION NUMBER: 0000950144-98-007839 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980626 SROS: AMEX SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED FOODS INC CENTRAL INDEX KEY: 0000728258 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FROZEN & PRESERVED FRUIT, VEG & FOOD SPECIALTIES [2030] IRS NUMBER: 741264568 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08574 FILM NUMBER: 98655395 BUSINESS ADDRESS: STREET 1: 10 PICTSWEET DR CITY: BELLS STATE: TN ZIP: 38006 BUSINESS PHONE: 9014227600 MAIL ADDRESS: STREET 1: 10 PICTSWEET DRIVE CITY: BELLS STATE: TN ZIP: 38006 10-Q 1 UNITED FOODS, INC. FORM 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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 MAY 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 1-8574 UNITED FOODS, INC. (Exact name of registrant as specified in its charter) DELAWARE 74-1264568 (State of Incorporation) (I.R.S. Employer Identification No.) TEN PICTSWEET DRIVE, BELLS, TN 38006 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (901) 422-7600 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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- On June 23, 1998, 2,616,139 shares of Class A Common Stock and 4,193,790 shares of Class B Common Stock of United Foods, Inc. were outstanding. ================================================================================ 2 INDEX
PAGE Part I: Financial Information: Item 1: Financial Statements: Balance Sheets 3-4 Statements of Income 5 Statements of Cash Flows 6-7 Notes to Financial Statements 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 Part II: Other Information and Signatures 12
2 3 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS UNITED FOODS, INC. BALANCE SHEETS (DOLLARS IN THOUSANDS)
MAY 31, FEBRUARY 28, 1998 1998 --------- ----------- Unaudited ASSETS Current Assets: Cash $ 3,172 $ 646 Accounts Receivable 15,359 19,263 Inventories (Note 3) 35,271 37,344 Prepaid Expenses and Miscellaneous 3,490 3,935 Deferred Income Taxes (Note 4) 1,249 1,249 --------- --------- Total Current Assets 58,541 62,437 --------- --------- Property and Equipment: Land and Land Improvements 9,968 9,968 Buildings and Leasehold Improvements 21,910 21,399 Machinery, Equipment and Improvements 96,337 94,870 --------- --------- 128,215 126,237 Less Accumulated Depreciation (76,059) (74,151) --------- --------- Net Property and Equipment 52,156 52,086 --------- --------- Other Assets 1,199 1,361 --------- --------- Total Assets $ 111,896 $ 115,884 ========= =========
See accompanying notes to financial statements. 3 4 UNITED FOODS, INC. BALANCE SHEETS (DOLLARS IN THOUSANDS)
MAY 31, FEBRUARY 28, 1998 1998 --------- ----------- Unaudited LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 15,017 $ 12,191 Accruals 6,243 6,594 Income Taxes Payable (Note 4) 61 46 Current Maturities of Long-term Debt 4,366 4,427 --------- --------- Total Current Liabilities 25,687 23,258 Long-term Debt, Less Current Maturities 35,504 42,168 Deferred Income Taxes (Note 4) 4,710 4,710 --------- --------- Total Liabilities 65,901 70,136 --------- --------- Stockholders' Equity: Common Stock, Class A (Notes 5 and 6) 2,616 2,616 Common Stock, Class B, Convertible (Notes 5 and 6) 4,194 4,194 Additional Paid-in Capital 3,993 3,993 Retained Earnings 35,192 34,945 --------- --------- Total Stockholders' Equity 45,995 45,748 --------- --------- Total Liabilities and Stockholders' Equity $ 111,896 $ 115,884 ========= =========
See accompanying notes to financial statements. 4 5 UNITED FOODS, INC. STATEMENTS OF INCOME (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED MAY 31, --------------------------- 1998 1997 ----------- ------------ Net Sales and Services Less Discounts, Returns and and Allowances $ 49,934 $ 46,963 Costs of Sales and Services (Note 3) 40,545 38,085 ----------- ------------ Gross Profit 9,389 8,878 Selling, Administrative and General Expenses 8,101 7,408 ----------- ------------ Operating Income 1,288 1,470 ----------- ------------ Interest Income (Expense) - Net (887) (861) Miscellaneous Income (Expense) - Net -- 41 ----------- ------------ Total Other Income and (Expense) (887) (820) ----------- ------------ Income Before Taxes on Income 401 650 Taxes on Income (Note 4) 154 250 ----------- ------------ Net Income $ 247 $ 400 =========== ============ Weighted Average Common Shares 6,809,929 10,809,929 =========== ============ Basic and Diluted Earnings Per Common Share (Note 6) $ .04 $ .04 =========== ============ Cash Dividends Per Common Share: Class A $-0- $-0- Class B $-0- $-0-
See accompanying notes to financial statements. 5 6 UNITED FOODS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED MAY 31, 1998 1997 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 247 $ 400 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 1,908 1,852 Provision for losses on accounts receivable 47 43 (Gain) on disposal of property and equipment -- (41) Change in assets and liabilities: Accounts and notes receivable 3,857 1,273 Inventories 2,073 (939) Prepaid expenses and miscellaneous 445 1,585 Other assets 162 -- Accounts payable and accruals 2,607 2,992 Income taxes 15 (38) -------- ------- Net cash provided by operations 11,361 7,127 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,110) (1,215) Proceeds from sale of other property and equipment -- 83 -------- ------- Net cash used by investing activities (2,110) (1,132) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 871 238 Payments of long-term debt (7,596) (1,130) -------- ------- Net cash used by financing activities (6,725) (892) -------- ------- NET INCREASE IN CASH FOR THE PERIOD 2,526 5,103 CASH AND CASH EQUIVALENTS, beginning of period 646 3,772 -------- ------- CASH AND CASH EQUIVALENTS, end of period $ 3,172 $ 8,875 ======== =======
See accompanying notes to financial statements. 6 7 UNITED FOODS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) (CONCLUDED) (DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED MAY 31, -------------------- 1998 1997 ---- ---- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the three months for: Interest $888 $871 Income taxes $ 13 $142 NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital expenditures of $96, $228, $14 and $0 are included in accounts payable at May 31, 1998, February 28, 1998, May 31, 1997 and February 28, 1997, respectively
See accompanying notes to financial statements. 7 8 UNITED FOODS, INC. NOTES TO FINANCIAL STATEMENTS 1. The interim financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended February 28, 1998. Significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein. In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly its financial position as of May 31, 1998 and its results of operations and cash flows for the three months ended May 31, 1998 and 1997. 2. The results of operations for the three months ended May 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the fiscal year. 3. Inventories are summarized as follows:
MAY 31, 1998 FEBRUARY 28, 1998 ------------ ----------------- Finished products $28,630,000 $31,607,000 Raw materials 2,143,000 2,303,000 Growing crops 3,438,000 2,644,000 Merchandise and supplies 1,060,000 790,000 ----------- ----------- $35,271,000 $37,344,000 =========== ===========
Substantially all of the Company's inventories are valued at the lower of cost (first-in, first-out) or market at each fiscal year end. However, due to the seasonality of vegetable processing, the gross profit method, at the estimated annual rate, is used to determine frozen vegetable cost of goods sold in interim financial statements. 4. Taxes on income consist of the current and deferred taxes required to be recognized for the periods presented in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". 5. Each Class B common share is convertible into one share of Class A common stock at the holder's election. Holders of the Class A common stock are entitled to a preference dividend of $.025 per share for any quarter and each preceding quarter of the Company's fiscal year before the holders of the Class B common stock are entitled to any regular cash dividend. Class A shareholders have the right to elect a number of directors that equal at least 25% of the members of the board of directors. In addition, on matters requiring the classes to vote together, the Class A holders are entitled to 1/10 vote per share and holders of Class B common stock are entitled to one vote per share. On May 19, 1997, the Company initiated a cash tender offer for up to one million shares of its Class A and Class B Common Stock at a price of $2.50 per share. On June 17, 1997, the Company amended the cash tender offer by extending the Expiration Date to July 3, 1997 and by increasing the number of shares it offered to purchase from 1,000,000 shares of its Class A and Class B Common Stock to up to 2,500,000 shares of its Class A Common Stock and up to 1,500,000 shares of its Class B Common Stock, each at $2.50 per share. A total of approximately 2,641,299 shares of Class A Common Stock and 1,720,932 shares of Class B Common Stock were validly tendered and not withdrawn in response to the offer, as amended. The purchase of shares was prorated in accordance with the terms of the offer, as amended, for each class of common stock. 6. Basic and diluted earnings per share of common stock have been computed based upon the weighted average number of shares outstanding during the three months ended May 31, 1998 and May 31, 1997. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial condition and earnings during the periods included in the accompanying balance sheets and statements of income. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-Q and other reports and statements issued on behalf of the Company may include forward-looking information in reliance on the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to substantial risks and uncertainties, including those discussed below, and actual results may differ materially from those contained in any such forward-looking statement. The review of factors pursuant to the Private Securities Litigation Reform Act of 1995 should not be construed as exhaustive. Further, the Company undertakes no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances. The Company's liquidity, capital resources and results of operations may be affected from time to time by a number of factors and risks, including, but not limited to: trends in the economy as a whole, which may affect consumer confidence and consumer demand for the types of food products sold by the Company; competitive pressures from processors and distributors of fresh, dry, frozen and canned food products which may affect the nature and viability of the Company's business strategy; competitive pressures from imported food products; unpredictable changes in growing conditions inherent in agriculture; other agricultural risks, including those associated with pesticides, herbicides and disease control and crop protection efforts; the Company's ability to maintain and expand the Company's distribution base; the Company's ability to maintain and improve its plants, equipment and technological systems; changes in the Company's customer base as the result of competition and/or consolidation of retail grocery chains; governmental regulation and taxation; availability and cost of labor employed; changes in industry capacity and production; the availability, costs and terms of financing, including the risk of rising interest rates; availability of trade credit and terms with vendors; the Company's use of financial leverage and the potential impact of such leverage on the Company's ability to execute its operating strategies; the ability to maintain gross profit margins; the seasonal nature of the Company's business and the ability of the Company to predict consumer demand as a whole, as well as demand for specific items; costs associated with the storage, shipping, handling and control of inventory; potential adverse publicity for the food industry or certain of the Company's food products; and the ability of the Company and significant third parties with whom it does business to effect conversions to new technological systems, including becoming Year 2000 compliant. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of cash are operations and external committed credit facilities. At May 31, 1998, the Company's revolving credit facilities totaled $21,000,000, of which $18,000,000 was available. The Company's sources of liquidity are expected to meet adequately requirements for the upcoming year and the foreseeable future; however, new financing alternatives are constantly evaluated to determine their practicality and availability in order to provide the Company with sufficient and timely funding at the least possible cost. The $18,000,000 and $3,000,000 revolving credit facilities currently mature in fiscal 2001. One-year extensions of maturity dates of the revolving credit facilities will be considered by the lenders annually. If annual extensions are not granted, the Company will then investigate revolving credit facilities with other lenders and believes it can replace any current revolving credit facility within its remaining 24-month term. In March 1998, the Company entered into a $10,000,000 credit facility for the acquisition of certain handling equipment, rolling stock, vehicles, trailers and composting equipment. The facility is evidenced by a master security agreement with separate loans under the agreement being made for equipment when acquired and with acquired equipment being secured under the terms of the agreement. The loans are amortized using respective estimated equipment lives and bear interest at 160 basis points over the applicable treasury yield. The Company expects to incur total borrowing of approximately $10,000,000 under the agreement during fiscal 1999 and had borrowed a total of $642,000 through May 31, 1998. Operations provided net cash of $11,361,000 during the three months ended May 31, 1998 and $7,127,000 during the same period of the prior year. Changes in accounts receivable resulted in a cash increase of $3,857,000 during the quarter as compared with $1,273,000 during the same period of the prior year. The increase for the current year results primarily from strong sales during February 1998 that were subsequently collected during the first quarter of the current fiscal year. Changes 9 10 in inventories resulted in a cash increase of $2,073,000 during the quarter as compared with using cash of $939,000 during the same period of the prior year. Adverse weather conditions during the first quarter of the current year resulted in less than expected packs; however, the pack shortfall is expected to be made up during the remainder of the current fiscal year. Investing activities used cash of $2,110,000 for the three months ended May 31, 1998 compared with cash used of $1,132,000 during the same period of the prior year, primarily as the result of increased capital expenditures. Financing activities used cash of $6,725,000 for the three months ended May 31, 1998 as compared with cash used of $892,000 during the same period of the prior year. Cash provided by operations was used to reduce borrowings under the Company's revolving credit agreements during the three months ended May 31, 1998. On May 19, 1997, the Company initiated a cash tender offer for up to 1,000,000 shares of its Class A and Class B Common Stock at a price of $2.50 per share. On June 17, 1997, the Company amended the cash tender offer by extending the Expiration Date to July 3, 1997 and by increasing the number of shares it offered to purchase from 1,000,000 shares of its Class A and Class B Common Stock to up to 2,500,000 shares of its Class A Common Stock and up to 1,500,000 shares of its Class B Common Stock, each at a price of $2.50 per share. A total of approximately 2,641,299 shares of Class A Common Stock and approximately 1,720,932 shares of Class B Common Stock were validly tendered and not withdrawn in response to the offer, as amended. The purchases of shares were prorated in accordance with the terms of the offer, as amended, for each class of Common Stock. The purchase, which totaled approximately $10,168,000, including expenses, was funded with borrowings from the Company's revolving credit facilities and available cash. Working capital at May 31, 1998 was $32,854,000, and was $39,179,000 at February 28, 1998. The decrease results primarily from changes in accounts receivable and inventories, previously mentioned. The Company's ratio of debt to equity decreased to 1.43 to 1 at May 31, 1998 from 1.53 to 1 at February 28, 1998, primarily as a result of the decrease in revolving credit borrowings previously mentioned. CAPITAL EXPENDITURES Capital expenditures for fiscal 1999 are estimated to be approximately $16,600,000, which is approximately $8,500,000 more than depreciation expense projected for fiscal 1999. Capital expenditures anticipated for fiscal 1999 include outlays to be funded under the terms of the $10,000,000 credit facility, previously mentioned, as well as for improvements to the Company's plants, equipment and technological systems. These expenditures are expected to be funded from operations and the Company's revolving credit facilities. The Company's capital plan may change from time to time and the actual amount spent may vary materially from amounts anticipated herein. RESULTS OF OPERATIONS OVERVIEW AND TRENDS The Company's product line is made up of agricultural products which are subject to the cyclical conditions and risks inherent in the agricultural industry. The Company bears part of the growing risks and all of the processing and marketing risks of these agricultural products. Weather abnormalities and excess inventories sometimes cause substantial reductions in the annual volume of product processed in the Company's facilities. When this happens, the unit cost of that year's production will increase substantially, resulting in reduced profit margins for one or more years. On the other hand, when bumper crops occur unit costs will decrease but selling prices will, in general, be depressed. The Company is faced with very strong competition in the marketplace from large brand name competitors, private regional U.S. growers and processors, and privately-owned Mexican and Canadian growers and processors. These competitive pressures, coupled with low overall growth, have led to weak market pricing, and a substantial increase in trade spending required for the Company to maintain its market position. These factors have adversely impacted earnings in certain prior periods and, as a result, certain discretionary repair and maintenance projects were deferred to later periods. The Company anticipates that these competitive conditions will continue. The Company believes in order to address the intense competition within its industry, it must improve its operational efficiency, lower its costs, improve its customer service and provide value-added services to its customers. Accordingly, the 10 11 Company intends to continue to invest in maintaining and expanding its distribution base and to make substantial expenditures to maintain and improve its plants, equipment and technological systems. The Company believes these expenditures are necessary to keep its business competitive and will fund such spending during periods when earnings are available. As a result, the Company expects that its future earnings, if any, may be decreased from historical levels. In addition to general inflation and the growing, processing and marketing risks described above, the Company is facing the significant costs associated with governmental regulation, the loss of land and water available for agriculture in California and the increasing competition due to worldwide facilitation of trade. As a result of these factors, the Company's earnings are subject to fluctuations and will continue to be so in the future. The effect on the Company's operations and its ability to withstand the costs of evolving healthcare, OSHA, EPA, taxation and other governmental regulations is unknown. REVENUES Net sales and service revenue increased $2,971,000 (6.3%); sales volume increased 2.1% and the average per pound selling price increased 5.8% for the quarter ended May 31, 1998, as compared with the same period of the prior year. Sales to other food processors decreased $1,081,000 (27.3%); excluding the effect of the decrease in sales to other food processors, sales volume and the average per pound selling price increased 9.6% and 1.1%, respectively, for the quarter ended May 31, 1998, as compared with the same prior year period. Sales allowances increased $1,155,000 (13.7%), primarily as a result of the 9.6% sales volume increase previously mentioned, as well as competitive market conditions and the Company's efforts in maintaining its market position. COST OF SALES AND SERVICES Gross profit increased $511,000 (5.8%) for the quarter ended May 31, 1998, as compared with the same period of the prior year and the gross margin decreased to 18.8% from 18.9%. The increase in gross profit results primarily from margin realized on additional sales volumes, previously mentioned. The gross profit method, at the estimated annual gross profit rate is used to determine frozen vegetable cost of goods sold in interim financial statements (See Note 3 - Notes to Financial Statements). Cost of sales and services increased $2,460,000 (6.5%) for the three months ended May 31, 1998, as compared with the same period of the prior year, primarily as the result of the sales volume increases previously mentioned. SELLING, ADMINISTRATIVE AND GENERAL EXPENSES Selling, general and administrative expenses increased $693,000 (9.4%) for the quarter compared with the same period of the prior year. Storage expense increased $444,000 (21.1%) for the quarter as compared with the same period of the prior year, primarily as the result of repairs to the Company's cold storage facilities. Other selling, general and administrative expenses increased $249,000 (4.7%), primarily as the result of label design costs. INTEREST EXPENSE Interest expense - net increased $26,000 (3.0%) for the quarter ended May 31, 1998, as compared with the prior year, primarily as the result of changes in average borrowings and cash and short term investments. TAXES ON INCOME Taxes on income for the three months ended May 31, 1998 and 1997 consist of current and deferred taxes provided at the estimated effective federal and state tax rates expected to be recognized for the respective periods. (See Note 4 - Notes to Financial Statements.) 11 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (SEC Use Only) (b) Reports on Form 8-K - There were no reports on Form 8-K filed during the three months ended May 31, 1998. 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. UNITED FOODS, INC. Date: June 26, 1998 By: s/ Carl W. Gruenewald, II ------------- ------------------------- Carl W. Gruenewald, II Senior Vice President, Chief Financial Officer & Treasurer 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF UNITED FOODS INC FOR THE THREE MONTHS ENDED MAY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS FEB-28-1999 MAY-31-1998 3,172 0 15,359 0 35,271 58,541 128,215 76,059 111,896 25,687 40,214 0 0 6,810 39,185 111,896 49,934 49,934 40,545 40,545 8,101 47 887 401 154 247 0 0 0 247 .04 .04
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