UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5858
UNIVAR CORPORATION
A Delaware I.R.S. Employer
Corporation No. 91-0816142
6100 Carillon Point
Kirkland, Washington 98033
Telephone No. (206) 889-3400
Indicate by a 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 October 1, 1994, the Registrant had outstanding 21,788,691 shares
(excluding treasury shares) of common stock of $0.33-1/3 par value,
which is the Registrant's only class of common stock.
UNIVAR CORPORATION and Subsidiaries
INDEX TO FORM 10-Q
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
August 31, 1994 and February 28, 1994 3
Consolidated Statements of Operations
Three and Six Months Ended August 31, 1994 and 1993 4
Condensed Consolidated Statements of Cash Flows
Three and Six Months Ended August 31, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
UNIVAR CORPORATION and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited) (See Notes)
(000's) August 31, 1994 February 28, 1994
Assets
Current Assets:
Cash and cash equivalents $ 20,506 $ 15,530
Receivables - net 261,051 226,600
Inventories 133,240 125,638
Other current assets 17,565 9,486
-------- -------
Total current assets 432,362 377,254
Real Properties Held for
Sale and Long Term Receivables 28,964 29,590
Property, Plant and
Equipment - net 204,960 217,200
Other Assets 27,574 28,649
------- -------
$693,860 $652,693
======== ========
Liabilities and Shareholders'
Equity
Current Liabilities:
Bank overdrafts $ 12,314 $ 22,666
Notes payable 38,081 23,331
Current portion of long-
term debt 7,182 7,296
Accounts payable 233,096 201,857
Accrued liabilities 58,597 38,559
-------- --------
Total current liabilities 349,270 293,709
Long-term Debt 112,142 147,058
Other Long-term Liabilities 54,369 53,136
Minority Interest 2,022 1,385
Shareholders' Equity
Common stock 8,006 7,339
Additional paid-in capital 107,505 69,797
Retained earnings 76,356 97,060
Cumulative translation
adjustment -5,724 -6,961
Treasury stock -9,116 -9,610
Deferred stock compensation
expense -970 -220
-------- --------
Total shareholders' equity 176,057 157,405
-------- --------
$693,860 $652,693
======== ========
UNIVAR CORPORATION and Subsidiaries
Consolidated Statements of Operations (Unaudited) (See Notes)
Three Months Ended Six Months Ended
August 31, August 31,
(000's except per share data) 1994 1993 1994 1993
Sales $496,820 $474,118 $1,000,155 $962,069
Cost of Sales 426,893 404,096 858,968 821,649
-------- -------- ---------- --------
Gross Margin 69,927 70,022 141,187 140,420
Gross Margin Percentage 14.1% 14.8% 14.1% 14.6%
Operating Expenses 62,720 63,088 123,772 125,068
Reengineering Costs 33,289 - 36,756 -
-------- -------- ---------- --------
(Loss) Income from
Operations -26,082 6,934 -19,341 15,352
Other Income (Expense):
Interest expense -2,974 -3,367 -5,915 -6,887
Other income-net -23 156 27 447
-------- -------- ---------- --------
(Loss) Income before provision
for Taxes on Income and
Minority Interest -29,079 3,723 -25,229 8,912
(Benefit of) Provision for
Taxes on Income -10,307 1,670 -8,339 3,390
-------- -------- ---------- --------
(Loss) Income before Minority
Interest -18,772 2,053 -16,890 5,522
Minority Interest in Univar
Europe 322 96 708 292
-------- -------- ---------- --------
Net (Loss) Income $-19,094 $ 1,957 $- 17,598 $5,230
-------- -------- ---------- --------
Net (Loss) Income per Share $ -0.88 $ 0.10 $ -0.84 $ 0.27
-------- -------- ---------- -------
Dividends Paid per Share $ 0.08 $ 0.15 $ 0.23 $ 0.23
-------- -------- ---------- --------
Weighted Average Number of
Shares Outstanding 21,752 19,695 20,906 19,682
======== ======== ========= ========
UNIVAR CORPORATION and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) (See Notes)
Three Months Ended Six Months Ended
August 31, August 31,
(000's except per share data) 1994 1993 1994 1993
Cash Flows Provided (Used)
by Operating Activities:
Net (Loss) Income $-19,094 $ 1,957 $- 17,597 $ 5,230
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Depreciation and
amortization 6,954 6,890 13,824 13,683
Non-cash portion of re-
engineering accrual 18,629 0 18,629 0
Other - net 1,028 -669 2,553 -16
Changes in assets and liabilities:
Accounts receivable 20,728 15,846 -29,935 -10,312
Inventories 5,081 19,373 - 5,943 6,143
Accounts payable -29,576 -34,839 19,725 -3,542
Other current assets -1,984 -348 -1,697 7,271
Other current liabilities 4,805 -10,114 4,639 2,316
-------- -------- ---------- --------
Net Cash Provided (Used) by
Operating Activities 6,571 - 1,904 4,198 20,773
-------- -------- ---------- --------
Cash Flows Used by Investing
Activities:
Proceeds from investments 305 620 626 821
Additions to property, plant
and equipment -4,041 -4,961 -8,284 -7,536
Changes in other assets -54 -134 44 -354
-------- -------- ---------- --------
Net Cash Used by Investing
Activities -3,790 -4,475 -7,614 -7,069
-------- -------- ---------- --------
Cash Flows Provided (Used)
by Financing Activities:
Short-term borrowings-net 7,526 70 12,726 -12,762
Common stock activity -111 33 37,321 218
Long-term debt incurred 0 0 250 10,000
Reduction in long-term
debt -9,828 -2,120 -38,125 -26,027
Payment of dividends -1,633 -2,945 -4,580 -4,417
-------- -------- ---------- --------
Net Cash Provided (Used) by
Financing Activities -4,046 -4,962 7,592 -32,988
-------- -------- ---------- --------
Effect of Exchange Rate
Changes on Cash 675 -586 800 -770
-------- -------- ---------- --------
Net Cash Provided (Used) -590 -11,927 4,976 -20,054
Cash and Cash Equivalents
at Beginning of Period 21,096 21,389 15,530 29,516
-------- -------- ---------- --------
Cash and Cash Equivalents
at End of Period $ 20,506 $ 9,462 $ 20,506 $ 9,462
======== ======== ========== ========
UNIVAR CORPORATION and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of presentation
The accompanying unaudited condensed consolidated financial
statements were prepared in accordance with generally accepted
accounting principles for interim financial information pursuant to
the rules and regulations of the Securities and Exchange Commission
and instructions to Form 10-Q. While these statements reflect all
adjustments (which consist of normal recurring accruals) which are,
in the opinion of management, necessary to a fair presentation of the
results for the interim periods presented, they do not include all of
the information and disclosures required by generally accepted
accounting principles for complete financial statements. These
statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report of the
Registrant for the fiscal year ended February 28, 1994, and filed as
Item 8 to Form 10-K, Commission File No. 1-5858.
Results of operations for interim periods are not necessarily
indicative of the results that may be expected for the year ending
February 28, 1995.
2. LIFO inventory
The LIFO method of pricing is used for approximately 65% of the
Registrant's inventory. Because an actual valuation of inventory
under the LIFO method can be made only at the end of each fiscal year
based on the inventory levels and costs at that time, interim
financial results are based on estimated LIFO adjustments and are
subject to final fiscal year-end LIFO inventory amounts.
3. Reengineering charges
Beginning in the second quarter of fiscal 1994, the Corporation
began work on a strategic business transformation of the U.S.
operating company. The project began with an analysis of all aspects
of services provided, customer profitability, logistics network
design and information systems effectiveness. As a result of this
effort, at the end of the second quarter of fiscal 1995, the
Corporation announced its plans to reorganize the U.S. company,
redesign its distribution network, develop a national procurement and
materials management strategy, increase sales force efficiency,
improve gross margins, and reduce the amount of capital required to
conduct ongoing operations.
UNIVAR CORPORATION and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
continued
During the first six months of fiscal 1995, the Corporation
recorded pretax reengineering charges of $36.8 million, which were
necessitated by the following factors:
Millions
Pretax After-tax
Costs of reorganizing the U.S. company to a
process-based structure, eliminating up to 2
layers of management, and redesign of the
company's distribution network, including
severance, other employee benefits and facility
closure costs. $16.5 $10.3
Write-down (non-cash) to fair value of certain
facilities resulting from the decision to
implement the new logistics system. 10.4 6.4
Consultant fees and project travel costs
incurred 9.9 6.1
----- -----
$36.8 $22.8
===== =====
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
During the past year, management's major focus has been to develop a plan
for achieving strategic transformation of the business operations in the
U.S. operating company, with the objective of dramatically enhancing
prospects for improved overall financial performance. As a result of this
effort, the Corporation announced at its annual shareholders' meeting, on
August 25, 1994, a comprehensive, after tax charge of $18.6 million, in
connection with an ongoing U.S. reengineering project. Prior to this
accrual, reengineering costs of $2.0 million, net of tax, were incurred
during the quarter, bringing the total for the quarter to $20.6 million,
or $0.95 per share. Excluding reengineering charges, earnings for the
quarter were $1.5 million or $0.07 per share compared with earnings of
$2.0 million or $0.10 per share, during the second quarter last year.
The Corporation continued to experience sales growth during the second
quarter in both its U.S. and foreign operations. Sales totaled $496.8
million, up 4.8% compared with sales of $474.1 million in the second
quarter last year. Real sales growth in each of the Corporation's
continuing markets continues to be significantly stronger than reported.
In the United States, sales for the quarter increased by more than 5%,
exclusive of the impact of selling our textile chemicals business which
was divested at the end of the second quarter last year, and exclusive of
chlorinated fluorocarbon and chlorinated solvent sales, which have
declined as a result of legislated obsolescence. Canadian sales, measured
in local currency, increased more than 30%. While a third of this
substantial growth is attributable to an acquisition completed at the end
of the prior year, the remaining increase reflects real growth in both
industrial and agricultural chemical sales, spurred on by economic growth.
European sales, when measured in local currencies, grew by 6%, reflecting
signs of economic recovery in most of our European markets.
The substantial continuing real growth in Canadian and European sales was
partially offset by unfavorable currency fluctuations. Compared with the
second quarter last year, the Canadian dollar dropped approximately 8%
against the U.S. dollar and the combination of European currencies in the
markets served by Univar Europe dropped approximately 2%.
On a consolidated basis, gross margin percentage was 14.1% for the
quarter, down from 14.8% in the second quarter last year. While European
margin percentage continued to improve, margin percentage is down in the
United States, due to inventory product price increases which resulted in
an increase in the LIFO reserve, and higher volumes of lower margin
products. Additionally, the prior year quarter included the subsequently
divested textile chemicals business, which carried higher margins. Margin
percentage decreased in Canada, where the impact of continuing record
agricultural chemical sales, which carry a lower gross margin percentage,
was the primary factor. For the first six months this year, gross margin
percentage was 14.1%, compared with 14.6% from the first six months of the
prior year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued
Operating expenses, including reengineering costs of $33.3 million,
totaled $96.0 million. Operating expenses, exclusive of reengineering
costs, decreased to $62.7 million, or 12.6 % of sales, compared with $63.1
million, or 13.3% of sales during the second quarter last year. The
decrease occurred across all markets and is the combined result of
continuing success from the
Corporation's cost containment programs and divestiture of the textile
chemicals business. For the first six months this year, operating
expenses, including reengineering costs of $36.8 million, totaled $160.5
million. Operating expenses, exclusive of reengineering costs, decreased
to $123.8 million, or 12.4 % of sales, compared with $125.1 million, or
13.0% of sales during the first six months last year.
Beginning in the second quarter of fiscal 1994, the Corporation began work
on a strategic business transformation of the U.S. operating company. The
project began with an analysis of all aspects of services provided,
customer profitability, logistic network design and information systems
effectiveness. As a result of this effort, at the end of the second
quarter this year, the Corporation announced its plans to reorganize the
U.S. company, redesign its distribution network, develop a national
procurement and materials management strategy, increase sales force
efficiency, improve gross margins, and reduce the amount of capital
required to conduct ongoing operations. Reengineering charges totaled
$33.3 million pre-tax for the second quarter, and $36.8 million pre-tax
for the first six months of fiscal 1995. The non cash portion of this
charge totals $10.4 million pertaining to asset write-downs. Pre-tax cash
costs total $26.4 million of which $3.3 million and $6.7 million were
expended during the second quarter and first six months of fiscal 1995,
respectively. The remainder will be expended over the next 36 months. Cash
costs include professional fees incurred; the expected costs of facility
consolidations; asset retirements; and employee separations, relocations
and related costs. Implementation of a newly designed logistics system
will enable the Corporation to convert nearly half of the 100 plus full
service facilities in the U.S. to service points, with reduced staffing
and inventory. As operational efficiency increases over the next 12 to 24
months, the Corporation anticipates a reduction of approximately 500 jobs
in the U.S. The benefits to be realized following implementation of these
reengineering actions are anticipated to yield an annual increase at a
rate in excess of $30 million in pre-tax income.
The Corporation is involved in certain elective and required environmental
programs. The following table shows additions to and expenditures charged
against the Corporation's environmental accruals for the current and prior
year comparable quarters and first six months:
Quarter ended Six months ended
Aug. 31, Aug. 31,
(millions) 1994 1993 1994 1993
Beginning $16.3 $15.0 $15.5 $15.4
balance
Expense 1.7 1.0 3.2 2.0
provisions
Expenditures (1.1) (1.0) (1.8) (2.2)
----- ----- ----- -----
Ending balance $16.9 $15.0 $16.9 $15.0
===== ===== ===== =====
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued
The Corporation provided a tax benefit for the quarter at an effective
rate of 35.4% compared with tax expense at an effective rate of 44.8 % for
the second quarter last year. The effective tax rate for the Corporation
varies from period to period primarily as a result of changes in the
proportion of taxable income earned in Canada where the effective tax rate
is 43.5%. Additional factors which increase the tax expense provision
rate while decreasing the tax benefit rate include operating losses and
goodwill amortization in certain foreign countries for which no tax
benefit is available.
Liquidity and Capital Resources
Working capital at the end of the second quarter was $83.1 million, not
significantly changed from $83.5 million at the prior year-end. Over the
same period, the current ratio decreased to 1.24:1 compared with 1.28:1.
The changes in working capital and current ratios are due in part to
seasonal fluctuations in working capital components related to
agricultural sales and to accruals related to the reengineering charge.
Cash flow provided by operations totaled $6.6 million for the quarter,
compared with cash used by operations totaling $1.9 million for the second
quarter last year. For the first six months this year, cash provided by
operations totaled $4.2 million compared with $20.8 million for the first
six months last year. The increase in cash flow for the quarter is
consistent with the seasonal pattern of agricultural sales, combined with
the increase in these sales. The decrease for the first six months
reflects a combination of the cash impact of reengineering costs, totaling
approximately $4.1 million, added to the cost of changes in components of
working capital necessitated by the addition of new agricultural business.
The Corporation has domestic and foreign short-term credit lines totaling
$85.6, of which $47.5 million was available at quarter-end. The
Corporation also has access to funds up to $210 million under a medium-
term revolving credit agreement with a group of banks, of which $150
million was available at quarter end. The Corporation believes its
internally generated cash, together with its access to bank lines, will be
adequate to fund the planned capital expenditures, investments, and to
support its working capital requirements.
On May 13, 1994, the Corporation exercised its unilateral right to put
(sell) 2 million shares of common stock, priced at $18.74 per share, to
The Dow Chemical Company ("Dow"). Proceeds from the sale totaled $37.5
million. Dow now holds 3.9 million shares of common stock representing
approximately 18% of the issued and outstanding shares of Univar. In
addition, Dow and Univar have agreed that, at any time within the three
year period ending May 12, 1997, Univar can put to Dow, or Dow can call,
up to 101,874 shares of Series A Convertible Preferred Stock. The price
per share will be $93.70. Each share of Series A Convertible Preferred
Stock is convertible into five shares of Univar Common Stock. Dow has
agreed that it will pay to Univar $350,000 per year for each of the three
years ending May 12, 1997, in the event Univar does not elect to put, or
Dow does not call, the Series A Convertible Preferred Stock.
(See Note 12 to the financial statements included in the
Corporation's fiscal 1994 annual report on Form 10-K previously filed with
the Securities and Exchange Commission.)
Capital Expenditures
During the second quarter of this fiscal year, additions to property,
plant, and equipment totaled $4.0 million, compared with $5.0 million for
the prior year quarter. Current quarter additions consisted primarily of
normal replacement and upgrading of fixed assets and construction
expenditures for refurbishing warehouse and office facilities. The
Corporation utilized available cash to fund the capital expenditures.
Part II. OTHER INFORMATION
Item 5. Other Information
On September 1, 1994, the Corporation completed its acquisition of the
minority's 49% share of Univar Europe, owned by Pakhoed Investeringen B.V.
The purchase price of $25.8 million was funded using available cash and
credit capacity. On a pro forma basis, including this acquisition,
financial leverage is .92:1 compared with 1.13:1 at year-end and .89:1 at
the end of the second quarter.
Item 6. Exhibits and Reports on Form 8-K
There have been no reports on Form 8-K filed, or required to be filed,
during the quarter for which this report is filed.
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.
UNIVAR CORPORATION
Date: October 12, 1994 By:
James W. Bernard
President and Chief Executive Officer
(Duly Authorized Officer)
Date: October 12, 1994 By:
Gary E. Pruitt
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
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<LEGEND>
The schedule contains summary financial information extracted from
the financial statements for the period ended August 31, 1994 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
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<PERIOD-START> MAR-1-1994
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