SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1994
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
incorporation or organization) Identification No.)
433 East Michigan Street
Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(414) 271-6755
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Name of each exchange
Title of each class on which registered
Common Stock, $.10 par value New York Stock Exchange, Inc.
Associated Common Share Purchase
Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
None
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. X
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock as of December 2, 1994: 26,977,437
shares of Common Stock, $.10 par value, including 898,562 treasury shares.
Aggregate market value of Universal Foods Corporation Common
Stock, excluding treasury shares, held by non-affiliates as of December 2,
1994 was $723,688,781.
Documents Incorporated By Reference
1. Portions of Universal Foods Corporation 1994 Annual Report
to Shareholders (Parts I, II and IV of Form 10-K)
2. Portions of Universal Foods Corporation Notice of Annual
Meeting and Proxy Statement dated December 16, 1994 (Parts II and III of
Form 10-K)
<PAGE>
PART I
ITEM 1. BUSINESS - Food
Universal Foods Corporation (the "Company") was incorporated in 1882
in Wisconsin. Its principal executive offices are located at 433 East
Michigan Street, Milwaukee, Wisconsin 53202, telephone (414) 271-6755.
The Company engages in the international development, manufacture and
distribution of value-added ingredients and ingredient systems to food
products and other items. Principal products of the Company include food,
beverage and dairy flavors; certified and natural colors for foods,
cosmetics and pharmaceuticals; dehydrated vegetable products; a diverse
line of yeast products; and flavor enhancers, secondary flavorings and
other bioproducts. The Company exited the frozen potato business during
Fiscal 1994.
The following material from the Universal Foods Corporation 1994
Annual Report to Shareholders is incorporated by reference:
"Management's Analysis of Operations and Financial Condition" on
Pages 18 through 22.
Note A of Notes to Consolidated Financial Statements - "Summary
of Significant Accounting Policies" on Page 27.
Note I of Notes to Consolidated Financial Statements - "Foreign
Operations" on Page 32.
Description
Flavor
The Company conducts its food flavor business through its wholly-
owned subsidiary Universal Flavor Corporation ("Universal Flavor").
Universal Flavor manufactures and supplies flavors and ingredient systems
to the dairy, food processor and beverage industries worldwide and is a
recognized leader in the dairy and beverage flavor markets. It operates
plants located in Kearny, New Jersey; Amboy, Illinois; Indianapolis,
Indiana; and Fenton, Missouri. Universal Flavor has eleven additional
plants in Canada, Mexico, Belgium, Great Britain, Italy, Spain, Australia,
New Zealand, Hong Kong and the Philippines. Products are sold primarily
through employee sales representatives with some assistance from food
brokers.
Strategic acquisitions have expanded Universal Flavor's product lines
and processing capabilities. In April 1990, the Company acquired the
international flavor business of Felton Worldwide, a subsidiary of
Harrisons and Crosfield, PLC, of Great Britain. This acquisition
strengthened Universal Flavor's position as a major flavor producer in
Great Britain and gave Universal Flavor a larger presence on the European
continent and in the Pacific Rim. In September 1991, the Company acquired
Fantasy Flavors, Inc. Combining Fantasy's product lines with the
Company's existing BlankeBaer operation positions Universal Flavor as the
premier dairy ingredient systems supplier in North America. The January
1992 acquisition of Curt Georgi Imes, S.P.A. brought particular strength
in the Italian bakery and dairy flavor markets, as well as experienced
research and development and sophisticated analytical capabilities. The
January 1994 acquisition of Destillaciones Garcia de la Fuente, S.A.
(DGF), based in Granada, Spain, provided a depth of expertise for
expanding into aroma chemicals and essential oils, both of which are used
to create flavors as well as fragrances. In July 1994, Universal Flavors,
through its international subsidiary, purchased its partner's 51% interest
in Azteca en Ambesco de Mexico. This purchase brought beverages and dairy
flavor technology to the Company's other existing Mexican flavor business.
Color
The Company, through its subsidiary Warner-Jenkinson Company ("W-J"),
is the world's leading manufacturer of certified food colors. It also has
a growing share of the international natural color market. Its products,
sold under such brand names as RED SEAL and SPECTRACOAT, are used by
producers of soft drinks, bakery products, processed foods, confections,
pet foods, alcoholic beverages and pharmaceuticals. W-J is headquartered
in St. Louis, Missouri, the site of its major manufacturing facilities.
Latin American customers are served by W-J de Mexico, S.A. de C.V., a
manufacturing and sales subsidiary located just outside of Mexico City.
W-J Canada (formerly Dyeco Ltd.) operates out of Kingston, Ontario. Other
manufacturing facilities are located in King's Lynn, Norfolk, England;
Amersfoort, The Netherlands; and Tullamarine, Victoria, Australia.
Domestically, the W-J product line is sold principally by the Company's
own sales force. International sales are made through distributors and
directly by the Company.
Recent acquisitions have strengthened the business internationally
which operates as W-J International. In August 1991, the Company acquired
the international food and cosmetic color operations of Morton
International, Inc. which provided additional technology in cosmetic
colors and a worldwide distribution network. In June 1992, the Company
acquired Butterfield Food Ingredients, Ltd., a British food color
manufacturer with particular expertise in natural colors and
pharmaceutical applications and additional international distribution,
particularly in the Far East. During 1993, the Company acquired Spectrum
S.A., a Mexican food color distributor with approximately 20% market share
in that country.
Dehydrated Products
The Company's subsidiary, Rogers Foods, Inc. ("Rogers"), produces
dehydrated onion and garlic and the Company believes it to be the third
largest producer of these products in the United States. These items are
marketed under the trademark ROGERS FOODS and private labels. Rogers also
produces and distributes chili powder, chili pepper, paprika, dehydrated
vegetables such as parsley, celery and spinach, and oleoresin (a liquid
chili pepper used as a highly concentrated coloring agent) under the brand
name CHILI PRODUCTS. Rogers believes it is one of the largest producers
of these products.
Rogers sells dehydrated products directly and through brokers to food
manufacturers for use as ingredients and also for repackaging under
private labels for sale to the retail market and to the food service
industry. Rogers' processing facilities are located in Turlock,
Livingston and Greenfield, California.
During 1994, the Company acquired a leading European processor of air
and freeze-dried vegetables. The acquisition gives the Company a base
from which to expand its dehydrated products business internationally.
This acquisition in Ireland from Campbell Soup Company also expands the
Company's dehydrated technology base to include freeze drying and
"puffing," an air-steam process. Vegetables processed using these
technologies are premium products because they have a short reconstitution
time, a benefit in today's convenience foods such as soups, snacks and
other dry foods.
The Irish operation consists of two companies managed as a single
entity in Midleton, County Cork. The group employs about 120 people and
now operates as Mallow Foods Ltd.
Yeast
The Company specializes in the production of compressed, active dry
and nutritional yeast products for sale to industrial, institutional and
retail accounts under the RED STAR trademark. Compressed yeast and cream
yeast must be refrigerated and used soon after production. Active dry
yeast is a dehydrated product which has the advantages of longer shelf
life, lower shipping costs and ease of handling. Nutritional yeast is a
rich source of B-complex vitamins and proteins. Other yeast strains are
produced specifically for the wine industry, and the Company purchases a
number of allied products, including bakery mixes and baking powder, from
others and distributes them.
The largest market for yeast is the domestic baking industry. In
addition, active dry yeast is sold to food processors for inclusion in
bread, pizza and similar mixes. The compressed, active dry and
fast-acting dry yeast products of the Company bearing the RED STAR and RED
STAR QUICK RISE trademarks are sold in ready-to-use packages to retail
stores and in two pound packages for food service use. The Company
believes it is the largest North American supplier of yeast to the
commercial bakery market and the second largest supplier to the retail
market.
The business also exports yeast and allied products throughout the
world and manages investments in companies operating yeast and allied
product facilities in 12 offshore locations, two of which are wholly-owned
subsidiaries. The Company receives revenues in the form of dividends and
technical assistance fees from these foreign affiliates.
Company owned yeast plants are located in Milwaukee, Wisconsin;
Baltimore, Maryland; Dallas, Texas; and Oakland, California. The Company
distributes its fermentation products largely through its own sales force
from its distribution branches. In 1994, the Company purchased a 20%
stock interest in and entered an agreement with Minn-Dak Yeast Company,
Inc. for contract manufacturing by Minn-Dak under the Red Star label and
for Minn-Dak to supply molasses, a major raw material in yeast production,
to the Company.
BioProducts
During 1994, the Company created the Red Star BioProducts Division
from its existing Red Star Specialty Products Division and two
acquisitions. Red Star Specialty Products had been established as a
small, stand-alone profit center in 1989 out of the Company's Fermentation
group. With internally developed expertise, the group focused on highly
technical product development using extracts from brewer's and baker's
yeast. During 1993, Universal BioVentures, the Company's biotechnology
group, was integrated into Red Star Specialty Products. This group was
given the mission to develop new biotechnological products utilizing the
Company's extensive expertise in fermentation, and its research strengths
in the molecular biology of microorganisms.
The 1994 acquisitions of Champlain Industries Limited and the Biolux
Group expanded the division's product lines and international presence,
making the division a more significant part of the Company.
Champlain Industries Limited produces savory flavorings and flavor
enhancers from vegetable proteins, yeast, meats and milk protein. It is a
leading producer of hydrolyzed vegetable proteins (HVP) in North America.
The company has operations in Canada, the U.S., and the United Kingdom.
The Biolux Group is a leading European producer of food, nutritional
and feed ingredients derived from brewer's yeast. The acquisition makes
the Company a world leader in brewer's yeast extract technology,
production and sales. The Biolux Group consists of New Biolux in Belgium
and Vitalevor in France. Its products include flavor enhancers, health
foods, feed ingredients and nutrients for pharmaceutical and biotechnology
processes. The Biolux Group is a major purchaser and processor of
brewer's yeast in the European market.
The expanded Red Star BioProducts Division serves the food
processing, fermentation, agriculture, aquaculture and chemical
intermediates industries as a diversified supplier of natural extracts and
specialty cultures. It supplies various natural extracts from brewer's
yeast, baker's yeast, vegetable proteins, meat, casein and other naturally
occurring materials. These specialty extracts function primarily as
flavor and texture modifiers and enhancers, and secondary flavorings in
the food processing industries. They also enjoy widespread use as
palatability enhancers in the pet food and animal foodstuffs markets. The
nutritional and functional properties of Red Star BioProducts extracts are
the basis for their use in cheese starter and pharmaceutical fermentations
and in personal care applications.
The Company believes Red Star BioProducts is the leading supplier of
yeast extracts and second in the supply of HVPs in the U.S. market. The
products are marketed under a number of Red Star and Champlain trademarks.
Commercial production and export of a new product named RED STAR Phaffia
Yeast began in 1993. The yeast Phaffia rhodozyma is a source of the red
carotenoid compound called astaxanthin which is the natural pigment found
in salmon, trout and shellfish. This product was developed for use as an
ingredient for feeds given to salmon produced by aquaculture. The
purchase of the technological properties of ZeaGen from ACX Technologies,
Inc in 1993 provides other processes for development.
The expanded division operates production facilities in Milwaukee and
Juneau, Wisconsin; Harbor Beach, Michigan; Clifton, New Jersey; and in
Canada, the United Kingdom, Belgium and France. More than half of the
Division's products are now produced outside of the United States. Its
products are marketed through technically trained sales personnel directly
to the customer and through distributors in some international markets.
Frozen Foods
On August 1, 1994, the Company completed the sale of Universal Frozen
Foods Company, a wholly owned subsidiary of the Company ("Frozen Foods"),
to ConAgra, Inc. for a base consideration of $163 million and an earnout
consideration of approximately $57 million, payable over a five year
period. The sale was a major step in Universal Foods' strategic
transition to a focus on value-added ingredients and ingredient systems
for foods and other products.
Frozen Foods produced frozen potato products for U.S. and
international markets, selling most of its product to the food service
industry. It did have a share of the retail market with branded and
private labeled products. It operated processing facilities in Twin
Falls, Idaho; Hermiston, Oregon; and Pasco, Washington.
Research and Development/Quality Assurance
The Company believes that its competitive advantage and ability to
develop and deliver value-added products is based on its technical
expertise in the processing and application of its technology for foods
and other products. Therefore, the Company provides an above-industry
average investment in research, development and quality assurance, and is
committed to the training and development of its people.
The Company employs approximately 300 people in research and quality
assurance. Over the past five years, research and development
expenditures have increased an average of 10.4%. Expenditures in fiscal
1994 increased 13.0% over fiscal 1993 to $32.2 million from $28.5 million.
Expenditures in fiscal 1993 increased 7.1% to $28.5 million from $26.6
million in fiscal 1992. The Company's commitment to research and product
development continues at a level significantly higher than the food
industry average. Of the aforesaid amounts, approximately $17.3 million
in fiscal 1992, $17.9 million in fiscal 1993 and $20.4 million in fiscal
1994, were research and development expenses as defined by the Financial
Accounting Standards Board.
To improve its research and development capabilities, the Company has
been upgrading its technical facilities. In 1991, the Company
refurbished much of its Technical Center located in Milwaukee, Wisconsin,
to enhance its capabilities in product and process areas related to
fermentation, including microbial genetics work carried out to develop
improved strains of bakers yeast and engineering development facilities
for process development and new product production scale-up activities.
In 1992, an $8 million Fermentation Development Facility was completed at
the Technical Center to scale-up new biotechnological products for the Red
Star BioProducts Division. Two 10,000-gallon pure culture fermenters in
this facility produce sufficient volumes to test market new products in
order to establish them as commercially acceptable prior to investment in
a full-scale production plant.
In 1992, the Company completed a new research center for seed
genetics and tissue culture at Livingston, California, for Dehydrated
Products, and the Company enlarged food flavor research laboratories in
Kearny, New Jersey. During 1993, beverage flavor laboratories in
Indianapolis were enlarged, new modern laboratories for research on color
products at W-J's production site in St. Louis, Missouri were completed,
and a new facility for quality assurance and technical customer services
was added to the Turlock, California complex. All of these facilities
are designed to meet the specialized, strategic needs of the Company's
operating units.
The Company has a massive training program designed to introduce all
personnel to team problem solving using statistical process control,
teamwork and communication procedures under a program named "The Universal
Way." This program promotes the Company's commitment to continuous
quality improvement of its products and services as a primary Company
objective.
As part of its commitment to quality as a competitive advantage, the
Company has undertaken efforts to achieve certification to quality
standards established by the International Organization for
Standardization in Geneva, Switzerland, through its ISO 9000 series. Red
Star BioProducts believes it was the first North American ingredients
supplier to receive ISO 9002 certification. Universal Flavor facilities
in Indiana and New Jersey in the United States and facilities in The
Netherlands and United Kingdom have also been certified.
Competition
All Company products are sold in highly competitive markets. Some
competitors have more product lines and greater resources than the Company
has. Since the Company and its competitors utilize similar methods of
production, marketing and delivery, the Company competes primarily on
technical product development, process expertise, quality and service.
The Company competes in many market niches where price is not the most
important variable.
With the evolution of food processing as a global business,
competition to supply the industry has taken on an increasingly global
nature. Universal Foods competes with only a few companies across
multiple ingredient lines, and is more likely to encounter competition
specific to individual businesses.
In the worldwide flavor market, the Company's principal competition
comes from other U.S. and European producers. Building an international
presence is a key goal for Universal Flavor as witnessed by the
acquisitions of the international flavor business of Felton Worldwide in
1990, Curt Georgi Imes, S.P.A. in 1992 and Destillaciones Garcia de la
Fuente, S.A. in 1994; and the completion of a new plant in Belgium in
order to meet increasing international flavor demands.
The Company believes W-J is a leading producer of certified colors in
North America and Western Europe; state of the art equipment, the latest
process technology, and the most complete range of synthetic and natural
colors constitute the basis for its market leadership position.
Acquisitions have resulted in product and process technology synergies,
particularly in the cosmetic color market, as well as a growing
international presence.
For Dehydrated Products, the acquisition in Ireland begins an
international expansion and strengthens export opportunities for U.S.
based operations. Some price competition has been evident in the United
States as a domestic competitor seeks to gain market share and a new
competitor is adding capacity to the industry. Red Star Yeast & Products
continues to experience pricing pressures as a result of industry
overcapacity. Competition in Red Star BioProducts comes primarily from
European producers.
New Product Activity
With the Company's strategic focus on value-added ingredients and
ingredient systems, the Company's emphasis has shifted from the
development of major new products to application activities and processing
improvements in the support of its customers' numerous new and
reformulated products.
These activities include a line of stable aqueous dispersion of
colors for foods and pharmaceutical products. Patents have been granted
on the products marketed under the SPECTRASPRAY label and applied for on
the SPECTRABLEND label. The development of natural food colors continues
to expand and is a growth opportunity for W-J.
A variety of activities at Universal Flavor focus on the development
of flavor solutions for low-fat and no-fat applications. The group has
developed a reaction flavor for imparting animal fat flavor to
nutritionally preferred vegetable oils. A new technology was installed
for production of aseptically processed fruits for frozen yogurt and other
products requiring fruit pieces. Emphasis has been placed on the
development of low-fat dairy flavor systems. In 1993, a low-fat,
cholesterol-free program was introduced for frozen desserts. New flavored
fruit pieces have also been developed to provide new textures, flavors and
unique performance properties in bakery items.
In 1992, Red Star BioProducts introduced RED STAR Phaffia Yeast.
This is the only commercially viable natural source of pink pigmentation
for farm-raised salmon which achieve their flesh color through dietary
supplements. Three other processes to provide natural coloring and
nutrients for aquaculture and agribusiness are currently under
development. In 1993 Red Star BioProducts introduced the FlavorMate 950
series, the most potent flavor enhancer on the market, and the SavoryMate
series, which are flavor enhancers designed for specific areas such as
beef, poultry, pork, etc.
In addition, the discussion of operational activities on Pages 6, 8,
10, 12 and 14 of the 1994 Annual Report to Shareholders is incorporated by
reference (but not any photographs or related captions included thereon).
Raw Materials
The principal raw material used in the production of yeast products
is molasses, which is purchased through brokers and producers under yearly
fixed-price contracts. Processes have been developed to permit partial
replacement of molasses with alternate, readily available substrates for
use if molasses supplies should become limited. In 1994, the Company
entered a supply agreement with Minn-Dak Yeast Company, Inc., a major
North American molasses supplier, to provide additional assurances of
adequate supplies.
Chili peppers, onion, garlic and other vegetables are acquired under
annual contracts with numerous growers in the western United States and
Ireland. Chemicals and petrochemicals used to produce certified colors
are obtained from several domestic and foreign suppliers. Raw materials
for natural colors, such as carmine, beta carotene, annatto and tumeric,
are purchased from overseas and U.S. sources. In the production of
flavors, the principal raw materials include essential oils, aroma
chemicals, botanicals, fruits and juices and are obtained from local
vendors. Flavor enhancers and secondary flavors are produced from spent
brewer's yeast, baker's yeast from the Company's own operations, and
vegetable materials such as corn and soybeans. The acquisition of the
Biolux Group in 1994 provides long-term contracts on supplies of spent
brewer's yeast for European production needs.
The Company believes that its required raw materials are generally in
adequate supply and available from numerous competitively priced sources.
Patents, Formulae and Trademarks
The Company owns or controls many patents, formulae and trademarks
related to its businesses. The businesses are not materially dependent
upon patent or trademark protection; however, trademarks, patents and
formulae are important for the continued consistent growth of the Company.
Employees
As of September 30, 1994, the Company employed about 4,100 persons
worldwide (which includes approximately 200 seasonal employees).
Approximately 821 employees are represented by one of 17 unions with whom
the Company has collective bargaining relationships. The Company
considers its employee relations to be good.
Regulation
Compliance with government provisions regulating the discharge of
material into the environment, or otherwise relating to the protection of
the environment, did not have a material adverse effect on the Company's
operations for the year covered by this report nor is such compliance
expected to have a material effect in the succeeding two years. As is
true with the food industry in general, the production, packaging,
labeling and distribution of the products of the Company are subject to
the regulations of various federal, state and local governmental agencies,
in particular the Food & Drug Administration.
ITEM 2. PROPERTIES
Domestically, the Company had seventeen manufacturing and processing
plants in nine states as of September 30, 1994. Four plants produced
bakers yeast, four facilities provided flavor enhancers and bioproducts,
three produced dehydrated products, two plants produced colors and four
plants produced flavors. None of these properties is held subject to any
material encumbrances. The Company also has investments in fifteen
companies operating yeast and allied product facilities located in twelve
offshore locations. The Company operates five color plants, eleven flavor
plants, five bioproducts facilities and one dehydrated vegetable plant in
thirteen foreign countries. For information regarding lease commitments,
see Note I of Notes to Consolidated Financial Statements - Commitments and
Contingencies, on Page 32 of the 1994 Annual Report to Shareholders, which
is hereby incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings of a character
regarded as normal to its business and in which, the Company believes,
adverse decisions, in the aggregate, would not subject the Company to
damages of a material amount.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the last quarter of fiscal 1994.
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant and their ages as of
December 1, 1994 are as follows:
EXECUTIVE OFFICERS
Name Age Position
Guy A. Osborn 58 Chairman, Chief
Executive Officer and
Director
Richard Carney 44 Vice President - Human
Resources
Thomas J. Degnan 46 President, Red Star
Yeast & Products
Division
John E. Heinrich 50 Vice President and Chief
Financial Officer
Geoffrey J. Hibner 45 Vice President - Finance
Richard F. Hobbs 47 Vice President -
Administration and
Corporate Controller
Kenneth P. Manning 52 President, Chief
Operating Officer and
Director
Terrence M. O'Reilly 49 Vice President,
Secretary and
General Counsel
James F. Palo 54 President, Dehydrated
Products
Division
Dr. Gary W. Sanderson 59 Vice President,
Technologies
Kenneth G. Scheffel 58 Vice President, Red Star
BioProducts Division
Michael A. Wick 51 President, Color
Division
All of these individuals have been employed by the Company in an
executive capacity for more than five years, except Richard Carney.
Mr. Carney was elected Vice President - Human Resources in April,
1993. He joined the Company in 1981 as Treasury Manager and held various
positions in the Treasurer's Department until 1986 when he assumed the
Director of Benefits responsibilities which he performed until being
elected a Vice President.
Mr. Heinrich passed away on December 6, 1994.
Mr. Hibner will resign as Vice President-Finance effective January 2,
1995. Mr. Hobbs is currently serving as principal accounting and chief
financial officer.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The principal market in which the common stock of the Company is
traded is the New York Stock Exchange. The range of the high and low
sales prices as quoted in the New York Stock Exchange - Composite
Transaction tape for the common stock of the Company and the amount of
dividends declared for fiscal 1994 appearing under "Quarterly Financial
Data" on Page 22 of the 1994 Annual Report of the Company are incorporated
by reference. Common stock dividends were paid on a quarterly basis, and
it is expected that quarterly dividends will continue to be paid in the
future. In addition to the restrictions contained in its Restated
Articles of Incorporation, the Company is subject to restrictions on the
amount of dividends which may be paid on its common stock under the
provisions of various credit agreements. On the basis of the consolidated
financial statements of the Company as of September 30, 1994, $27,258,000
is available for the payment of dividends on the common stock of the
Company under the most restrictive loan covenants.
The Company had a stock repurchase program, initially announced June
7, 1984, under which the authorization terminated in fiscal 1994.
Consequently, on January 27, 1994 the Board of Directors established a new
share repurchase program which authorizes the Company to repurchase up to
2.5 million shares. As of September 30, 1994, no shares had been
repurchased under the new authorization.
On September 8, 1988 the Board of Directors of the Company adopted a
common stock shareholder rights plan which is described at Note E of Notes
to Consolidated Financial Statements - Shareholders' Equity on Pages 29
and 30 of the 1994 Annual Report to Shareholders and which is incorporated
by reference.
The number of shareholders of record on December 2, 1994 was 6,351.
ITEM 6. SELECTED FINANCIAL DATA
Long-term obligations at September 30 were as follows: 1994:
$172,235,000; 1993: $171,907,000; 1992: $167,746,000; 1991: $152,213,000;
and 1990: $122,454,000. Remaining information in response to this item is
incorporated by reference from the "Five-Year Review" and the notes
thereto of the 1994 Annual Report to Shareholders on Page 34.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Management's Analysis of Operations and Financial Condition is
incorporated by reference from Pages 18 through 21 of the 1994 Annual
Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The supplementary financial information and financial statements
required by this item are set forth on Pages 22 through 33 of the 1994
Annual Report to Shareholders and are incorporated by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and officers appearing under
"Election of Directors" (ending before "Committees of the Board of
Directors") and "Other Matters" on Pages 3 through Page 6 and Page 16,
respectively, of the Notice of Annual Meeting and Proxy Statement of the
Company dated December 16, 1994, is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to compensation of directors and officers is
incorporated by reference from "Director Compensation and Benefits," and
"Compensation and Development Committee Report" and "Executive
Compensation" on Pages 7 through 14 of the Notice of Annual Meeting and
Proxy Statement of the Company dated December 16, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The discussion of securities ownership of certain beneficial owners
and management appearing under "Principal Shareholders" on Pages 8 through
9 of the Notice of Annual Meeting and Proxy Statement of the Company dated
December 16, 1994, is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no family relationships between any of the directors,
nominees for director and officers of the Company nor any arrangement or
understanding between any director or officer or any other person pursuant
to which any of the nominees has been nominated. No director, nominee for
director or officer had any material interest, direct or indirect, in any
business transaction of the Company or any subsidiary during the period
October 1, 1993 through September 30, 1994, or in any such proposed
transaction. In the ordinary course of business, the Company engages in
business transactions with companies whose officers or directors are also
directors of the Company. These transactions are routine in nature and are
conducted on an arm's-length basis. The terms of any such transactions
are comparable at all times to those obtainable in business transactions
with unrelated persons.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed:
1. and 2. Financial Statements and Financial Statement
Schedules. (See following "List of Financial Statements and
Financial Statement Schedules.")
3. Exhibits. (See Exhibit Index on the last page of this
report.) (No instruments defining the rights of holders of long-term
debt of the Company and its consolidated subsidiaries are filed
herewith because no long-term debt instrument authorizes securities
exceeding 10% of the total consolidated assets of the Company. The
Company agrees to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.)
(b) Reports on Form 8-K: None
<PAGE>
List Of Financial Statements and Financial Statement Schedules
Page Reference in
1994 Annual Report
to Shareholders
1. FINANCIAL STATEMENTS
The following consolidated financial
statements of Universal Foods
Corporation and Subsidiaries are
incorporated by reference to the Annual
Report to Shareholders for the year
ended September 30, 1994.
Independent Auditors' Report 33
Consolidated Balance Sheets - 24
September 30, 1994 and 1993
Consolidated Earnings - years ended 23
September 30, 1994, 1993 and 1992
Consolidated Shareholders' Equity - 25
years ended September 30, 1994, 1993 and
1992 26
Consolidated Cash Flows - years ended
September 30, 1994, 1993 and 1992 27 - 32
Notes to Consolidated Financial Statements
Page Reference
2. FINANCIAL STATEMENT SCHEDULES in Form 10-K
Independent Auditors' Report 15
Schedule V - Property, Plant and Equipment 16
Schedule VI - Accumulated Depreciation and 17
Amortization of Plant and Equipment
Schedule VIII - Valuation and Qualifying 18
Accounts
and Reserves
Schedule IX - Short-Term Borrowings 19
Schedule X - Supplementary Earnings 20
Statement
Information
All other schedules are omitted because they are inapplicable, not
required by the instructions or the information is included in the
consolidated financial statements or notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Directors
of Universal Foods Corporation
We have audited the consolidated financial statements of Universal Foods
Corporation as of September 30, 1994 and 1993 and for each of the three
years in the period ended September 30, 1994, and have issued our report
thereon dated November 10, 1994, which report expresses an unqualified
opinion and includes an explanatory paragraph relating to the change in
methods of accounting for postretirement benefits other than pensions and
postemployment benefits to conform with Statements of Financial Accounting
Standards No. 106 and No. 112, respectively; such consolidated financial
statements and report are included in your 1994 Annual Report to
Shareholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedules of Universal Foods
Corporation, listed in Item 14. These consolidated financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our
opinion, such consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
November 10, 1994
<PAGE>
SCHEDULE V
<TABLE>
UNIVERSAL FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
Years ended September 30, 1994, 1993 and 1992
<CAPTION>
Machinery and
Land Buildings equipment Total
<S> <C> <C> <C> <C>
Balances, September 30, 1991 $12,579 $ 97,995 $282,660 $393,234
Additions at cost <F1> 1,005 12,308 38,196 51,509
Retirements <F3> (95) (3,178) (14,085) (17,358)
------ ------- ------- -------
Balances, September 30, 1992 13,489 107,125 306,771 427,385
Additions at cost <F1><F2> 220 14,238 39,535 53,993
Retirements <F3> (736) (2,627) (5,860) (9,223)
------ ------- ------- -------
Balances, September 30, 1993 12,973 118,736 340,446 472,155
Additions at cost <F1> 3,013 12,601 79,363 94,977
Retirements <F3><F4> (1,590) (27,195) (109,962) (138,747)
------ ------- ------- -------
Balances, September 30, 1994 $14,396 $104,142 $309,847 $428,385
======= ======= ======= =======
<FN>
The annual provisions to depreciation have been computed on the straight-line method using the following estimated useful
lives:
Buildings 15 - 40 years
Building additions 20 years
Machinery and equipment 6 - 20 years
<F1> Includes $39,906, $4,842 and $6,527 of additions in 1994, 1993 and 1992, respectively, obtained in the
acquisitions of businesses and additions relating to businesses previously accounted for on the equity method
which are now consolidated.
<F2> Includes adjustment of $12,788 relating to the adoption of Statement of Financial Accounting Standards No. 109
(SFAS No. 109) "Accounting For Income Taxes".
<F3> Includes foreign currency translation adjustments of $3,640 and $6,824 in 1994 and 1993, respectively. The
adjustments in fiscal year 1992 were not material.
<F4> Includes $135,637 of retirements relating to the disposition of the Frozen Foods Division.
</TABLE>
<PAGE>
SCHEDULE VI
<TABLE>
UNIVERSAL FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PLANT AND EQUIPMENT
(In Thousands)
Years ended September 30, 1994, 1993 and 1992
<CAPTION>
Machinery and
Buildings equipment Total
<S> <C> <C> <C>
Balances, September 30, 1991 $ 22,328 $118,101 $140,429
Additions charged to costs
and expenses 5,049 23,095 28,144
Retirements <F1> (700) (9,406) (10,106)
------ ------- -------
Balances, September 30, 1992 26,677 131,790 158,467
Additions charged to costs
and expenses <F1> 5,142 29,771 34,913
Retirements <F2> (279) (2,938) (3,217)
------ ------- -------
Balances, September 30, 1993 31,540 158,623 190,163
Additions charged to costs
and expenses 5,017 25,995 31,012
Retirements <F2><F3><F4> (4,148) (44,361) (48,509)
------ ------- -------
Balances, September 30, 1994 $ 32,409 $140,257 $172,666
======= ======= ========
<FN>
<F1> Includes adjustment of $5,269 relating to the adoption of SFAS No. 109.
<F2> Includes foreign currency translation adjustments of $1,609 and $1,240 in 1994 and 1993, respectively. The
adjustments in fiscal year 1992 were not material.
<F3> Includes $4,883 of additions relating to businesses previously accounted for on the equity method which are now
consolidated.
<F4> Includes $49,459 of retirements relating to the disposition of the Frozen Foods Division.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE VIII
UNIVERSAL FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(In Thousands)
<CAPTION>
Years ended September 30, 1994, 1993, and 1992
Valuation accounts
deducted in the Additions
balance sheet from Balance at Charged to Balance at
the assets to which beginning costs and Net end of
they apply of period expenses acquired Deductions period
<S> <C> <C> <C> <C> <C>
1992
Allowance for losses:
Trade accounts
receivable $3,754 $ 808 $ --- $1,205 (A) $3,357
====== ===== ====== ====== ======
1993
Allowance for losses:
Trade accounts
receivable $3,357 $ 988 $ --- $1,039 (A) $3,306
====== ===== ====== ====== ======
1994
Allowance for losses:
Trade accounts
receivable $3,306 $ 971 $ 637 $1,387 (A) $3,527
====== ====== ======= ====== ======
(A) Divestiture and accounts written off, less recoveries.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE IX
UNIVERSAL FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(In Thousands)
Years ended September 30, 1994, 1993 and 1992
<CAPTION>
Maximum Average Weighted
amount amount average
Balance outstanding outstanding interest rate
at end during during during
of period(C) the period the period(A) the period (B)(C)
<S> <C> <C> <C> <C>
September 30, 1992 $32,229 $44,899 $25,940 9.6%
September 30, 1993 $14,945 $57,677 $38,545 6.6%
September 30, 1994 $4,527 $84,298 $45,349 4.8%
(A) Average amount outstanding during the period is computed by dividing the total of daily outstanding principal balance
by 365.
(B) Average interest rate for the year is computed by dividing the actual short-term interest expense by the average
short-term borrowings.
(C) Domestic borrowings are predominantly short-term money market loans and bankers' acceptances with terms of
approximately 30 days. Also included in fiscal 1994, 1993 and 1992 are short-term borrowings denominated in foreign
currency at interest rates higher than the average domestic rate.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE X
UNIVERSAL FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY EARNINGS STATEMENT INFORMATION
(In Thousands)
Years ended September 30, 1994, 1993 and 1992
<CAPTION>
Charges to costs and expenses
Item 1994 1993 1992
<S> <C> <C> <C>
Maintenance and repairs $16,352 $15,949 $15,200
======= ======= =======
Advertising $14,176 $13,562 $18,260
======= ======= =======
The amount of royalties, taxes other than payroll and income taxes, and amortization of intangible assets are not presented
as such amounts are less than one percent of net sales.
</TABLE>
<PAGE>
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, duly authorized.
UNIVERSAL FOODS CORPORATION
/s/ T. M. O'Reilly
T. M. O'Reilly, Vice President
Secretary & General Counsel
Dated: December 16, 1994
PURSUANT to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on December 16, 1994, by the following
persons on behalf of the Registrant and in the capacities indicated.
/s/ Guy A. Osborn Chairman and Chief Executive Officer
Guy A. Osborn
/s/ Kenneth P. Manning President & Chief Operating Officer
Kenneth P. Manning Director
/s/ Richard F. Hobbs Vice President - Corporate
Richard F. Hobbs Controller
/s/ Michael E. Batten Director
Michael E. Batten
/s/ John F. Bergstrom Director
John F. Bergstrom
/s/ James L. Forbes Director
James L. Forbes
/s/ Dr. Olan D. Forker Director
Dr. Olan D. Forker
/s/ Dr. Carol I. Waslien Ghazaii Director
Dr. Carol I. Waslien Ghazaii
/s/ Leon T. Kendall Director
Leon T. Kendall
/s/ James H. Keyes Director
James H. Keyes
/s/ Charles S. McNeer Director
Charles S. McNeer
/s/ John L. Murray Director
John L. Murray
/s/ William U. Parfet Director
William U. Parfet
/s/ Essie Whitelaw Director
Essie Whitelaw
<PAGE>
UNIVERSAL FOODS CORPORATION
EXHIBIT INDEX
1994 ANNUAL REPORT ON FORM 10-K
Incorporated
Exhibit Herein by Filed
Number Description Reference Herewith
3.1 Restated Articles of (Previouly filed at Exhibit
Incorporation 3.1 to the 1993 Annual
Report on Form 10-K)
3.2 Restated Bylaws (Previously filed at Exhibit
3.2 to the 1993 Annual
Report on Form 10-K)
4 Shareholders Rights (Previously filed on Form
Plan 8-A dated September 15, 1988
as amended by Exhibit 3 to
Form 8 dated December 22,
1988 and by Exhibits 4 and 5
to Form 8 dated September
14, 1990)
* 10 Material Contracts
(a) Executive (Previously filed at Exhibit
Employment 10(a) to the 1985 Annual
Contract Report on Form 10-K)
(b) 1981 Incentive (Previously filed with the
Stock Option Plan Notice of Annual Meeting &
Proxy Statement dated
December 5, 1981)
(c) 1985 Stock Plan (Previously filed with the
for Executive Notice of Annual Meeting &
Employees Proxy Statement dated
December 12, 1985)
(d) 1990 Employee (Previously filed with the
Stock Plan Notice of Annual Meeting &
Proxy Statement dated
December 18, 1989)
(e) Director Stock (Previously filed as Exhibit
Grant Plan, as 10(e) to the 1991 Annual
amended Report on Form 10-K)
(f) Management Income (Previously filed as Exhibit
Deferral Plan 10(f) to the 1991 Annual
Report on Form 10-K)
(g) Executive Income (Previously filed as Exhibit
Deferral Plan 10(g) to the 1991 Annual
Report on Form 10-K)
(h) Executive (Previously filed as Exhibit
Employment and 10(h) to the 1991 Annual
Severance Report on Form 10-K)
Agreement
(i) Trust Agreement (Previously filed as Exhibit
dated January 18, 18 to Amendment No. 1 of the
1988 between the Company's Schedule 14D-9
Company and filed December 9, 1988)
Marshall & Ilsley
Trust Company
(j) Trust Agreement (Previously filed as Exhibit
dated January 18, 19 to Amendment No. 1 of the
1988 between the Company's Schedule 14D-9
Company and filed December 9, 1988)
Marshall & Ilsley
Trust Company
(k) Trust Agreement (Previously filed as Exhibit
dated September 20 to Amendment No. 1 of the
18, 1988 between Company's Schedule 14D-9
the Company and filed December 9, 1988)
Marshall & Ilsley
Trust Company (Previously filed as Exhibit
10(i) to the 1991 Annual
(l) Management Report on Form 10-K)
Incentive Plan for
Major Corporate (Previously filed on Form
Executives S-8 dated September 12,
1994)
(m) 1994 Employees
Stock Option Plan
13 Portions of Annual
Report to Shareholders
for the year ended X
September 30, 1994 that
are incorporated by
reference
21 Significant
Subsidiaries of
Universal Foods X
Corporation
23 Consent of Deloitte &
Touche LLP X
27 Financial Data Schedule X
99 Notice of Annual (Previously filed on
Meeting and Proxy December 15, 1994 as the
Statement, dated Company's Schedule 14A)
December 16, 1994
* Indicates management contracts or compensatory plans.
[text of pages 6, 8, 10, 12 and 14, exclusive of photographs and related
captions]
FLAVOR
Improved operating margins, strong U.S. food and beverage flavor
performance and market penetration in the Pacific Rim were the ingredients
for recovery in our Flavor Division. Operating profits were up and revenue
rose by 9%. Flavor formulations for teas, juices and isotonic beverages
helped boost beverage flavor revenues 11% in the U.S. Food flavor revenues
were up 16% on the strength of new bread and pizza dough flavor systems
and snack flavors. More development efforts were devoted to applications
in food service, the fastest growing segment of the food industry. And
with 90% of U.S. shoppers turning to lite foods, our low fat bakery and
dairy flavor systems were incorporated into leading brand cookies and
super premium ice creams. We also continue to leverage our dairy
technology to value-added uses. International growth came from our
expanding presence in the Pacific Rim where we established a technical
service and application laboratory in Japan. In Europe, where the economy
is still recovering, we opened new business opportunities through the
acquisition of a Spanish aroma chemical business for flavor and fragrance
formulations. Capital spending focused on establishing an integrated
information system and on expanding and upgrading dairy flavors and aroma
chemical facilities and equipment.
<PAGE>
COLOR
The Color Division continued its strong performance in 1994. Revenue was
up 16%, volumes rose 26% and operating income continued to improve.
Domestic food and cosmetic color revenue rose 15%. Sales of value-added
color dispersions climbed 25% as we created specialized solutions for
customers. Non-food uses and new markets boosted revenues from dyes by
19%. New Age and fruit beverages helped propel a 23% increase in natural
colors. We strengthened our process technology leadership through the
ongoing transformation of our St. Louis, Missouri, manufacturing complex
into the most modern color production facility in the world. During the
year we completed the construction of a state-of-the-art facility to
produce Lake pigments. These high-performance pigments are safe, water-
insoluble coloring agents for foods, drugs, cosmetics, personal care items
and food packaging materials. We also expanded our technical capabilities
for manufacturing several new dye intermediates and drug and cosmetic
dyes. Process technologies to purify and separate natural colors and
blending and drying operations were improved. Internationally, improved
economic conditions in Europe and strong Pacific Rim sales offset flat
results in Latin America during 1994. A new warehousing and production
facility serves Asia from Australia. We also expanded our European
production and warehousing facilities.
It's the extra measure of reliability and technical expertise that makes
our colors more than a commodity for international candy manufacturer
Leaf, Inc. Whether it's customized shades, easier-to-apply coatings,
single color systems for use worldwide, research on foreign regulations
and labeling or on-site help during production start-up, our color
specialists have created a relationship that spells sweet success for such
familiar brands as Good & Plenty, Switzer Licorice and Jolly Rancher Mega
Fruit Gummis.
<PAGE>
DEHYDRATED PRODUCTS
The acquisition of a European base for expanding our Dehydrated Products
business and three top supplier awards for our North American operations
marked the year. Operating profits and revenue were up. Intensified
attention to customer needs through on site interviews and our own ongoing
employee involvement teams paid off for our California-based operations
during 1994. They were named supplier of the year by three food processors
for product quality, reliability and the intangibles related to exceeding
customer expectations. Our North American operations are also expanding
their product line in response to customer needs. Additions include bell
peppers, leeks and carrots with a number of others being considered and
tested. For our major onion, garlic and chili product lines, crop
conditions were generally good and harvests normal. Volumes of specialty
parsley and other dehydrated greens were up significantly. As a base from
which to expand internationally, we purchased a leading European processor
of dehydrated vegetables in June. The acquisition in Ireland from
Campbell Soup Company also expands our technology to include freeze drying
and "puffing," an air-steam process. Vegetables processed using these
technologies are premium products because they have a short reconstitution
time, a benefit in today's soups, snacks and other convenience foods.
The Pillsbury Company expects more of its suppliers and is sparing in its
awards. The $4 billion food company has over 1,000 suppliers; fewer than
1% are honored each year. We were the first dehydrated vegetable supplier
to earn their coveted Supplier of the Year Award, not just for on-time
delivery of quality products or technical support, but for going the
"extra mile." Through our innovative Voice of the Customer program, we
visited Pillsbury's operations, interviewed people at all levels, listened
to their needs and, most importantly, took action.
<PAGE>
RED STAR YEAST & PRODUCTS
Securing our position as the leading, low cost yeast supplier in North
America was the top priority for Red Star Yeast & Products. Volumes and
revenue were up though operating margins declined. With continued pricing
pressure in the baker's yeast market due to the competitive environment
and overcapacity, we took several steps to reduce costs while ensuring a
high level of customer satisfaction. These included restructuring our
sales and marketing group, improving manufacturing efficiency and
enhancing product quality. We also developed partnerships with
distributors to provide reliable service at lower costs. To secure an
adequate source of molasses, the raw material that feeds yeast cell
growth, we entered a supply agreement with a major molasses producer.
With shifts in consumer habits and new nutritional guidelines, we've
benefitted from the growing market for bagels, nutritional and "boutique"
breads, and frozen dough for restaurant use. We also introduced a new
dough conditioner with all natural ingredients to meet commercial bakers'
needs. Retail yeast sales continued to get a boost from the bread machine
boom, promoted through joint marketing and couponing with bread machine
and packaged bread mix makers. We also introduced a yeast specially
formulated and packaged for bread machines.
Creating healthy breads is the passion of the people at Natural Ovens of
Manitowoc, Wisconsin. Only natural, quality ingredients will do. That's
why they have relied on Red Star Yeast as their business has blossomed
over the past 17 years. Whether it's fresh yeast for rising 25,000 loaves
a day or active-dry yeast for new low-fat bread machine mixes, we nurture
consistent product quality through continuous improvement efforts like the
one that won our Presidential Leadership Award for a Milwaukee, Wisconsin,
production team.
<PAGE>
RED STAR BIOPRODUCTS
Red Star BioProducts was created in 1994 from our Specialty Products
Division and two acquisitions to quadruple the size of this business.
Revenue and operating profits were up significantly in the base business,
with additional contributions from the acquisitions. From an internal
venture developing highly technical products using our baker's yeast and
spent brewer's yeast, this business has grown to become the leading North
American producer of flavor extracts. It is poised for rapid global
expansion with over half of our production now outside the U.S. The
fourth quarter acquisitions of Champlain Industries and the Biolux Group
significantly expanded our product lines and international reach. By
combining our technology with their expertise, we can create new, high
performance natural extracts and specialty cultures, and have a European
base from which to build a strong international market position. Champlain
Industries produces savory flavorings and flavor enhancers from vegetable,
meat and milk proteins and yeast. It is a leading producer of hydrolyzed
vegetable proteins in North America, with operations in Canada, the U.S.,
and the United Kingdom. The acquisition of the Biolux Group makes us the
world leader in brewer's yeast extract technology, production and sales.
With operations in Belgium and France, its products include flavor
enhancers, health foods, feed ingredients and micro-nutrients for
pharmaceutical and biotechnology processes.
Today's multi-national food companies expect their research and
development people to roll out and support hundreds of products a year.
Our specialists know that effectively presenting ideas that meet these
companies' needs helps drive their innovation. By going beyond traditional
sales calls, we educate customers on the unique characteristics of our Red
Star flavor enhancers. And we demonstrate their capabilities by
formulating them into our customers' existing products. For our customers,
the demonstration of good taste is the ultimate test.
<PAGE>
[pages 18-22]
MANAGEMENT'S ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Years ended September 30, 1994, 1993 and 1992
Summary of Operations
In line with Universal Foods' strategy to seek higher-growth
opportunities, the Company divested its Frozen Foods Division in 1994 and
made four acquisitions totalling approximately $100 million in annualized
revenue. Results for the year were affected by the sale of the Frozen
Foods Division, which represented 26% of 1994 revenue and 30% of 1993
revenue, but less than that of operating income. The acquisitions made
modest contributions to the results of the year, based on when they were
acquired during fiscal 1994.
Net earnings in 1994 were $50.9 million or $1.95 per share compared with
$33.0 million or $1.25 per share in 1993. The 1994 net earnings include a
one time pre-tax charge for restructuring of $12.1 million or $0.29 per
share after tax. The 1993 net earnings include the cumulative effect of
accounting changes of $23.6 million or $0.90 per share. Excluding the
restructuring charge and accounting changes, earnings per share rose 4% to
$2.24 in 1994 from $2.15 in 1993. Revenue for 1994 also rose 4% to $929.9
million compared with $891.6 million in 1993.
The restructuring includes product line consolidations in the Company's
Flavor Division and the reorganization of sales, marketing and
distribution functions in the Red Star Yeast & Products Division. The
restructuring is being implemented during the first half of fiscal 1995
and will help boost the Company's future performance.
Results in 1994 were favorably impacted by the strong performance of the
Color Division and improvements in the Flavor Division's domestic food and
beverage business, as well as results in the Pacific Rim and the
contribution of an acquisition in Europe. Strong growth in its base
business and two acquisitions benefitted the Red Star BioProducts
Division.
Financial Condition and Outlook
Universal Foods' financial condition remains sound. The company is
conservative in its financial dealings, but will take prudent risks when
the anticipated return is appropriate.
The ratio of current assets to current liabilities was 1.7 in 1994
compared with 1.8 in 1993 and 1.6 in 1992. Long-term debt was 31.2% of
total invested capital at the conclusion of 1994, 32.1% at the end of 1993
and 33.9% at the end of 1992.
Although the Company focuses on higher-growth businesses, it continues to
compete in a low-inflation and slow-growth environment in the food
industry, especially domestically where food processors are experiencing
only modest volume growth coupled with competitive pricing. The result
will be an ongoing emphasis on cost reduction efforts aimed at suppliers,
and further consolidation and downsizing among food processors. The
Company views these industry conditions as an opportunity to be among the
select number of companies participating in long-term supplier
relationships.
Universal Foods' growth in this industry environment will come from volume
gains generated by market share growth, the impact of previous
acquisitions, modest price increases, a continued shift to high-margin
product mixes and decreased costs. Additional growth is possible through
acquisitions. The Company also expects to continue to increase total
revenue provided by exports and manufacturing operations outside the
United States to enhance its position as a supplier to international
customers.
Certain of the Company's businesses and products provide slower, stable
growth while others can be expected to achieve higher levels of
performance. As a supplier of value-added ingredients, the Company can
benefit from new trends in the food and beverage industry. It has the
technology and flexibility to meet changing customer needs as well as to
supply both brand name and private label manufacturers. Additional
opportunities exist in leveraging its food-related technology and
processing expertise into other areas. Currently, about 10% of revenue
comes from non-food applications.
Review of Operations
Revenue: Revenue in 1994 was $930 million compared with $892 million in
1993 and $883 million in 1992. In 1994 the Company's ongoing operations
increased revenues by $67 million which was offset by revenue declines of
$29 million in the Frozen Foods Division which was sold on August 1, 1994.
Of the 1994 sales growth from ongoing operations, 33% was generated from
the Flavor Division by volume gains through acquisitions, growth in U.S.
food and beverage flavors and strong sales in the Pacific Rim. The Color
Division generated 29% of the revenue growth through volume gains and a
concentration of sales in higher dollar-value products. The BioProducts
Division contributed 22% of the gains through growth in higher-value
products and the benefit of two acquisitions in the fourth fiscal quarter.
Modest revenue gains were also achieved by the Dehydrated and Red Star
Yeast & Products Divisions.
In 1993, the Company was able to continue growth in revenue through
acquisitions, volume increases and market share growth, both domestically
and internationally, despite the loss of approximately $35 million in
revenue from the closing of a Minnesota french fry processing plant in
1992. Of the 1993 increase in revenue of $43 million from ongoing
operations, 24% of the growth was generated by the Color Division due to
volume gains from acquisitions and a concentration of sales in higher
dollar-value products. Increased volumes and strong retail sales fueled
the Red Star Yeast & Products Division's contribution of another 23% to
the total revenue gain. The gains more than offset the 6% revenue decline
in the Frozen Foods Division resulting primarily from the closing of the
Minnesota plant in 1992. Revenue from the Flavor Division declined
slightly due to weak demand in Europe and in the domestic dairy flavors
market.
International Revenue: Revenue generated outside the United States is
becoming increasingly important to the Company. In 1994, such revenue was
$232 million, or approximately 25% of total revenue. Approximately 20% of
total revenue was from international manufacturing activities and the
remaining 5% from export sales.
The Company continues to recognize that expansion internationally will
play a key role in its overall growth. With the 1994 sale of the Frozen
Foods Division and the full-year impact of acquisitions made in the fourth
quarter of fiscal 1994, the percentage of revenue generated outside of the
U.S. is expected to reach approximately 35% in 1995.
Revenue generated outside the United States was $184 million in 1993, or
21% of total Company sales. In 1992, it was $176 million or 20%.
Cost of Products Sold: The cost of products sold represented 66% of
revenue in 1994 and 1993, and 67% in 1992. The flat level in 1994 compared
with 1993 reflects higher raw material costs in the Frozen Foods Division
which were offset by volume efficiencies in the Flavor and BioProducts
Divisions.
Selling and Administrative Expenses: Expenses remained flat at 22% of
revenue in 1994 and 1993, compared with 21% in 1992. The flat level of
expenses reflects the Company's continued focus on cost reduction.
Operating Income: Excluding a one-time charge for restructuring of $12.1
million, operating income in 1994 increased by $3 million, or 3%. This
compares with an increase of $3 million, or 3%, in 1993 when compared with
1992 operating income, excluding a one-time, pre-tax charge of $19.3
million. Operating income decreased $4 million, or 3%, in 1992.
The 1994 increase is attributable to operating income increases in the
Flavor, Color and BioProducts Divisions which offset weak operating
earnings in the Frozen Foods Division due to increased selling costs and
production costs associated with raw material quality.
The 1993 increase was attributable to a sales focus on higher-margin
products Company-wide, and to improvements in the Frozen Foods Division.
The operating income decline in 1992 was attributable to very competitive
conditions in the frozen french fry and baker's yeast industries.
Income Tax: The effective rate of income tax expense was 37.3% in 1994,
compared with 37.5% in 1993 and 37.8% in 1992. The effective tax rate
varies from the statutory rate due to the addition of state taxes and the
non-tax-deductibility of intangible amortization, less the benefits of tax
credits. We anticipate the effective tax rate for fiscal 1995 will be
approximately 37.5%, excluding any impact from the sale of the Frozen
Foods Division.
In August 1993, the Revenue Reconciliation Act of 1993 was signed into law
as an amendment to the United States Internal Revenue Code. The Company
has reviewed the provisions of the Act and, based on the initial
assessment, it is anticipated that the new tax act will not have a
material impact on the Company's future operating results.
Accounting Changes: During 1993, Universal Foods adopted Statement of
Financial Accounting Standards (SFAS) No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions," SFAS No. 112 "Employers'
Accounting for Postemployment Benefits," and SFAS No. 109 "Accounting for
Income Taxes." Standards 106 and 112 require the accrual of certain
benefit costs during the years an employee provides service rather than
when they are paid. The combined impact of these accounting changes
resulted in a cumulative, non-cash charge to net earnings in 1993 of $23.6
million or $0.90 per share.
Review of Financial Condition--Balance Sheet
Assets: Assets increased 5%. The increase reflects approximately $130
million of assets acquired offset by the sale of Frozen Foods Division
assets of approximately $171 million. Cash and cash equivalents increased
primarily as a result of $163 million of cash proceeds received to date
from the sale of the Frozen Foods Division less the cost of businesses
acquired and the reduction in short-term borrowings.
In 1993, assets increased 4%. A strong sales performance in September
resulted in a 6% increase in trade accounts receivable as well as the flat
inventory levels at the end of the year. Two small business acquisitions,
Spectrum, S.A. and Columbia Sun, Inc., and the 1993 capital expenditure
program contributed to the increase. Assets increased 7% in 1992 primarily
due to acquisitions. Trade accounts receivable increased 19%, reflective
of three European acquisitions made since August 1991.
Current Liabilities and Long-Term Debt: Current liabilities in 1994
increased 10% primarily as a result of the 1994 acquisitions and the
Frozen Foods sale. Long-term debt, including current maturities, increased
$15 million. During 1994 the Company borrowed $40 million of fixed-rate
long-term debt at interest rates of approximately 6.54%.
In 1993, current liabilities decreased 5% while long-term debt experienced
an increase of 2%. Certain short-term borrowings were paid off from
positive cash flow generated in 1993 or were refinanced with long-term
borrowings. Two 1993 business acquisitions and the purchase of certain
technological properties from a third business also required the use of
additional long-term debt.
The increase in total liabilities in fiscal 1992 was a direct result of
two European acquisitions and the repurchase of approximately 459,000
shares of Company stock.
Floating rate borrowings under a commercial paper program are classified
as long-term debt because the committed revolving credit line which backs
up this program has a two-year term.
Universal Foods has a goal of maintaining long-term debt below 35% of
invested capital, and if exceeded, to return to that level within a three-
year period. Long-term borrowings were in line with this objective in
1994.
Shareholders' Equity: Total shareholders' equity rose $22.3 million, or
7%, in 1994. The Company's goal is to achieve a return on average
shareholders' equity of 20% each year. In 1994, this return was 18.5%
compared with 18.0% in 1993 and 17.6% in 1992, excluding adjustments for
accounting changes and unusual items.
Review of Financial Condition Cash Flow
Operating Activities: Liquidity, defined as cash and equivalents net of
short-term borrowings, improved by $42.4 million in 1994 following an
increase of $17.6 million in 1993 and a $25.6 million decrease in 1992.
The increase was due to the sale of the Frozen Foods Division.
The Company's primary sources of liquidity are cash provided from
operating activities and external debt. Historically, the Company's
liquidity position has been adequate to fund substantial investments to
sustain the Company's growth. Working capital needs and plant and
equipment requirements during 1994 were funded from internally generated
cash and the proceeds of the sale of the Frozen Foods Division, as well as
long-term borrowing made in accordance with the Company's credit
agreements.
It is anticipated that the Company's internally generated cash will be
sufficient to fund anticipated operating and capital expenditures during
fiscal 1995. Acquisitions may require additional funding but will be made
in accordance with the Company's long-term debt-to-capital ratio objective
as well as other measures of financial strength.
Investing Activities: With customers placing increased responsibility on
their suppliers to develop unique products and provide the best service,
continued investment in technology and process expertise is key to
remaining a supplier of choice. Capital spending in 1994 totaled $55.1
million compared with $36.3 million during 1993. Among the more
significant capital projects in 1994 were ones to add capacity and upgrade
computer systems in the Flavor Division, to improve efficiencies in the
Frozen Foods Division, and to increase capacity in the Color Division.
During 1994, the Company acquired four businesses: Destillaciones Garcia
de la Fuente, S.A., a Spanish flavor and fragrance business; a unit of the
Campbell Soup Company based in Ireland which now operates as Mallow Foods,
a dehydrator of vegetables products; Champlain Industries Limited, a
Canadian producer of flavor enchancers and savory flavorings; and the
Biolux Group, a European producer of ingredients from brewer's yeast. The
total purchase price was $91.5 million. In 1994, the Company also entered
an agreement with Minn-Dak Yeast Company, Inc. for contract manufacturing
under the Red Star label and to supply molasses, a major raw material in
yeast production. In keeping with the Company's overall business strategy,
these acquisitions are expected to enhance current manufacturing and
distribution capabilities, as well as expand its abilities in new product
development.
In fiscal 1995, capital expenditures are anticipated to be between $40 and
$50 million; depreciation should approximate $30 million.
Financing Activities: The Company is favorably viewed by many lenders in
the short-term debt market and can borrow at very attractive rates. For
this reason, it uses commercial paper raised in the Milwaukee market as a
source for much of its working capital needs.
The Company has paid uninterrupted quarterly dividends since commencing
public trading in its stock over twenty years ago. In 1994 dividends paid
per share were $0.92, up 5% over $0.88 in 1993, which was an increase of
5% over $0.84 in 1992. As evidence of the Company's continued effort to
provide shareholders with immediate and tangible participation of current
earnings, the dividends paid in 1994 represented 41% of net earnings
before the one-time restructuring charge, exceeding the Company's goal of
paying annual cash dividends between 35% and 40% of earnings. Subsequent
to year-end, the dividend on common shares was increased to an annualized
rate of $0.96 per share, a 4% increase.
Other Issues
Inflation: Over the last three fiscal years, inflation has had a minimal
effect on reported results of operations and the Company's financial
condition. The Company attempts to mitigate the effects of inflation by
adjusting product prices, as well as aggressively making cost and quality
improvements, including capital investments in more efficient plants and
equipment and investment in employee training and development. Although
inflation has slowed in the United States in recent years, it is still a
factor in some of the Company's markets around the world. Nevertheless,
inflation is not expected to adversely affect 1995 results.
Environmental Issues: Universal Foods has a proactive environmental
program, taking the initiative rather than waiting for legal mandates to
prod action. The Company provides employee training and encourages active
employee involvement with respect to environmental concerns.
The Company has strengthened its environmental policy, placing emphasis on
process changes to reduce or eliminate environmental discharges, rather
than relying on costly emission control investments to treat waste after
it is produced.
Equal Opportunity Policy: Universal Foods is an Equal Opportunity
Employer. The Company strives to create a working environment free of
discrimination and harassment with respect to race, sex, color, national
origin, religion, age, disability or being a veteran of the Vietnam era,
as well as to make reasonable accommodations in the employment of
qualified individuals with disabilities.
Corporate Governance: Universal Foods believes it is managed in a way that
is fair to all its shareholders and which allows its shareholders to
maximize the value of their investment by participating in the present and
future growth of the Company.
Independent Board of Directors: The Company's Board of Directors is
composed primarily of independent members. Nominees for board members are
selected to provide a diversity of expertise, experience and achievements
in general business and food-related fields which allow the Board to most
effectively represent the interests of all the Company's shareholders.
Independent Committees: The principle audit, nominating and compensation
and development committees of the board are composed of directors who are
not employees of the Company. These committees, as well as the entire
Board, consult with and are advised by outside consultants and experts in
connection with their deliberations as needed.
Executive Compensation: A significant portion of executive compensation is
tied to the Company's success in meeting specific performance goals. The
overall objectives of this policy are to attract and retain the best
possible executive talent, to motivate these executives to achieve the
Company's business strategy goals, to link executive and shareholder
interests through equity-based plans and to provide a program that
recognizes individual contributions.
Scientific Advisory Committee: As an advisory committee to the Board, this
group reviews research and development programs with respect to the
quality and scope of work undertaken, advises the Company on maintaining
product leadership through technological innovation, reports on new
technological trends and suggests new emphasis for research.
Confidential Voting: The Company provides for confidential shareholder
voting by employing an independent tabulation service. Proxy cards which
identify the particular vote of a shareholder are not seen by the Company
unless it is necessary to meet legal requirements or in the event a
shareholder has made a written comment.
Corporate Responsibility: The Company is committed to the health and well-
being of the communities in which it does business. Universal Foods
supports an initiative to return 2% of pre-tax earnings to its communities
through contributions and in-kind donations of products and services. The
Universal Foods Foundation is a not-for-profit organization formed by the
Company to manage its charitable contributions. Areas that receive support
are education, health and human services, culture and the arts, and civic
and community causes.
(Bar charts)
International Revenue In millions
1994 $232
1993 $184
1992 $176
1991 $127
1990 $97
Operating Margins
1994(1) 11.7%
1993 11.9%
1992(1) 11.6%
1991 12.7%
1990(1) 10.8%
(1) Excludes unusual item; see Note B on page 27 and notes on page 34
for discussion.
Long-Term Debt to Invested Capital
1994 31.2%
1993 32.1%
1992 33.9%
1991 32.6%
1990 31.5%
Capital Expenditures/Depreciation In millions
1994 $55.1/$31.0
1993 $36.4/$29.6
1992 $45.0/$28.1
1991 $54.8/$24.2
1990 $74.4/$21.8
<PAGE>
[page 22]
<TABLE>
QUARTERLY FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share data)
<CAPTION>
Gross Earnings Market Price Dividends
Revenue Profit Earnings Per Share High Low Per Share
1994<F1>
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter $220,791 $76,632 $14,460 $.55 $35.00 $30.38 $.23
Second Quarter 237,082 79,437 14,574 .56 34.38 30.00 .23
Third Quarter 249,467 81,199 15,310 .59 34.25 29.50 .23
Fourth Quarter 222,523 75,843 6,567 .25 33.38 28.88 .23
1993<F2>
First Quarter $209,374 $72,701 $13,521 $.51 $35.75 $30.25 $.22
Second Quarter 216,663 71,975 13,406 .51 35.50 31.63 .22
Third Quarter 228,036 76,285 14,340 .55 37.25 33.00 .22
Fourth Quarter 237,493 80,870 15,331 .58 36.00 31.13 .22
<FN>
<F1> See Note B of notes to consolidated financial statements for an explanation of the unusual item reported in the fourth
quarter of 1994.
<F2> The first three quarters of 1993 have been restated to reflect the accounting changes effective October 1, 1992.
Earnings and Earnings Per Share for the first quarter of 1993 are shown before the Cumulative Effect of Accounting Changes
(see Note G).
</TABLE>
<PAGE>
[pages 23-33]
<TABLE>
CONSOLIDATED EARNINGS
<CAPTION>
(Dollars in thousands)
Years ended September 30, 1994 1993 1992
<S> <C> <C> <C>
Earnings
Revenue $929,863 $891,566 $883,438
Operating costs and expenses:
Cost of products sold 616,752 589,735 593,006
Selling and administrative expenses 203,965 196,102 187,727
Unusual items--Note B 12,125 -- 19,300
-------- -------- --------
832,842 785,837 800,033
-------- -------- --------
Operating income 97,021 105,729 83,405
Interest expense 15,888 15,172 16,423
-------- -------- --------
Earnings before income taxes and
cumulative effect of accounting changes 81,133 90,557 66,982
Income taxes--Note H 30,222 33,959 25,286
-------- -------- --------
Earnings before cumulative effect
of accounting changes 50,911 56,598 41,696
Cumulative effect of accounting
changes (net of income taxes
of $14,137)--Note G -- 23,563 --
-------- -------- --------
Net Earnings $ 50,911 $ 33,035 $ 41,696
-------- -------- --------
Earnings per Common Share
Earnings before cumulative effect
of accounting changes $1.95 $2.15 $1.57
Accounting changes -- (.90) --
-------- -------- --------
Net Earnings $1.95 $1.25 $1.57
-------- -------- --------
Weighted average shares (in thousands) 26,131 26,350 26,608
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30, 1994 1993
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents--Note A $ 43,430 $ 11,356
Trade accounts receivable less allowance
for losses of $3,527 and $3,306 95,336 94,339
Inventories--Notes A and C 156,121 174,582
Prepaid expenses and other current assets 19,145 20,716
Prepaid income taxes 13,796 11,125
------- -------
Total Current Assets 327,828 312,118
Investments--Note A 13,944 9,259
Other Assets 18,384 19,243
Intangibles--at cost, less accumulated amortization
of $26,042 and $24,898--Notes A and B 147,789 107,381
Property, Plant and Equipment--Notes A and D:
Cost:
Land 14,396 12,973
Buildings 104,142 118,736
Machinery and equipment 309,847 340,446
-------- --------
428,385 472,155
Less accumulated depreciation 172,666 190,163
-------- --------
255,719 281,992
-------- --------
Total Assets $763,664 $729,993
-------- --------
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings--Note D $ 4,527 $ 14,945
Accounts payable and accrued expenses--Notes A and B 127,823 129,481
Salaries, wages and withholdings from employees 10,330 13,499
Income taxes 28,697 11,035
Current maturities on long-term debt 20,775 5,663
-------- --------
Total Current Liabilities 192,152 174,623
Deferred Income Taxes--Note H 17,300 20,557
Other Deferred Liabilities 19,414 20,571
Accrued Employee and Retiree Benefits--Note G 35,173 37,269
Long-Term Debt--Note D 172,235 171,907
Shareholders' Equity--Notes A, D and E:
Common stock par value $.10 a share
authorized 100,000,000 shares;
issued 26,977,437 shares 2,698 2,698
Additional paid-in capital 80,066 79,826
Earnings reinvested in the business 273,800 246,939
-------- --------
356,564 329,463
Less: Treasury stock, 916,615 and
593,900 shares, respectively, at cost 25,521 14,693
Other 3,653 9,704
-------- --------
327,390 305,066
-------- --------
Total Liabilities and Shareholders' Equity $763,664 $729,993
-------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED SHAREHOLDERS' EQUITY
<CAPTION>
Other
-----------------------------------
Earnings Unearned Foreign
Additional reinvested Treasury Stock Unallocated portion of currency
Common paid-in in the ----------------- ESOP restricted translation
(Dollars in thousands) stock capital business Shares Amount stock stock adjustments
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1991 $2,698 $80,104 $217,790 283,938 $(3,221) $ (5,700) $(1,617) $1,948
Net earnings for the year 41,696
Cash dividends paid--$.84 a share (22,391)
Stock options exercised, net of
9,249 shares exchanged (110) (49,080) 656
Dividend reinvestment plan and
other 517 (27,723) 132
Amortization of restricted stock 529
Translation adjustment for year 1,938
Purchase of treasury stock 458,900 (13,795)
Reduction of ESOP loan guarantee 2,000
----------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 1992 2,698 80,511 237,095 666,035 (16,228) (3,700) (1,088) 3,886
Net earnings for the year 33,035
Cash dividends paid--$.88 a share (23,191)
Stock options exercised, net of
11,029 shares exchanged (883) (72,013) 1,761
Other (16) 21,916 (764)
Restricted stock issued 214 (23,200) 569 (783)
Restricted stock cancelled 1,162 (31) 13
Amortization of restricted stock 460
Translation adjustment for year (9,992)
Reduction of ESOP loan guarantee 1,500
----------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 1993 2,698 79,826 246,939 593,900 (14,693) (2,200) (1,398) (6,106)
Net earnings for the year 50,911
Cash dividends paid--$.92 a share (24,050)
Stock options exercised, net of
8,940 shares exchanged (524) (40,811) 1,157
ESOP contribution 690 (80,000) 1,980
Other 16 8,226 (263)
Restricted stock issued 58 (19,400) 541 (599)
Restricted stock cancelled 4,000 (125) 56
Amortization of restricted stock 452
Translation adjustment for year 3,942
Purchase of treasury stock 450,700 (14,118)
Reduction of ESOP loan guarantee 2,200
----------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 1994 $2,698 $80,066 $273,800 916,615 $(25,521) $ -- $(1,489) $(2,164)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED CASH FLOWS
(Dollars in thousands)
<CAPTION>
Years ended September 30, 1994 1993 1992
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings $50,911 $33,035 $41,696
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Cumulative effect of accounting changes -- 23,563 --
Depreciation 31,012 29,644 28,144
Amortization 5,366 5,409 4,894
Provision for losses on accounts receivable 971 988 808
(Gain) loss on sale of property, plant and
equipment and other productive assets (185) (167) 5,623
Changes in operating assets and liabilities
(net of effects from acquisitions and
disposition of businesses):
Accounts receivable (10,588) (4,299) (7,936)
Inventories (5,082) 1,498 3,757
Prepaid expenses, income taxes and other assets (3,366) (9,886) (1,097)
Accounts payable and accrued expenses (3,312) (4,073) (5,792)
Salaries, wages and withholdings from employees (3,158) 845 1,841
Income taxes 16,488 2,285 1,496
Deferred income taxes (4,889) 2,976 1,989
Other liabilities (12,526) 933 (7,884)
Net Cash Provided by Operating Activities 61,642 82,751 67,539
Cash Flows from Investing Activities
Acquisition of property, plant and equipment (55,071) (36,363) (44,982)
Acquisition of new businesses--net of cash acquired (65,909) (9,614) (18,541)
Proceeds from disposition of business and sale
of property, plant and equipment and other
productive assets 163,807 589 1,624
Increase in investments (6,827) (2,225) (1,485)
Net Cash Provided by (Used in) Investing Activities 36,000 (47,613) (63,384)
Cash Flows from Financing Activities
Proceeds from additional borrowings 42,629 27,521 45,066
Reduction in debt (70,415) (39,240) (16,400)
Proceeds from options exercised 633 878 546
Other shareholders' equity transactions (247) (780) 649
Purchase of treasury stock (14,118) -- (13,795)
Dividends (24,050) (23,191) (22,391)
Net Cash Used in Financing Activities (65,568) (34,812) (6,325)
Net increase (decrease) in cash and cash equivalents 32,074 326 (2,170)
Cash and cash equivalents at beginning of year 11,356 11,030 13,200
Cash and cash equivalents at end of year $43,430 $11,356 $11,030
Cash paid during the year for:
Interest $14,829 $16,234 $15,722
Income taxes 33,500 29,080 17,487
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1993 and 1992
Note A Summary of Significant Accounting Policies:
Nature of Business The Company manufactures and distributes dehydrated
products, food colors and flavors, frozen potato products, yeast and other
fermentation products. In 1994, the Company sold its frozen potato
products business (see Note B).
Consolidated Subsidiaries and Investments in Other Companies Substantially
all of the Company's subsidiaries are wholly-owned and their accounts are
consolidated into the Company's financial statements. The Company also has
minority interests in certain foreign companies for which it reports
earnings when cash is received for technical assistance fees and
dividends. There are no immediate prospects of other earnings
distributions.
Cash and Cash Equivalents Checks outstanding in excess of related cash
balances for disbursing accounts of approximately $5,211,000 and
$7,584,000 at September 30, 1994 and 1993, respectively, have been
reclassified as accounts payable and accrued expenses. The Company
considers all highly liquid investments with maturities of three months or
less when acquired to be cash equivalents. The effect of the Company's
foreign operations on cash flows is not material.
Inventories Inventories are stated at the lower of cost or market. Cost is
determined using primarily the first-in, first-out (FIFO) method.
Depreciation Depreciation is provided over the estimated useful lives of
plant and equipment using the straight-line method for financial
reporting. Accelerated methods are used for income tax purposes.
Intangibles Intangibles represent primarily the excess of cost over net
tangible assets of companies acquired. Goodwill is being amortized on the
straight-line method over forty years. Other intangibles, including supply
contracts, non-compete agreements and formulae, are stated at cost and
amortized on the straight-line basis over periods of two to twenty years.
Financial Instruments In the normal course of its business, the Company
enters into financial instrument transactions with off-balance sheet risk
in order to hedge its exposure to market risk regarding currency
transactions and interest rates.
Foreign Currency Contracts The Company enters into contracts to hedge
transactions denominated in international currencies and to hedge payment
of intercompany transactions with its foreign subsidiaries. At September
30, 1994, the Company had approximately $27,600,000 of foreign currency
forward contracts and currency swaps outstanding. The difference between
the contracts and estimated fair values at September 30, 1994 is not
significant. Realized and unrealized gains and losses on contracts that
hedge operating activities are recognized currently in net earnings.
Realized and unrealized gains and losses on contracts that hedge net
investments are recognized in the foreign currency adjustment in
shareholders' equity.
Interest Rate Swaps The Company utilizes interest rate swaps of various
maturities with multiple major financial institutions to manage interest
rate exposure associated with the Company's debt. The notional amount of
interest rate swaps outstanding as of September 30, 1994 and 1993 was
$40,000,000. Credit and market risk exposure are limited to net interest
differentials which are reflected in interest expense as they are accrued.
The fair value of the swaps, a (payable) receivable of ($200,000) and
$1,200,000, are the approximate amounts that would be paid or received to
terminate the agreements as of September 30, 1994 and 1993, respectively.
Translation of Foreign Currencies Assets and liabilities of foreign
operations are translated into United States dollars at current exchange
rates. Income and expense accounts are translated into United States
dollars at average rates of exchange prevailing during the year.
Adjustments resulting from the translation of financial statements of most
international units are included as foreign currency translation
adjustments in the equity section of the balance sheets. Net transaction
(gains) losses of ($697,000) in 1994, $162,000 in 1993 and ($705,000) in
1992, are included in earnings before income taxes.
Note B Acquisitions, Divestiture and Unusual Items:
The Company entered into an agreement to sell its Frozen Foods Subsidiary
effective July 31, 1994. The sale price has not been finalized and,
accordingly, at September 30, 1994 the base consideration received of
$163,000,000 less the net book value of the subsidiary and other costs
related to the sale has been included on the balance sheet with accounts
payable and accrued expenses. The anticipated gain resulting from the sale
will be reflected in the Company's results of operations upon resolution
of the closing balance sheet valuation.
In July 1994, the Company acquired all of the outstanding stock of
Champlain Industries Limited, a manufacturer of savory flavorings and
flavor enhancers, for $61,744,000 of which $37,258,000 was paid in cash
and the remaining purchase price is payable in equal installments of
$12,243,000 on June 30, 1995 and June 30, 1996. Also during 1994, the
Company purchased several other businesses for an aggregate purchase price
of $33,302,000. The excess of the total aggregate cost of all the 1994
acquisitions over the fair value of net assets acquired of approximately
$61,413,000 is being amortized by the straight-line method over forty
years. On an unaudited pro forma basis, the effects of the acquisitions
were not significant to the Company's 1994 results of operations.
In the fourth quarter of 1994, the Company provided for the costs of
restructuring its worldwide operations. The charge relates primarily to
the consolidation of its operations. This restructuring charge reduced
1994 earnings before income taxes, net earnings and earnings per share by
$12,125,000, $7,600,000 and $.29, respectively.
In 1993, the Company acquired technology and two businesses for $9,614,000
cash.
During 1992, the Company acquired two foreign businesses for an aggregate
purchase price of $23,741,000. The excess of the total aggregate cost over
the fair value of net assets acquired of approximately $20,159,000 is
being amortized by the straight-line method over forty years.
The above acquisitions have been accounted for as purchases and,
accordingly, their results of operations have been included in the
financial statements since their respective dates of acquisition.
In July 1992, the Company terminated the lease of its frozen potato
processing facility in Park Rapids, Minnesota. In connection with the
lease termination, a one-time pre-tax charge to earnings of $19,300,000
was recorded and is shown as an unusual item. This charge includes early
termination of the lease, disposition of leasehold improvements and other
costs related to ceasing production in this facility. The charge resulted
in a decrease in net earnings of $12,014,000 ($.45 per share) for the year
ended September 30, 1992.
Note C Inventories:
Inventories include finished and in-process products in the amount of
$101,046,000 and $114,178,000 at September 30, 1994 and 1993,
respectively, and raw materials and supplies of $55,075,000 and
$60,404,000 at September 30, 1994 and 1993, respectively.
Note D Debt:
Long-term debt consists of the following obligations:
(Dollars in thousands) 1994 1993
Payable in U.S. Dollars:
9.06% senior notes to insurance company payable
$4,000,000 to $6,000,000 annually, from
July 1995 to July 2004 $ 50,000 $ 50,000
8.60% senior notes to insurance company payable
$2,200,000 to $2,370,000 annually, from
November 1993 to November 2001 14,800 19,200
7.59% senior notes to insurance company payable
$4,286,000 annually from December 2002 30,000 30,000
6.70% senior notes to insurance companies payable
$2,222,000 annually from December 2001 20,000 --
6.38% senior notes to insurance companies payable
$5,000,000 annually from December 2000 20,000 --
6.21% senior notes to insurance company payable in
December 1995 20,000 20,000
Commercial paper supported by long-term loan
commitments 1,031 46,489
Corporate guaranty of loan between ESOP and a bank -- 2,200
Various mortgage notes, capital lease
obligations and other notes 2,311 2,942
Notes and credit facilities payable in
foreign currencies 34,868 6,739
------- -------
193,010 177,570
Current maturities 20,775 5,663
------- -------
Total long-term debt $172,235 $171,907
------- -------
The Company has a $55,000,000 Revolving Loan Agreement with a group of
five banks. Under the agreement, the Company has the option to elect to
have the interest rates determined based upon the prime commercial rate,
Eurodollar rate plus margin or the certificate of deposit rate plus
margin. A commitment fee is payable on the unused amount of credit. The
facility matures in July 1996. Uncommitted lines of credit totalling
$139,000,000 are also available to the Company from several banks, some of
which participate in the Revolver.
The Company issues short-term commercial paper obligations supported by
committed lines of credit included in the Revolving Loan Agreement. The
Company intends to exercise its option to borrow under the commitment
prior to its expiration date, or in the event commercial paper borrowings
cannot be renewed. Consequently, at September 30, 1994 and September 30,
1993, $1,031,000 and $46,489,000 have been reclassified as long-term debt,
respectively.
The aggregate amounts of maturities on long-term debt each year for the
five years subsequent to September 30, 1994 are as follows: 1995,
$20,775,000; 1996, $41,912,000; 1997, $7,066,000; 1998, $7,781,000 and
1999, $9,817,000.
Substantially all of the loan agreements contain restrictions concerning
working capital, borrowings, investments and dividends. Earnings
reinvested of $27,258,000 at September 30, 1994 were unrestricted.
The fair value of long-term debt (including current maturities) is
calculated using discounted cash flows for all fixed rate debt. Market
interest rates are used to determine discount factors used in the
calculation. The fair value at September 30, 1994 and 1993 was
approximately $190,000,000 and $193,000,000, respectively.
Short-term borrowings consist of the following obligations:
(Dollars in thousands) 1994 1993
Loans to foreign subsidiaries denominated in
local currencies borrowed under various foreign
uncommitted lines of credit $4,527 $11,944
Short-term loan borrowed under uncommitted lines
of credit -- 3,001
------ ------
Total short-term borrowings $4,527 $14,945
------ ------
Note E Shareholders' Equity:
In 1988, the Board of Directors adopted a common stock shareholder rights
plan ("Right") which entitles each shareholder of record to receive a
dividend distribution of common stock upon the occurrence of certain
events. The Right becomes exercisable and tradeable ten days after a
person or group acquires 20% or more, or makes an offer to acquire 20% or
more, of the Company's outstanding common stock. When exercisable, each
Right entitles the holder to purchase $100 worth of Company common stock
for $50. Further, upon the occurrence of a merger or transfer of more than
50% of the Company's assets, the Right entitles the holder to purchase
common stock of the Company or common stock of an "acquiring company"
having a market value equivalent to two times the exercise price of the
Right. At no time does the Right have any voting power. The Right is
subject to redemption by the Company's Board of Directors for $.01 per
Right at any time prior to the date which a person or group acquires
beneficial ownership of 20% or more of the Company's common stock or
subsequent thereto at the option of the Board of Directors. The Rights
expire on September 8, 1998.
In January 1994, the shareholders approved the 1994 Employee Stock Plan
(the "1994 Plan") under which the Company may issue up to 1,200,000 shares
of common stock pursuant to the exercise of stock options or the grant of
restricted stock. Of the total number, up to 250,000 shares may be awarded
as restricted stock. The 1994 Plan also authorizes the grant of up to
400,000 stock appreciation rights (SARs) in connection with stock options.
The Company also has shares available under the previously approved 1990
Stock Plan for Executive employees (the "1990 Plan").
Under the 1990 Plan, SARs have been granted in connection with certain
stock options. In lieu of exercising a stock option, SAR holders are
entitled, upon exercise of a SAR, to receive cash in an amount equal to
the excess of the fair market value of such shares on the date of exercise
over the option price.
The Plans have awarded shares of restricted stock which become freely
transferable at the end of the period of restriction--five years. During
the period of restriction, the employee has voting rights and is entitled
to receive all dividends and other distributions paid with respect to the
stock.
Transactions with respect to stock options are summarized as follows:
Shares
Outstanding
Reserved Options Available
Balances at September 30, 1991
($10.591 to $36.125) 1,833,632 1,025,082 808,550
Granted ($30.00 to $33.125) -- 257,300 (257,300)
Exercised ($10.591 to $24.125) (58,329) (58,329) --
Cancelled -- (21,250) 21,250
-----------------------------------------------------------------------
Balances at September 30, 1992
($10.591 to $36.125) 1,775,303 1,202,803 572,500
Granted ($33.75 to $34.75) -- 311,600 (311,600)
Restricted stock awarded (23,200) -- (23,200)
Exercised ($10.591 to $34.125) (83,042) (83,042) --
Cancelled -- (16,950) 16,950
-----------------------------------------------------------------------
Balances at September 30, 1993
($11.833 to $36.125) 1,669,061 1,414,411 254,650
Authorized under the 1994 Plan 1,200,000 -- 1,200,000
Granted ($30.875 to $32.25) -- 339,900 (339,900)
Restricted stock awarded (19,400) -- (19,400)
Exercised ($11.833 to $29.625) (49,751) (49,751) --
Cancelled -- (104,250) 104,250
----------------------------------------------------------------------
Balances at September 30, 1994
($11.833 to $36.125) 2,799,910 1,600,310 1,199,600
----------------------------------------------------------------------
At September 30, 1994, 868,662 shares were exercisable at prices ranging
from $11.833 to $36.125.
The Company is authorized to issue 250,000 shares of cumulative preferred
stock.
The Company's Employee Stock Ownership Plan ("ESOP") had loans with a
third party lender which were guaranteed by the Company. During 1994, the
ESOP repaid the loans with proceeds from Company contributions and
dividends paid on Company stock. The ESOP's debt of $2,200,000 at
September 30, 1993 is shown as a reduction of shareholders' equity.
Note F Retirement Plans:
The Company primarily provides benefits under defined contribution plans
including a savings plan and ESOP. The savings plan covers substantially
all domestic salaried and certain non-union hourly employees and provides
for matching contributions up to 4% of each employee's salary. The ESOP
covers substantially all domestic employees not covered by a defined
benefit plan and provides for contributions of 6% to 10% of the employees
salary. Total expense for the Company's defined contribution plans was
$8,112,000, $7,364,000 and $6,994,000 in 1994, 1993 and 1992,
respectively.
Note G Postretirement and Postemployment Benefits:
The Company provides certain health insurance benefits to eligible
domestic retirees and their dependents. Effective October 1, 1992, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 106 (SFAS No. 106) "Employers' Accounting for Postretirement
Benefits Other Than Pensions," whereby the cost of postretirement benefits
is accrued during an employee's active service period. Prior to October 1,
1992, benefits were charged to operations in the period the claims were
paid and were not material. The Company elected to immediately recognize
the transition obligation for future benefits to be paid relating to past
employee services in fiscal 1993.
The postretirement benefit expense includes the following components:
(Dollars in thousands) 1994 1993
Service cost $1,586 $1,784
Interest cost on accumulated
benefit obligation 1,977 2,118
Amortization of prior service cost (352) --
Other -- 160
-------------------------------------------------------------------------
Postretirement benefit expense $3,211 $4,062
-------------------------------------------------------------------------
The Company continues to fund benefit costs on a pay-as-you-go basis, with
retirees paying a portion of the costs. The status of the Company's
postretirement benefit obligation at September 30, 1994 and 1993 was:
(Dollars in thousands) 1994 1993
Actuarial present value of accumulated
benefit obligation:
Retirees $ 8,287 $ 8,422
Fully eligible active plan participants 2,253 2,555
Other active plan participants 11,506 14,230
------------------------------------------------------------------------
Accumulated benefit obligation 22,046 25,207
Unrecognized prior service cost 5,277 7,032
Unrecognized gain 2,662 --
------------------------------------------------------------------------
Postretirement benefits accrued $29,985 $32,239
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation at September 30, 1994 and 1993 were 8.0%
and 7.5%, respectively. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 15% in
1993, 14% in 1994, gradually declining to 7% by the year 2001 and
remaining at that level thereafter. A one percentage point increase in the
assumed cost trend rate would increase the accumulated postretirement
benefit obligation as of September 30, 1994 by approximately $4,300,000
and the aggregate of the service and interest cost components of the 1994
postretirement benefit expense by $867,000.
During 1994, the Company had a curtailment of accumulated postretirement
benefits relating to employees of the Frozen Foods Subsidiary which was
sold effective July 31, 1994. The gain resulting from the curtailment has
been included with other costs of the transaction and will be recognized
when the sale is finalized (see Note B).
In addition, effective October 1, 1992, the Company adopted Financial
Accounting Standards No. 112 (SFAS No. 112), "Employers' Accounting For
Postemployment Benefits." This standard requires employers to accrue the
cost of benefits to former or inactive employees after employment but
before retirement.
The adoption of SFAS Nos. 106 and 112, resulted in a non-cash pre-tax
charge of $37,700,000 as of October 1, 1992 and has been reflected as a
cumulative effect of accounting changes. Net earnings per share, before
cumulative effect of accounting changes, for the year ended September 30,
1993 would have been $2.25, as compared to $2.15, if SFAS Nos. 106 and 112
had not been adopted.
Note H Income Taxes:
Effective October 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109).
The cumulative and fiscal 1993 effect of the accounting change was not
material. SFAS No. 109 requires the Company to compute deferred income
taxes based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized.
The provision for income taxes, including the income tax effect of
accounting changes in 1993, is as follows:
(Dollars in thousands) 1994 1993 1992
Currently payable:
Federal $36,759 $23,394 $18,023
State 6,684 4,082 3,246
Foreign 5,754 3,954 2,581
Deferred (benefit):
Federal (16,592) (10,057) 863
State (2,862) (1,521) 186
Foreign 479 (30) 387
-------- ------- --------
$30,222 $19,822 $25,286
-------- -------- --------
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following:
(Dollars in thousands) 1994 1993
Deferred tax assets:
Inventory valuation $ 5,690 $ 5,747
Employee and retiree benefits 16,432 15,601
Sale of assets, plant closings
and asset write-downs 6,874 8,761
Other 13,910 14,744
-------------------------------------------------------------------------
Gross deferred tax assets 42,906 44,853
Valuation allowance (6,112) (5,878)
-------------------------------------------------------------------------
Total deferred tax assets $36,794 $38,975
-------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment $21,234 $33,080
Other 19,064 15,327
-------------------------------------------------------------------------
Total deferred tax liabilities $40,298 $48,407
-------------------------------------------------------------------------
Net deferred tax liability $ 3,504 $ 9,432
-------------------------------------------------------------------------
The effective tax rate differs from the statutory Federal income tax rates
of 35% in 1994 and 1993, and 34% in 1992, as described below:
(Dollars in thousands) 1994 1993 1992
Taxes at statutory rate $28,397 $18,500 $22,774
State income taxes, net of Federal
income tax benefit 2,484 1,665 2,265
Affordable housing tax credits (1,980) (531) --
Other, net 1,321 188 247
-------------------------------------------------------------------------
Provision for income taxes $30,222 $19,822 $25,286
-------------------------------------------------------------------------
Effective tax rate 37.3% 37.5% 37.8%
-------------------------------------------------------------------------
Earnings before income taxes and cumulative effect of accounting changes
are summarized as follows:
(Dollars in thousands) 1994 1993 1992
United States $63,079 $80,483 $59,107
Foreign 18,054 10,074 7,875
------------------------------------------------------------------------
$81,133 $90,557 $66,982
------------------------------------------------------------------------
Domestic income taxes have not been provided on undistributed earnings of
foreign subsidiaries which are considered to be permanently invested. If
undistributed foreign earnings were to be remitted, foreign tax credits
would substantially offset any resulting domestic tax liability.
Note I Commitments and Contingencies:
Aggregate minimum rental commitments at September 30, 1994 for all
noncancelable operating leases with an initial term greater than one year
were as follows:
(Dollars in thousands)
1995 $ 3,697
1996 2,577
1997 1,454
1998 917
1999 614
After 1999 1,563
-------
$10,822
-------
Rent expense totaled $16,478,000, $15,663,000 and $19,757,000 for the
years ended September 30, 1994, 1993 and 1992, respectively.
The Company is involved in various claims and litigation arising in the
normal course of business. In the opinion of management, the ultimate
resolution of these actions will not
have a material effect on the Company's financial position.
Note J Foreign Operations:
Summarized information relating to the Company's domestic and foreign
operations are as follows:
(Dollars in thousands) 1994 1993 1992
Revenue:
United States $745,487 $752,335 $747,699
Europe 104,375 74,646 78,468
Other Foreign 80,001 64,585 57,271
-------------------------------------------------------------------------
$929,863 $891,566 $883,438
-------------------------------------------------------------------------
Operating Income:
United States $76,315 $ 91,477 $ 66,272
Europe 8,060 4,315 8,290
Other Foreign 12,646 9,937 8,843
-------------------------------------------------------------------------
$97,021 $105,729 $ 83,405
-------------------------------------------------------------------------
Identifiable Assets:
United States $482,934 $569,840 $532,660
Europe 175,539 102,603 120,775
Other Foreign 105,191 57,550 48,695
-------------------------------------------------------------------------
$763,664 $729,993 $702,130
-------------------------------------------------------------------------
Transfers of product between geographic areas are not significant.
Operating income is total revenue less operating expenses. Identifiable
assets include all assets identified with the operations in each
geographic area, and an allocable portion of intangible assets recorded by
the parent.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Universal Foods Corporation is responsible for
preparation of the financial statements and other financial information
included in this annual report. The financial statements have been
prepared in accordance with generally accepted accounting principles.
It is management's policy to maintain a control-conscious environment
through an effective system of internal accounting controls. These
controls are supported by the careful selection of competent and
knowledgeable personnel and by the communication of standard accounting
and reporting policies and procedures throughout the Company. These
controls are adequate to provide reasonable assurance that assets are
safeguarded against material loss or unauthorized use and to produce the
records necessary for the preparation of reliable financial information.
There are limits inherent in all systems of internal control based on the
recognition that the costs of such systems should be related to the
benefits to be derived. Management believes that its systems provide this
appropriate balance.
The control environment is complemented by the Company's internal audit
function, which evaluates the adequacy of the controls, policies, and
procedures in place, as well as adherence to them, and recommends
improvements for implementation when applicable. In addition, the
Company's independent auditors, Deloitte & Touche LLP, have developed an
understanding of the Company's accounting and financial controls and have
conducted such tests as they considered necessary to render an opinion on
the Company's financial statements.
The Board of Directors pursues its over-sight role with respect to the
Company's financial statements through the Audit Committee, which is
composed solely of outside directors. The Audit Committee recommends
selection of the Company's auditors and meets with them and the internal
auditors to review the overall scope and specific plans for their
respective audits and results from those audits. The Committee also meets
with management to review overall accounting policies relating to the
reporting of financial results. Both the independent auditors and internal
auditors have unrestricted access to the Audit Committee.
Guy A. Osborn
Chairman and
Chief Executive Officer
John E. Heinrich
Vice President and
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Universal Foods Corporation:
We have audited the accompanying consolidated balance sheets of Universal
Foods Corporation and subsidiaries as of September 30, 1994 and 1993, and
the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the three years in the period ended September 30,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies as of
September 30, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended September 30,
1994, in conformity with generally accepted accounting principles.
As discussed in Note G to the consolidated financial statements, effective
October 1, 1992, the companies changed their methods of accounting for
postretirement benefits other than pensions and postemployment benefits to
conform with Statements of Financial Accounting Standards No. 106 and No.
112, respectively.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 10, 1994
<PAGE>
[page 34]
<TABLE>
FIVE YEAR REVIEW
<CAPTION>
(Dollars in thousands
except per share data)
Years ended September 30,
1990 through 1994 1994 1993 1992 1991<F3> 1990<F3>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $929,863 100.0% $891,566 100.0% $883,438 100.0% $834,329 100.0% $873,697 100.0%
Operating costs and expenses:
Costs of products sold 616,752 66.3 589,735 66.1 593,006 67.1 557,917 66.9 609,552 69.8
Selling and administrative
expenses 203,965 22.0 196,102 22.0 187,727 21.3 170,137 20.4 169,797 19.4
Unusual items 12,125 1.3 -- -- 19,300 2.2 -- -- (2,899) (0.3)
832,842 89.6 785,837 88.1 800,033 90.6 728,054 87.3 776,450 88.9
Operating income 97,021 10.4 105,729 11.9 83,405 9.4 106,275 12.7 97,247 11.1
Interest expense 15,888 1.7 15,172 1.7 16,423 1.9 13,975 1.7 12,179 1.4
Earnings before income taxes
and cumulative effect of
accounting changes 81,133 8.7 90,557 10.2 66,982 7.5 92,300 11.0 85,068 9.7
Income taxes 30,222 3.2 33,959 3.9 25,286 2.8 34,520 4.1 33,176 3.8
Earnings before cumulative
effect of accounting changes 50,911 5.5 56,598 6.3 41,696 4.7 57,780 6.9 51,892 5.9
Cumulative effect of accounting
changes net of tax -- -- 23,563 2.6 -- -- -- -- -- --
Net earnings $50,911 5.5% $ 33,035 3.7% $41,696 4.7% $57,780 6.9% $51,892 5.9%
Earnings per common share before
unusual items and cumulative
effect of accounting changes 2.24 2.15<F2> 2.02 2.18 1.93
Net Earnings per common share 1.95 1.25 1.57 2.18 1.98
Cash dividend--paid per
common share 0.92 .88 .84 .76 .68
S Corporation distributions
by pooled company -- -- -- 5,078 377
Weighted average shares
outstanding 26,130,783 26,350,346 26,608,350 26,537,996 26,249,552
Total assets 763,664 729,993 702,130 653,176 569,840
Shareholders' equity 327,390 305,066 303,174 292,002 252,634
Book value per common share 12.60 11.60 11.57 10.99 9.61
Price range per common share 287/8-35 301/4-371/4 263/4-397/8 285/8-403/8 213/8-337/8
Share price at September 30 29.63 33.88 31.38 38.25 29.88
Working capital 135,676 137,495 115,517 126,875 96,669
Return on Average Invested
Capital 11.8%<F1> 12.4%<F2> 12.7%<F4> 15.2% 15.3%<F5>
Return on Average
Shareholders' Equity 18.5%<F1> 18.0%<F2> 17.6%<F4> 21.2% 22.1%<F5>
Research and Development
Expenditures 32,217 28,460 26,597 25,211 21,745
Capital Expenditures 55,071 36,363 44,982 54,750 74,414
Depreciation 31,012 29,644 28,144 24,153 21,796
Amortization 5,366 5,409 4,894 5,252 5,785
Current Ratio 1.7 1.8 1.6 1.8 1.7
Long-Term Debt to
Invested Capital 31.2% 32.1% 33.9% 32.6% 31.5%
Employees 4,063 5,450 5,400 5,924 5,784
<FN>
<F1> Based on earnings excluding the after-tax effect of the unusual item of $7,600,000. Including this expense, return on
average invested capital and return on average shareholders' equity would have been 10.5% and 16.1%, respectively
<F2> Based on earnings including the annual charge for SFAS No. 106. Excluding this charge, earnings per share before
cumulative effect of accounting changes, return on average invested capital and return on average shareholders' equity would
have been $2.25, 12.9% and 18.7%, respectively.
<F3> Years 1991 and prior were restated for the 1991 pooling, except for cash dividends per common share which are on an as-
reported basis, adjusted for subsequent stock splits.
<F4> Based on earnings excluding the after-tax effect of the unusual item of $12,014,000. Including this expense, return on
average invested capital and return on average shareholders' equity would have been 10.3% and 13.8%, respectively.
<F5> Based on earnings excluding the after-tax gain of $1,222,000 on the sale of the Cheese Division, combined with the
redeployment, disposition, and reduction in carrying value of certain Company assets. Including this gain, return on average
invested capital and return on average shareholders' equity would have been 15.6% and 22.6%, respectively.
</TABLE>
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF
UNIVERSAL FOODS CORPORATION
Warner-Jenkinson Company, a New York corporation formerly known
as H. Kohnstamm & Co., Inc., has 5 foreign subsidiaries.
Rogers Foods Inc., a California corporation formerly the
Company's Dehydrated Division.
Universal Holdings Inc., a Nevada investment subsidiary which is
the parent company of Rogers Foods Inc. and the Warner-Jenkinson Company.
Universal Flavor Corporation, an Indiana corporation, has 9
domestic and 18 foreign subsidiaries.
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No.'s 33-7235, 33-27356, 33-34555, 33-35704 and 33-55437 of Universal
Foods Corporation on Form S-8 of our reports dated November 10, 1994,
which reports express unqualified opinions and include an explanatory
paragraph relating to the change in method of accounting for
postretirement benefits other than pensions and postemployment benefits to
conform with Statements of Financial Accounting Standards No. 106 and No.
112, respectively, appearing in and incorporated by reference in the
Annual Report on Form 10-K of Universal Foods Corporation for the year
ended September 30, 1994.
DELOITTE & TOUCHE LLP
December 16, 1994
Milwaukee, Wisconsin
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNIVERSAL FOODS CORPORATION AS OF AND
FOR THE YEAR ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 43,430
<SECURITIES> 0
<RECEIVABLES> 95,336
<ALLOWANCES> 3,527
<INVENTORY> 156,121
<CURRENT-ASSETS> 327,828
<PP&E> 428,385
<DEPRECIATION> 172,666
<TOTAL-ASSETS> 763,664
<CURRENT-LIABILITIES> 192,152
<BONDS> 172,235
<COMMON> 2,698
0
0
<OTHER-SE> 324,692
<TOTAL-LIABILITY-AND-EQUITY> 763,664
<SALES> 929,863
<TOTAL-REVENUES> 929,863
<CGS> 616,752
<TOTAL-COSTS> 616,752
<OTHER-EXPENSES> 12,125<F1>
<LOSS-PROVISION> 971
<INTEREST-EXPENSE> 15,888
<INCOME-PRETAX> 81,133
<INCOME-TAX> 30,222
<INCOME-CONTINUING> 50,911
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,911
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<FN>
<F1>Charge for restructuring
</FN>
</TABLE>
