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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, 1997
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
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-0561070
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
433 EAST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
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(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
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Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value New York Stock Exchange, Inc.
Associated Common Share Purchase Rights
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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 5, 1997: 27,210,916 shares of Common Stock, $.10
par value, including 1,685,850 treasury shares.
Aggregate market value of Universal Foods Corporation Common Stock,
excluding treasury shares, held by non-affiliates as of December 5, 1997 was
$1,039,585,000. In determining who are affiliates of the
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Company for purposes of this computation, it is assumed that directors,
officers, and any persons filing a Schedule 13D or Schedule 13G are "affiliates"
of the Company. The characterization of such directors, officers, and other
persons as affiliates is for purposes of this computation only and should not be
construed as a determination or admission for any other purpose that any of such
persons are, in fact, affiliates of the Company.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Universal Foods Corporation Annual
Report to Shareholders for the fiscal year ended
September 30, 1997 (Parts I, II and IV of Form 10-K)
2. Portions of Universal Foods Corporation Notice
of Annual Meeting and Proxy Statement of the Company
dated December 16, 1997 (Parts II and III of Form 10-K)
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PART I
ITEM 1. BUSINESS -- FOOD AND OTHER INDUSTRIES
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 is a
technology-driven industrial marketer of high-performance components that add
functionality to foods, cosmetics, pharmaceuticals and other products. The
Company's technical expertise and application know-how make it unique among
suppliers that serve these industries. Using its core technology as a base,
the Company is committed to moving into higher-growth businesses, both in food
segments and non-food applications.
Principal products of the Company include aroma chemicals and flavors
for foods, beverages, dairy/ice cream products, personal care and household
items; certified and natural colors for foods, cosmetics, specialty inks and
pharmaceuticals; dehydrated vegetable products sold primarily to food
processors; a diverse line of yeast products for commercial baking and other
uses; and flavor enhancers and other bioproducts for foods, feed,
pharmaceuticals and commercial use. The Company exited the frozen potato
business during fiscal 1994.
The following material from the Universal Foods Corporation 1997 Annual
Report to Shareholders is incorporated by reference:
"Management's Analysis of Operations and Financial Condition"
on Pages 13 through 17.
Note 1 - "Summary of Significant Accounting Policies" on Pages 23 and
24.
Note 10 - "Foreign Operations" on Page 29.
DESCRIPTION OF BUSINESS
Flavor
The Company conducts its food flavor business through its wholly-owned
subsidiary Universal Flavor Corporation ("Universal Flavors"). Universal
Flavors manufactures and supplies flavors, ingredient systems, and aroma
chemicals to the dairy, food processor, beverage, personal care and
household products industries worldwide. It operates plants located in New
Jersey, Illinois, Indiana and Missouri. Universal Flavors has seven
additional plants in Canada, Mexico, Belgium, the United Kingdom, Italy, and
Spain. Products are sold primarily through a direct sales force with some
assistance from food brokers. In September 1997, the Company announced plans
to consolidate its flavor operations. During fiscal 1998, the Company will
close its flavor facility in New Jersey and transfer production and technical
laboratories to Indiana. As part of the consolidation, the Company also
announced additional investments in its Flavor division, including two
expanded product development and research facilities to provide increased
customer support and product creation.
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Strategic acquisitions have expanded Universal Flavors' product lines and
processing 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, 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 S.A. de C.V. This purchase brought beverages and dairy
flavor product lines to the Company's existing Mexican flavor business.
During 1998, the Company will be integrating its BioProducts and Flavor
divisions, which have highly complementary product lines. The combined
divisions will have a broad, distinctive and fully integrated product offering,
ranging from savory flavor components to fully formulated flavor systems for
dairy, beverage, and processed food applications.
Color
The Company, through its subsidiary Warner-Jenkinson Company, Inc.("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 the Warner-Jenkinson name, are used by producers of beverages, bakery
products, processed foods, confections, pet foods, cosmetics and
pharmaceuticals. The Company became a supplier of ink-jet inks for the ink-jet
printer market with the acquisition of Tricon Colors, Inc., during the second
quarter of fiscal 1997.
W-J's major manufacturing facilities are located in Missouri. Cosmetic
and pharmaceutical colors, ink-jet inks and other high-purity organic dyes are
produced in New Jersey. Other manufacturing facilities are located in Canada,
Mexico, the United Kingdom, and the Netherlands. 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. During 1993, the
Company acquired Spectrum S.A. de C.V., a Mexican food color distributor. In
September 1997, the Company strengthened its presence in Latin America by
acquiring certain assets of the food color business of Pyosa, S.A., which is
located in Monterrey, Mexico.
Dehydrated Products
The Company's subsidiary, Rogers Foods, Inc. ("Rogers"), is the third
largest producer of dehydrated onion and garlic 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 is one of the largest producers of these
products.
Domestically, 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' U.S. processing facilities are located in California.
During 1994 and 1995, the Company acquired three European dehydrated
vegetable processors. The acquisitions give the Company a base from which to
expand its dehydrated products business internationally. These acquisitions
also expanded the Company's dehydrated technology base to include freeze drying
and frozen vegetables, puffed drying and vacuum drying.
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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.
In Europe, the Dehydrated Products division operates as UNIVERSAL
DEHYDRATES. Facilities are located in Ireland, the Netherlands, and France.
The Company believes it is the leading dehydrator of specialty vegetables in
Europe.
Yeast
The Company's Red Star Yeast & Products division specializes in the
production of compressed, cream, active dry and nutritional yeast products for
sale to commercial and retail customers under the RED STAR trademark. 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 has investments in companies operating yeast and allied product facilities
in 9 offshore locations, two of which are wholly-owned subsidiaries. The
Company receives revenues in the form of dividends and technical assistance
fees from the non-wholly owned foreign affiliates.
Company-owned domestic yeast plants are located in Wisconsin, Maryland,
Texas and California. The Company distributes its products largely through its
own sales force. In 1994, the Company purchased a 20% interest in and entered
into an agreement with Minn-Dak Yeast Company, Inc., located in North Dakota,
for contract manufacturing under the Red Star label and to supply molasses, a
major raw material in yeast production.
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 yeast group. With internally developed
expertise, the group focused on highly technical product development using
extracts from brewer's yeast and baker's yeast.
The 1994 acquisitions of Champlain Industries Limited in Canada and The
Biolux Group in Belgium expanded the division's product lines and international
presence. The expanded Red Star BioProducts division serves the food and feed
processing and bionutrient industries with the broadest line of natural extracts
and specialty flavors. 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 savory
flavor and texture modifiers and enhancers in the food
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processing industries. The nutritional and functional properties of Red Star
BioProducts extracts are the basis for their use in enzyme and pharmaceutical
production. The Company believes Red Star BioProducts is the leading supplier
of yeast extracts and second in supply of hydrolyzed vegetable proteins (HVPs)
in the U.S. market. The products are marketed under a number of Red Star
trademarks.
The division operates production facilities in Wisconsin, Michigan and New
Jersey. Foreign manufacturing is conducted in Canada, the United Kingdom,
Belgium and France. More than half of the division's products are produced
outside of the United States. Its products are marketed through technically
trained sales personnel directly to customers and through distributors in some
international markets. As part of the integration of the Flavor and
BioProducts operations, the Company plans to close its New Jersey BioProducts
facility in 1998.
Asia Pacific
In 1997, the Company established a separate operating division in the
Pacific Rim to leverage the Company's diverse business base in this region.
The Asia Pacific division, headquartered in Singapore, manages sales, marketing
and technical functions previously directed by U.S.-based divisions. Regional
technical teams create high-quality products that appeal to local and regional
preferences. The division, which offers customers the full line of Company
products under one unified name, does business as Universal Foods Corporation
(Asia Pacific). Manufacturing operations are located in Australia, Hong Kong,
New Zealand, and the Philippines.
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. The sale was a major step in Universal Foods' strategic
transition to focus on high-performance 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 had a
share of the retail market with branded and private labeled products. It
operated processing facilities in Idaho, Oregon and Washington.
RESEARCH AND DEVELOPMENT/QUALITY ASSURANCE
The Company believes that its competitive advantages and ability to
develop and deliver high-performance products are 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 400 people in research and quality
assurance. Over the past five years, expenditures as a percentage of revenue
have increased from 3.2% in 1993 to 3.8% in 1997. Expenditures in 1997 were
$31.5 million compared with $29.8 million in 1996 and $28.6 million in 1995.
The Company's commitment to research and product development continues at a
level significantly higher than the food industry average. Of the aforesaid
amounts,
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approximately $19.7 million in 1997, $21.4 million in 1996 and $19.3 million in
1995 were research and development expenses as defined by the Financial
Accounting Standards Board.
As part of its commitment to quality as a competitive advantage, the
Company has undertaken efforts to achieve certification to the requirements
established by the International Organization for Standardization in Geneva,
Switzerland, through its ISO 9000 series of quality standards. Red Star
BioProducts believes it was the first North American ingredients supplier to
receive ISO 9002 certification. Facilities currently certified include
Universal Flavors facilities in Spain, Italy and the United Kingdom; Red Star
BioProducts facilities in the United States, the United Kingdom and Canada;
Warner-Jenkinson facilities in the United States, the Netherlands and United
Kingdom; and Dehydrated Products facilities in the United States, Ireland,
France and the Netherlands.
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 use similar methods of production,
marketing and delivery, the Company competes primarily on process and
applications expertise, quality and service. The Company competes in many
market niches where price is not the most important variable. Universal Foods
competes with only a few companies across multiple ingredient lines, and is
more likely to encounter competition specific to an individual business.
With the evolution of food processing as a global business, competition to
supply the industry has taken on an increasingly global nature. 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 Flavors as demonstrated by acquisitions.
W-J is the leading producer of certified colors in North America and
Western Europe. State-of-the-art equipment, the latest process technology, a
Color Service Laboratory unequaled in the industry, 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 as well as a growing international presence. In 1997, W-J expanded
its business into the ink-jet inks market with the acquisition of Tricon
Colors, Inc.
For Dehydrated Products, acquisitions in Europe have provided
international expansion and enhanced export opportunities for U.S.-based
operations. Red Star Yeast & Products competes primarily in the North American
market and has two major competitors. Competition in Red Star BioProducts
comes primarily from domestic and European producers.
PRODUCTS AND APPLICATION ACTIVITIES
With the Company's strategic focus on high-performance 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. The Company
maintains many of its proprietary processes and formulae as trade secrets and
under secrecy agreements with customers.
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Development activities continue on a line of stable aqueous dispersion of
colors for foods and pharmaceutical products. Patents have been granted on the
products marketed under the SPECTRASPRAY and SPECTRABLEND CLEAR labels. The
development of natural food colors remain a growth opportunity for W-J. With
the 1997 acquisition of Tricon Colors, Inc., W-J expanded its purification
technology, with the primary opportunity in colors for ink-jet printers.
Lower calorie ingredients and nutritive sweeteners for dairy applications
are a focus of development activity for Universal Flavors. Formulations for
enriched beverages, new blends for juice drinks, and flavors for frozen and
alcoholic beverages offer opportunities as well. In 1997, the Flavor division
introduced the proprietary UNIZYME line of all-natural savory flavors, which
has unique performance characteristics. Development of savory flavors is
expected to accelerate, with the integration of the Company's BioProducts
division in 1998. Specialized ingredients are being developed for bakery
applications and the food service sector.
In 1997, the Company's BioProducts division commercialized several new
products. Introductions of high-performance baker's yeast extracts, which use
advanced enzyme technology in its production, build on the Flavor Mate series,
which was introduced in 1993. In 1997, the BioProducts division also
introduced a line of savory reaction flavor products in Europe. Acquisitions
in 1994 expanded the division's product line particularly in hydrolyzed
vegetable proteins. The transfer of technology to European acquisitions, begun
in 1995, has enabled the production of flavor enhancers as well as bionutrients
for pharmaceutical production. Highly refined yeast extracts are also supplied
to producers of diagnostic media.
European acquisitions in 1994 and 1995 expanded the Dehydrated Products
product line to include peas, carrots, beans, celery root and other specialty
vegetables.
In addition, the discussion of operational activities in the "Business
Profile" on Pages 4 and 5 of the 1997 Annual Report to Shareholders is
incorporated by reference.
RAW MATERIALS
In producing its products, the Company uses a wide range of raw
materials. 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 turmeric, 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 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 supply
arrangements on supplies of brewer's yeast for European production needs.
Chili peppers, onion, garlic and other vegetables are acquired under annual
contracts with numerous growers in the western United States and Europe.
The principal raw material used in the production of yeast products is
molasses, which is purchased through brokers and producers, usually under
yearly fixed-price contracts. Processes have been developed to permit partial
replacement of molasses with alternate,
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readily-available substrates for use if molasses supplies should become
limited. In 1994, the Company entered into a supply agreement with Minn-Dak
Farmers Cooperative, a major North American molasses supplier, to provide
additional assurances of adequate supplies.
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, 1997, the Company employed 4,127 persons worldwide.
Approximately 650 U.S. employees are represented by one of the 12 union
contracts 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. Compliance is not expected to have a
material adverse effect in the succeeding two years as well. 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 U.S.
Food & Drug Administration.
ITEM 2. PROPERTIES
Domestically, the Company operated 18 manufacturing and processing plants
in nine states as of September 30, 1997. Four plants produced yeast, three
facilities provided flavor enhancers and other bioproducts, three produced
dehydrated products, four plants produced colors and related products, and four
plants produced flavors. None of these properties are held subject to any
material encumbrances. At September 30, 1997, the Company operated 26 foreign
manufacturing facilities located in one U.S. territory and 16 foreign
countries. Of these facilities, two produced or distributed yeast, four
produced flavor enhancers and other bioproducts, three manufactured dehydrated
and frozen vegetables, four produced colors only, twelve produced or
distributed flavors and aroma chemicals only, and one produced both flavors and
colors. In addition, the Company has minority interest investments in eight
companies located in the U.S. and seven foreign countries.
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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 1997.
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ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant and their ages as of
December 1, 1997 are as follows:
EXECUTIVE OFFICERS
Name Age Position
---- --- --------
Kenneth P. Manning 55 Chairman, President and Chief Executive Officer
Richard Carney 47 Vice President - Human Resources
Steven O. Cordier 41 Treasurer
Michael Fung 47 Vice President and Chief Financial Officer
Michael L. Hennen 44 Controller
Richard F. Hobbs 50 Vice President - Administration
R. Steven Martin 41 Vice President and Group Executive
Terrence M. O'Reilly 52 Vice President, Secretary and General Counsel
James F. Palo 57 President - Dehydrated Products
Kenneth G. Scheffel 61 Vice President - Technologies
K.T. Thomas Tchang 46 President - Red Star Yeast & Products
William Tesch 47 President - Red Star BioProducts
Charles G. Tuchel 42 President - Universal Flavor
Michael A. Wick 54 President - Color
Messrs. Carney, Cordier, Fung, Hennen, Martin, Tchang, Tesch and Tuchel
have been employed by the Company in an executive capacity for less than five
years.
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. Cordier joined the Company in October 1995 as Treasurer. From 1990
until joining the Company he was Director of Financial Planning at
International Flavors and Fragrances, a New York Stock Exchange company.
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Mr. Fung joined the Company in June 1995 as Vice President and Chief
Financial Officer. From 1992 to 1995 he served as Senior Vice President and
Chief Financial Officer for Vanstar Corporation, a leading provider of products
and services to design, build and manage computer network infrastructures for
large enterprises. From 1988 to 1992, Mr. Fung was Vice President and Chief
Financial Officer of Bass Pro Shops and Tracker Marine Corporation,
privately-held companies operated under common ownership involved in the
manufacture and marketing of outdoor sporting goods.
Mr. Hennen joined the Company in January 1995 as Controller. From 1985
until joining the Company he was a Senior Manager at Deloitte & Touche LLP, a
public accounting firm providing audit and tax services to the Company as its
outside auditor.
Mr. Martin was elected Vice President and Group Executive in June 1997.
He joined the Company as Vice President - Marketing of its Red Star Yeast &
Products Division in 1993. In June 1995, Mr. Martin was elected President -
Red Star Yeast & Products Division. Prior to joining the Company, Mr. Martin
was with the Monsanto Company since 1978 in various general management
positions.
Mr. Tchang was elected President - Red Star Yeast & Products Division in
September 1997. He joined the Company in 1995 as Vice President, Sales and
Marketing for the Company's BioProducts division. Immediately prior to joining
the Company, he was the business director of Huntsman Specialty Chemicals Corp.
Mr. Tesch joined the Company in 1971, becoming Plant Manager of the Red
Star BioProducts Division in 1989. From 1993 to 1994 he was Director, Training
and Development of The Universal Way and from 1994 to 1996 he served as Vice
President, Manufacturing Operations of the Red Star BioProducts Division. On
April 16, 1996, Mr. Tesch was elected President of the Red Star BioProducts
Division.
Mr. Tuchel joined the Company in May 1992 as the Managing Director -
Europe for the Color Division. In October 1994, he was promoted to Vice
President and General Manager of Universal Flavors International, and in June
1995 elected President - Flavor Division. Prior to joining the Company, Mr.
Tuchel was Business Manager at ICI Petrochemicals from 1990 through 1992.
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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
1997 appearing under "Common Stock prices and dividends" on Page 18 of the 1997
Annual Report to Shareholders 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,
1997, $10,734,000 is available for the payment of dividends on the common stock
of the Company under the most restrictive loan covenants.
On January 27, 1994 the Board of Directors established a share repurchase
program which authorizes the Company to repurchase up to 2.5 million shares.
As of September 30, 1997, 970,718 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 7 of Notes to
Consolidated Financial Statements - "Shareholders' Equity" on Page 26 of the
1997 Annual Report to Shareholders and which is incorporated by reference.
The number of shareholders of record on December 5, 1997 was 5,719.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data required by this item is incorporated by
reference from the "Five-Year Review" and the notes thereto on Page 31 of the
1997 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
"Management's Analysis of Operations and Financial Condition" is
incorporated by reference from Pages 13 through 17 of the 1997 Annual Report to
Shareholders.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are
set forth on Pages 18 through 30 of the 1997 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 2 through Page 6 and Pages 22-23, respectively, of the Notice
of Annual Meeting and Proxy Statement of the Company dated December 16, 1997,
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 15 of the Notice of Annual Meeting and Proxy Statement of the
Company dated December 16, 1997.
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 and 9 of the
Notice of Annual Meeting and Proxy Statement of the Company dated December 16,
1997, 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, 1996 through
September 30, 1997, 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.
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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 Schedule.
(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
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LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
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Page Reference in
1997 Annual Report
1. FINANCIAL STATEMENTS to Shareholders
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<S> <C>
The following consolidated financial statements of Universal Foods
Corporation and Subsidiaries are incorporated by reference from the
Annual Report to Shareholders for the year ended September 30, 1997.
Independent Auditors' Report 30
Consolidated Balance Sheets - September 30, 1997 and 1996 20
Consolidated Earnings - Years ended September 30, 1997, 1996, and 1995 19
Consolidated Shareholders' Equity - Years ended September 30, 1997,
1996 and 1995 21
Consolidated Cash Flows - Years ended September 30, 1997, 1996 and 1995 22
Notes to Consolidated Financial Statements 23 - 29
<CAPTION>
Page Reference in
2. FINANCIAL STATEMENT SCHEDULES Form 10-K
----------------------
<S> <C>
Independent Auditors' Report 15
Schedule II - Valuation and Qualifying Accounts and Reserves 16
</TABLE>
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.
14
<PAGE> 17
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, 1997 and 1996 and for each of the three years in
the period ended September 30, 1997, and have issued our report thereon dated
November 13, 1997, which report expresses an unqualified opinion and includes a
paragraph relating to the adoption of the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of"; such consolidated
financial statements and report are included in your 1997 Annual Report to
Shareholders and are incorporated herein by reference. Our audits also included
the consolidated financial statement schedule of Universal Foods Corporation,
listed in Item 14. This consolidated financial statement schedule is 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 schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCH LLP
Milwaukee, Wisconsin
November 13, 1997
15
<PAGE> 18
SCHEDULE II
UNIVERSAL FOODS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(IN THOUSANDS)
YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
Additions
Valuation accounts charged
deducted in the balance Balance at to costs Balance
sheet from the assets to beginning and at end of
which they apply of period expenses Deductions(A) period
- ------------------------ ---------- --------- ------------- ---------
<S> <C> <C> <C> <C>
1995
Allowance for losses:
Trade accounts
receivable $3,527 $1,356 $1,115 $3,768
====== ====== ====== ======
1996
Allowance for losses:
Trade accounts
receivable $3,768 $ 349 $ 608 $3,509
====== ====== ====== ======
1997
Allowance for losses:
Trade accounts
receivable $3,509 $ 572 $ 47 $4,034
====== ====== ====== ======
</TABLE>
(A) Accounts written off, less recoveries.
16
<PAGE> 19
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, thereunto duly authorized.
UNIVERSAL FOODS CORPORATION
By: /s/ T. M. O'Reilly
------------------------------
T. M. O'Reilly, Vice President
Secretary & General Counsel
Dated: December 22, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on December 22, 1997, by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ Kenneth P. Manning Chairman of the Board, President and
- -------------------------------- Chief Executive Officer
Kenneth P. Manning
/s/ Michael Fung Vice President and Chief Financial
- -------------------------------- Officer
Michael Fung
/s/ Michael L. Hennen Corporate Controller
- --------------------------------
Michael L. Hennen
/s/ Michael E. Batten Director
- --------------------------------
Michael E. Batten
Director
- --------------------------------
John F. Bergstrom
S-1
<PAGE> 20
/s/ James A.D. Croft
- ----------------------------------
James A.D. Croft Director
/s/ James L. Forbes
- ----------------------------------
James L. Forbes Director
/s/ Dr. Carol I. Waslien Ghazaii
- ----------------------------------
Dr. Carol I. Waslien Ghazaii Director
/s/ William V. Hickey
- ----------------------------------
William V. Hickey Director
/s/ Leon T. Kendall
- ----------------------------------
Leon T. Kendall Director
/s/ James H. Keyes
- ----------------------------------
James H. Keyes Director
/s/ Guy A. Osborn
- ----------------------------------
Guy A. Osborn Director
/s/ Essie Whitelaw
- ----------------------------------
Essie Whitelaw Director
S-2
<PAGE> 21
UNIVERSAL FOODS CORPORATION
EXHIBIT INDEX
1997 ANNUAL REPORT ON FORM 10-K
The Company will furnish a copy of any exhibit described below upon
request and upon reimbursement to the Company of its reasonable expenses of
furnishing such exhibit, which shall be limited to a photocopying charge of
$0.25 per page and, if mailed to the requesting party, the cost of first-class
postage.
Exhibit Incorporated Herein Filed
Number Description by Reference from Herewith
- ------- ---------------- ---------------------- -----------
3.1 Restated Articles of Previously filed at
Incorporation Exhibit 3.1 to the
1993 Annual Report
on Form 10-K
3.2 Restated Bylaws Previously filed at
Exhibit 3.2 to the
1995 Annual Report
on Form 10-K
4 Shareholders Rights Plan Previously filed on
Form 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 Employment Previously filed at
Contract Exhibit 10(a) to the
1985 Annual Report on
Form 10-K
* (d) 1990 Employee Stock Previously filed with
Plan the Notice of Annual
Meeting & Proxy Statement
dated December 18, 1989
* (e) Director Stock Grant Previously filed as
Plan, as amended Exhibit 10(e) to
the 1991 Annual
Report on Form 10-K
Exhibit Index - Page 1
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit Incorporated Herein by Filed
Number Description Reference from Herewith
- ------- ---------------- ------------------------ ----------
<S> <C> <C> <C>
* (f) Management Income Previously filed as
Deferral Plan Exhibit 10(f) to
the 1991 Annual
Report on Form 10-K
* (g) Executive Income Previously filed as
Deferral Plan Exhibit 10(g) to
the 1991 Annual
Report on Form 10-K
* (h) Change of Control Previously filed as
Employment and Exhibit 10(h) to
Severance Agreement the 1995 Annual
Report on Form 10-K
(i) Trust Agreement dated Previously filed as
January 18, 1988 between Exhibit 18 to Amendment
and the Company Marshall No. 1 of the Company's
& Ilsley Trust Company Schedule 14D-9 filed
December 9, 1988
(j) Trust Agreement dated Previously filed as
January 18, 1988 Exhibit 19 to
between the Company Amendment No. 1 of
and Marshall & Ilsley the Company's Schedule 14D-9
Trust Company filed December 9, 1988
(k) Trust Agreement dated Previously filed as Exhibit
September 18, 1988 20 to Amendment No. 1 of the
between the Company Company's Schedule 14D-9 filed
and Marshall & Ilsley December 9, 1988
Trust Company
* (l) Management Incentive Plan X
for Elected Corporate
Officers
* (m) Management Incentive Plan X
for Division Management
* (n) Management Incentive Plan X
for Corporate Management
</TABLE>
Exhibit Index - Page 2
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit Incorporated Herein by Filed
Number Description Reference from Herewith
- -------- ------------------------------ ------------------------------- --------------
<S> <C> <C> <C>
* (o) 1994 Employees Stock Previously filed on Form S-8
Option Plan dated September 12, 1994
* (p) 1998 Stock Option Plan Included as Appendix A to
Exhibit 99 hereto
13 Portions of Annual Report to X
Shareholders for the year ended
September 30, 1997 that are
incorporated by reference
21 Subsidiaries of Universal Foods X
Corporation
23 Consent of Deloitte & Touche LLP X
27 Financial Data Schedule X
99 Notice of Annual Meeting and Previously filed on
Proxy Statement, dated December 16, 1997
December 16, 1997 as the Company's
Schedule 14A
Except to the
extent incorporated
by reference, the
Proxy Statement
shall not be deemed
to be filed with
the Securities and
Exchange Commission
as part of this
annual Report on
Form 10-K.
</TABLE>
* Indicates management contracts or compensatory plans.
Exhibit Index - Page 3
<PAGE> 1
EXHIBIT 10(1)
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR ELECTED CORPORATE OFFICERS
I. THE PLAN
The name of this Plan is the Universal Foods Corporation Management
Incentive Plan for Elected Corporate Officers. The purpose of this
Plan is to promote the interests of the shareholders and to provide
incentive to those elected officers who can contribute most to the
profitability of the Company. It is separate and distinct from other
Company incentive plans currently in effect.
II. DEFINITIONS
In this Plan, the terms used will have the following definitions:
A. "Board of Directors" means the Board of Directors of Universal
Foods Corporation.
B. "Bonus Award" means an award, either paid currently or paid on
a deferred basis, as the result of the operation of this Plan.
C. "Bonus Provision" means monies available for distribution as
Bonus Awards as the result of the operation of this Plan.
D. "Committee" means the committee provided for in Section III.
E. "Company" means Universal Foods Corporation.
F. "Employee" means any employee regularly employed by Universal
Foods Corporation or any of its subsidiaries and paid on a
salary basis.
G. "Fiscal Year Salary" means base pay earned during the period
October 1 through September 30 each Company operating year
exclusive of any incentive or supplemental payments by the
Company.
H. "Independent Auditors" means with respect to any fiscal year,
the independent public accounts appointed by the Board of
Directors to certify to the Board of Directors the financial
statements of the Company.
<PAGE> 2
I. "Operating Income After Taxes" is defined as net earnings, as
shown in the Company's Statement of Consolidated Earnings as
certified by the Company's Independent Auditors, plus the
after-tax costs of interest on long-term and short-term debt
and the Bonus Awards for that fiscal year. This amount shall
be further adjusted for extraordinary items of income or
expense if, in the opinion of the Committee, it is appropriate
to do so.
J. "Plan" means this Management Incentive Plan for Major
Corporate Executives.
K. "Subsidiary" means with respect to any year, any corporation
in which Universal Foods Corporation owns a stock interest of
more than 50%, and the financial results of whose operations
are consolidated with those of the Company in the financial
statements included in the annual report to shareholders for
that year.
III. COMMITTEE
A. The Board of Directors shall appoint a Compensation and
Development Committee composed of three non- management
members of the Company's Board of Directors. This Committee
shall be known as the "Committee" and shall have full power
and authority to interpret and administer the Plan in
accordance with the Regulations. No member of the Committee
shall be eligible to participate in the Plan while a member of
the Committee.
B. The Board of Directors may, from time to time, remove members
from the Committee or add members thereto; and vacancies on
the Committee, however caused, shall be filled by action of
the Board of Directors. The Committee shall select one of its
members as Chairman and shall hold its meetings at such times
and places as it may determine. A majority of its members
shall constitute a quorum. All determinations of the
Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by a
majority of the members of the Committee shall be as fully
effective as if it had been made at a meeting of the Committee
duly called and held. The members of the Committee may
receive such compensation for their services as the Board of
Directors may determine.
IV PLAN ADMINISTRATION
The Committee shall have the power to adopt eligibility and other
rules not inconsistent with the provisions of the Plan (hereinafter
referred to as the
<PAGE> 3
"Regulations" and attached hereto as "Exhibit A") for the
administration thereof and to alter, amend, or revoke any Regulations
so adopted.
V. PLAN PARTICIPATION
Participation in the Plan shall be in accordance with the Regulations.
A. At the beginning of each fiscal year, the Chairman and Chief
Executive Officer shall submit to the Committee a written list
of recommended participants in the Plan for that year.
B. Not all officers and major executives need to be selected as
participants, and selection as a participant one year does not
automatically ensure selection in future years.
C. At the end of each fiscal year, the Chairman and Chief
Executive Officer shall submit to the Committee a written list
of recommendations as to the amount of Bonus Award each
participant in the Plan should receive for that fiscal year.
D. The Committee's selection of the Employees to whom a Bonus
Award shall be made and its determination of the amount and
method of payment of each such Bonus Award shall be final.
E. This Plan is not a part of the Company's regular compensation
plan nor is it part of the Employee's regular compensation.
VI. BONUS AWARD
The performance measurement upon which the Bonus Award is based is
determined in accordance with the Regulations for each fiscal year.
VII. CHANGE OF CONTROL OF COMPANY
In the event of a change of control of the Company in accordance with
an Employee's Severance or Employment Agreement and the Employee's
subsequent termination of employment without cause by the successor
entity, the "Change of Control Benefits" under the Employee's
Severance or Employment Agreement in respect to this Plan shall be
received as a severance payment by the Employee.
<PAGE> 4
VIII. SUCCESSORS AND ASSIGNS
If the Company sells, assigns or transfers all or substantially all of
its business and assets to any person, excluding affiliates of the
Company, or if the Company merges into or consolidates or otherwise
combines with any person which is a continuing or successor entity,
then the Company shall assign all of its right, title and interest in
this Plan as of the date of such event to the person which is either
the acquiring or successor corporation, and such person(s) shall
assume and perform from and after the date of such assignment all of
the terms, conditions and provisions imposed by this Plan upon the
Company.
In case of such assignment by the Company and of such assumption and
agreement by the Company and of such person(s), all further rights as
well as all other obligations of the Company under this Agreement
thenceforth shall cease and terminate and thereafter the expression
"the Company" wherever used herein shall be deemed to mean such
person(s).
IX PLAN AMENDMENTS
The Board of Directors may suspend or discontinue the Plan at anytime.
<PAGE> 5
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR ELECTED CORPORATE OFFICERS
REGULATIONS F-98
These Regulations apply to the Elected Corporate Officers Management Incentive
Plan for the fiscal year October 1, 1997 through September 30, 1998.
i. Participants will be notified of their selection and be
provided with a copy of the Plan with specific provisions
related to their level of participation.
ii. An Employee may be selected as a participant after the
beginning of a fiscal year and, if eligible, may receive, at
the discretion of the Committee, a Bonus Award prorated to
reflect duration of Plan participation.
iii. A participant may receive a Bonus Award based on prorated
participation in more than one plan, if eligible to do so,
under provisions of the plan(s).
iv. The Bonus Award granted to individual participants shall be
based upon achievement of defined EPS objectives and, in
certain cases, division sales operating profit as defined by
the Management Incentive Plan for Division Management, copy
attached if applicable.
v. The following schedule shows the maximum Bonus Award, as a
percent of Fiscal Year Salary, that may be granted to
various levels of participants under the Plan:
<PAGE> 6
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Division
Title/Level EPS SOP Total
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Chairman & Chief Executive Officer 85.0% 00.0% 85%
- -----------------------------------------------------------------------------------------------------------------
Group Vice President
Vice President & Chief Financial Officer
Vice President Administration 65.0% 0.00% 65%
- -----------------------------------------------------------------------------------------------------------------
Divisional Presidents 18.0% 42.0% 60%
- -----------------------------------------------------------------------------------------------------------------
Corporate Staff Officers 45.0% 0.00% 45%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
vi. The bonus award amount may, at the sole discretion of the
Chairman and Chief Executive Officer, be adjusted up or down
by five to twenty percent (5% to 20%) to recognize
individual performance.
vii. The Bonus Award shall not be paid to participants who
resigned or were discharged for cause prior to their
receiving the Bonus Award unless the Committee decides
otherwise.
viii. If an Employee ceases to be a Plan participant during the
fiscal year as a result of death, disability, or retirement
under the Company's ESOP, the Employee or his/her estate
may, at the discretion of the Committee, receive a pro-rata
Bonus Award based upon the number of months spent as a
participant.
In such cases, the Committee may, at its discretion, increase the
Bonus Award up to, but not in excess of, the amount that would have
been earned for a full year of participation.
<PAGE> 7
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR ELECTED CORPORATE OFFICERS
PERFORMANCE MEASURES F-98
NAME TITLE
---- -----
MAXIMUM BONUS AWARD AS PERCENTAGE
OF FISCAL YEAR SALARY
------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
DIVISION
EPS SOP TOTAL
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
45.0% 0.00% 45.0%
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
GUIDELINES
Upon the determination of the amount of the Bonus Provision for the
fiscal year, an amount may be awarded by the Committee as a Bonus
Award to selected Plan participants according to the following
guidelines:
1. Formula Award
The F-98 objective is to attain a Corporate Earnings
Per Share for the fiscal year of $_______ (Target).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
EARNINGS PER SHARE (EPS) PERCENTAGE OF
FORMULA AWARD
- ---------------------------------------------------------------------------------------
<S> <C>
5%
- ---------------------------------------------------------------------------------------
10%
- ---------------------------------------------------------------------------------------
15%
- ---------------------------------------------------------------------------------------
20%
- ---------------------------------------------------------------------------------------
25%
- ---------------------------------------------------------------------------------------
30%
- ---------------------------------------------------------------------------------------
35%
- ---------------------------------------------------------------------------------------
40%
- ---------------------------------------------------------------------------------------
45%
- ---------------------------------------------------------------------------------------
50%
- ---------------------------------------------------------------------------------------
55%
- ---------------------------------------------------------------------------------------
60%
- ---------------------------------------------------------------------------------------
65%
- ---------------------------------------------------------------------------------------
72%
- ---------------------------------------------------------------------------------------
79%
- ---------------------------------------------------------------------------------------
86%
- ---------------------------------------------------------------------------------------
93%
- ---------------------------------------------------------------------------------------
100%
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
EXHIBIT B - PERFORMANCE MEASURES
ELECTED CORPORATE OFFICERS
2. Special Adjustments
Upon the recommendation of the Chairman and Chief
Executive Officer, the Committee may approve special
adjustments to Earnings Per Share necessary to give
consideration to unbudgeted and/or unplanned
situations which developed after finalization of the
operating budget. Such adjustments will be submitted
for consideration only if required to correct major
inequities.
<PAGE> 1
EXHIBIT 10(m)
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR DIVISION MANAGEMENT
I. THE PLAN
The name of this Plan is the Universal Foods Corporation Management
Incentive Plan for Division Management. The purpose of the Plan is to
promote the interests of the shareholders and to provide incentive to
those Division management employees who can contribute most to the
profitability of the Company.
II. DEFINITIONS
In this Plan, the terms used will have the following definitions:
A. "Actual Average Assets Managed" means the twelve-month average
of month-end balances of key assets and liabilities subject to
Division or Business Unit control, as defined in Exhibit B,2c.
B. "Actual Sales Operating Profit" means profit reported on the
Company's sales operating reports, as adjusted per Exhibit
B,2b.
C. "Bonus Award" means an award, either paid currently or paid on
a deferred basis, as the result of the operation of this Plan.
D. "Business Unit" means a segmented profit center within a
Division.
E. "Company" means Universal Foods Corporation.
F. "Division" means a business entity designated as such by the
Corporation normally segmented based on product line.
G. "Employee" means any employee regularly employed by Universal
Foods Corporation or any of its subsidiaries and paid on a
salary basis.
H. "Fiscal Year Salary" means base pay earned during the period
October 1 through September 30 of each Company operating year
exclusive of any incentive or supplemental payments by the
Company.
I. "Plan" means this Management Incentive Plan for Division
Management.
J. "Targeted Average Assets Managed" means the Division or
Business Unit Average Assets Managed scheduled per Exhibit
B,2a.
K. "Targeted Profit" means the Division or Business Unit profit
objective scheduled per Exhibit B,2a.
<PAGE> 2
MANAGEMENT INCENTIVE PLAN FOR DIVISION MANAGEMENT
Page 2
III. PLAN ADMINISTRATION
The Board of Directors of Universal Foods Corporation has delegated to
the Chairman and Chief Executive Officer the authority to adopt
eligibility and other rules not inconsistent with the provisions of
the Plan (hereinafter referred to as the "Regulations" and attached
hereto as "Exhibit A") for the administration thereof and to alter,
amend, or revoke any Regulations so adopted.
IV. PLAN PARTICIPATION
Participation in the Plan shall be in accordance with the Regulations.
A. At the beginning of the fiscal year, the Chairman and Chief
Executive Officer shall determine who should participate in
the Plan for that fiscal year, based on recommendations from
the Division President or other Corporate Officer.
B. Not all key Division or Business Unit employees need be
selected as participants, and selection as a participant does
not ensure selection in future plans, if such plans should be
implemented.
C. At the end of the fiscal year, the Division President shall
recommend to the Chairman and Chief Executive Officer the
amount of the Bonus Award each participant in the Plan should
receive for that fiscal year.
D. The Chairman and Chief Executive Officer's selection of the
Employees to whom Bonus Awards shall be made and his/her
determination of the amounts and methods of payment shall be
final.
E. This Plan is not a part of the Company's regular compensation
plan nor is it part of the employee's regular compensation.
V. BONUS AWARDS
The performance measurement upon which the Bonus Award is based is
determined in accordance with the Regulations for each fiscal year.
IV. BONUS PROVISION
All Bonus Awards under this Plan will be budgeted and funded within
the operations of the specific Division/Business Unit in which
participants are employed.
<PAGE> 3
VII. SUCCESSORS AND ASSIGNS
If the Company sells, assigns or transfers all or substantially all of
its business and assets to any person, excluding affiliates of the
Company, or if the Company merges into or consolidates or otherwise
combines with any person which is a continuing or successor entity,
then the Company shall assign all of its right, title and interest in
this Plan as of the date of such event to the person which is either
the acquiring or successor corporation, and such person(s) shall
assume and perform from and after the date of such assignment all of
the terms, conditions and provisions imposed by this Plan upon the
Company.
In case of such assignment by the Company and of such assumption and
agreement by the Company and of such person(s), all further rights as
well as all other obligations of the Company under this Agreement
thenceforth shall cease and terminate and thereafter the expression
"the Company" wherever used herein shall be deemed to mean such
person(s).
VIII. MISCELLANEOUS
All expenses incurred in interpreting and administering the Plan shall
be charged against the Division.
IX. PLAN AMENDMENTS
The Chairman and Chief Executive Officer may suspend or discontinue
the Plan at anytime.
<PAGE> 4
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR DIVISION MANAGEMENT
REGULATIONS F-98
These Regulations apply to the Division Management Incentive Plan for the
fiscal year October 1, 1997 through September 30, 1998.
1. Participants will be notified of their selection and be
provided with a copy of the Plan with specific provisions
related to their Division or Business Unit and level of
participation.
2. An Employee may be selected as a participant after the
beginning of a fiscal year and, if eligible, may receive a
Bonus Award prorated to reflect duration of Plan
participation.
3. participant may receive a Bonus Award based on prorated
participation in more than one Division or Business Unit
activity, if eligible to do so under provisions of the plan(s)
4. The Bonus Award granted to individual participants shall be
based upon achievement of defined target objectives (Formula).
5. The Bonus Award amount may, on the recommendation of the
Chairman and Chief Executive Officer and approval of the
Committee, be adjusted up or down by five to twenty percent
(5% to 20%) to recognize individual performance.
6. If an Employee ceases to be a Plan participant during the
fiscal year, but remains in the Company's service, the
Employee may, at the discretion of the Chairman and Chief
Executive Officer, receive a pro-rata Bonus Award based upon
the number of months spent as a participant.
7. The Bonus Award shall not be paid to participants who resigned
or were discharged for cause prior to their receiving the
Bonus Award unless the Chairman and Chief Executive Officer
decides otherwise.
8. If an Employee ceases to be a Plan participant during the
fiscal year as a result of death, disability, or retirement
under the Company's ESOP, the Employee or his/her estate may,
at the discretion of the Chairman and Chief Executive Officer,
receive a pro-rata Bonus Award based upon the number of months
spent as a participant.
9. In such cases, the Chairman and Chief Executive Officer may
increase the Bonus Award up to, but not in excess of, the
amount that would have been earned for a full year of
participation.
<PAGE> 5
For the purpose of determining the appropriate Plan Award, profit
changes due to fluctuation in currency exchange or internal hedges will not be
considered. International business unit profit performance will be based upon
actual vs. budget comparisons in local currencies.
Upon the recommendations of the Senior Corporate Officers, the
Chairman and Chief Executive Officer may approve special adjustments to
Incentive Targets necessary to give consideration to unbudgeted and/or
unplanned situations which developed after finalization of the operating
budget. Such adjustments will be submitted for consideration only if required
to correct major inequities.
<PAGE> 6
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR DIVISION MANAGEMENT
PERFORMANCE MEASURES F-98
NAME TITLE
---- -----
Richard Carney Vice President-Human
Resources
Maximum Bonus Award as Percentage
of Fiscal Year Salary
------------------------------
Division
EPS SOP Total
--- --- -----
<PAGE> 7
I. The method by which the Formula portion of the Bonus Awards will be
earned has been designed to encourage the following:
A. The setting of realistic operating budgets and performance
targets.
B. The improvement of return on investment through maximization
of profits and careful utilization of corporate assets.
II. Schedule - Formula Portion:
a) Participants will receive a formula portion of their Bonus
Award in accordance with the Division or Business Unit
Schedule (Exhibit C). The Schedule will be sent under a
separate cover when finalized.
(b) Actual Sales Operating Profit for the Division is the profit
reported on the Company's sales operating reports adjusted by
adding back any interest expense, foreign taxes, or goodwill
amortization which had been charged against the reported
profit.
(c) Actual Average Assets Managed is the twelve-month average of
month-end balances of key assets and liabilities subject to
Division control consisting of accounts receivable,
inventories, accounts payable, accrued expenses and any other
assets or liabilities specifically identifiable with a
Division and so specified prior to the beginning of the fiscal
year (such as advances to suppliers, deferred farming costs,
etc.).
Adjustments
If the Actual Assets Managed for the Division during the fiscal year
exceed the Targeted Assets Managed, the increase will be multiplied by 25% and
added to the Targeted Profit as a charge for the use of additional capital.
If the Actual Average Assets Managed for the Division during the
fiscal year are less than the Targeted Average Assets Managed, the reduction
will be multiplied by 25% and subtracted from the Targeted Profit as a credit
for the reduction in capital utilized.
<PAGE> 8
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR DIVISION MANAGEMENT
PERFORMANCE MEASURES-SCHEDULE F-98
PARTICIPANT - NAME / TITLE
BUSINESS UNIT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ACTUAL SALES OPERATING PERCENTAGE OF
PROFIT AS A PERCENTAGE OF FORMULA AWARD
TARGETED PROFIT EARNED
- -------------------------------------------------------------------------------
<S> <C>
0%
- -------------------------------------------------------------------------------
5
- -------------------------------------------------------------------------------
10
- -------------------------------------------------------------------------------
15
- -------------------------------------------------------------------------------
20
- -------------------------------------------------------------------------------
25
- -------------------------------------------------------------------------------
30
- -------------------------------------------------------------------------------
40
- -------------------------------------------------------------------------------
50
- -------------------------------------------------------------------------------
60
- -------------------------------------------------------------------------------
70
- -------------------------------------------------------------------------------
80
- -------------------------------------------------------------------------------
85
- -------------------------------------------------------------------------------
90
- -------------------------------------------------------------------------------
95
- -------------------------------------------------------------------------------
100
- -------------------------------------------------------------------------------
110
- -------------------------------------------------------------------------------
115
- -------------------------------------------------------------------------------
120%
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
((APPROVED_BUS_U1))
Targeted Sales Operating Profit$((OP))
Targeted Average Assets Managed$((ASSETS MAN))
((APPROVED_BUS_U2))
Targeted Sales Operating Profit$((OPER_PROF))
Targeted Average Assets Managed$((ASSETS_MAN2))
<PAGE> 1
EXHIBIT 10(n)
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR CORPORATE MANAGEMENT
I. THE PLAN
The name of this Plan is the Universal Foods Corporation Management
Incentive Plan for Corporate Management. The purpose of this Plan is
to promote the interests of the shareholders and to provide incentive
to those corporate management employees who can contribute most to the
profitability of the Company. It is separate and distinct from other
Company incentive plans currently in effect.
II. DEFINITIONS
In this Plan, the terms used will have the following definitions:
A. "Board of Directors" means the Board of Directors of Universal
Foods Corporation.
B. "Bonus Award" means an award, either paid currently or paid on
a deferred basis, as the result of the operation of this Plan.
C. "Bonus Provision" means monies available for distribution as a
Bonus Award as the result of the operation of this Plan.
D. "Company" means Universal Foods Corporation.
E. "Employee" means any employee regularly employed by Universal
Foods Corporation, and paid on a salary basis.
F. "Fiscal Year Salary" means base pay earned during the period
October 1 through September 30 each Company operating year
exclusive of any incentive or supplemental payments by the
Company.
G. "Independent Auditors" means with respect to any fiscal year,
the independent public accountants appointed by the Board of
Directors to certify to the Board of Directors the financial
statements of the Company.
<PAGE> 2
H. "Operating Income After Taxes" is defined as net earnings, as
shown in the Company's Statement of Consolidated Earnings as
certified by the Company's Independent Auditors, plus the
after-tax costs of interest on long and short term debt and
the Bonus Awards for that fiscal year. This amount shall be
further adjusted for extraordinary items of income or expense
if, in the opinion of the Chairman and the President and Chief
Executive Officer, it is appropriate to do so.
I. "Plan" means this Management Incentive Plan for Corporate
Management.
J. "Subsidiary" means with respect to any year, any corporation
in which Universal Foods Corporation owns a stock interest of
more than 50%, and the financial results of whose operations
are consolidated with those of the Company in the financial
statements included in the annual report to shareholders for
that year.
III. PLAN ADMINISTRATION
The Board of Directors of Universal Foods Corporation has delegated to
the Chairman and Chief Executive Officer the authority to adopt
eligibility and other rules not inconsistent with the provisions of
the Plan (hereinafter referred to as the "Regulations" and attached
hereto as "Exhibit A") for the administration thereof and to alter,
amend, or revoke any Regulations so adopted.
IV. PLAN PARTICIPATION
A. At the beginning of the fiscal year, the Chairman and Chief
Executive Officer shall determine who should participate in
the Plan for that fiscal year.
B. Not all management employees need be selected as participants,
and selection as a participant one year does not automatically
ensure selection in future years, if such Plans should be
implemented.
C. At the end of each fiscal year, the Chairman and Chief
Executive Officer shall determine the amount of Bonus Award
each participant in the Plan should receive for that fiscal
year.
D. The Chairman and Chief Executive Officer's selection of the
Employees to whom a Bonus Award shall be made and its
determination of the amount and method of payment of each such
Bonus Award shall be final.
<PAGE> 3
E. This Plan is not a part of the Company's regular compensation
plan nor is it part of the Employee's regular compensation.
V. BONUS AWARDS
The performance measurement upon which the Bonus Award is based is
determined in accordance with the Regulations for each fiscal year.
VI. SUCCESSORS AND ASSIGNS
If the Company sells, assigns or transfers all or substantially all of
its business and assets to any person, excluding affiliates of the
Company, or if the Company merges into or consolidates or otherwise
combines with any person which is a continuing or successor entity,
then the Company shall assign all of its right, title and interest in
this Plan as of the date of such event to the person which is either
the acquiring or successor corporation, and such person(s) shall
assume and perform from and after the date of such assignment all of
the terms, conditions and provisions imposed by this Plan upon the
Company.
In case of such assignment by the Company and of such assumption and
agreement by the Company and of such person(s), all further rights as
well as all other obligations of the Company under this Agreement
thenceforth shall cease and terminate and thereafter the expression
"the Company" wherever used herein shall be deemed to mean such
person(s).
VII. PLAN AMENDMENTS
The Chairman and Chief Executive Officer may suspend or discontinue
the Plan at anytime.
<PAGE> 4
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR CORPORATE MANAGEMENT
REGULATIONS F-98
These Regulations apply to the Corporate Management Incentive Plan for the
fiscal year October 1, 1997 through September 30, 1998.
1. Participants will be notified of their selection and be provided with a
copy of the Plan with specific provisions related to their level of
participation.
2. An Employee may be selected as a participant after the beginning of a
fiscal year and, if eligible, may receive a Bonus Award prorated to
reflect duration of Plan participation.
3. A participant may receive a Bonus Award based on prorated participation
in more than one plan if eligible to do so under provisions of the
plan(s).
4. The Bonus Award granted to individual participants shall be based upon
achievement of defined target objectives (Formula).
5. The following schedule shows the maximum Bonus Award, as a percent of
Fiscal Year Salary, that may be granted to various levels of
participants under the Plan:
<TABLE>
<CAPTION>
FORMULA TOTAL
------- -----
<S> <C> <C>
Corporate Management Plan 20.00% 20.00%
</TABLE>
6. The bonus award amount may, at the decision of the Chairman and Chief
Executive Officer, be adjusted up or down by five to twenty percent (5%
to 20%) to recognize individual performance.
7. If an Employee ceases to be a Plan participant during the fiscal year,
but remains in the Company's service, the Employee may, at the
discretion of the Chairman and Chief Executive Officer, receive a
pro-rata Bonus Award based upon the number of months spent as a
participant.
8. The Bonus Award shall not be paid to participants who resigned or were
discharged for cause prior to the completion of the fiscal year of the
Plan unless the Chairman and Chief Executive Officer decides otherwise.
9. If an Employee ceases to be a Plan participant during the fiscal year
as a result of death, disability, or retirement under the Company's
ESOP, the Employee or his/her
<PAGE> 5
estate may, at the discretion of the Chairman and Chief Executive
Officer, receive a pro-rata Bonus Award based upon the number of months
spent as a participant.
In such cases, the Chairman and Chief Executive Officer may increase
the Bonus Award up to, but not in excess of, the amount that would have
been earned for a full year of participation.
<PAGE> 6
EXHIBIT B - PERFORMANCE MEASURES
CORPORATE MANAGEMENT
PAGE 1
UNIVERSAL FOODS CORPORATION
MANAGEMENT INCENTIVE PLAN
FOR CORPORATE MANAGEMENT
PERFORMANCE MEASURES F-98
NAME TITLE/DIVISION
---- --------------
Manager
MAXIMUM BONUS AWARD AS PERCENTAGE
OF FISCAL YEAR SALARY
------------------------------
<TABLE>
<CAPTION>
FORMULA TOTAL
------- -----
<S> <C>
20.00% 20.00%
</TABLE>
<PAGE> 7
EXHIBIT B - PERFORMANCE MEASURES
CORPORATE MANAGEMENT
PAGE 2
GUIDELINES
Upon the determination of the amount of the Bonus Provision for the fiscal
year, an amount may be awarded by the Chairman and the President and Chief
Executive Officer as a Bonus Award to selected Plan participants according to
the following guidelines:
1. Formula Award
The F-98 objective is to attain a Corporate Earnings Per Share for the
fiscal year of $______ (Target).
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE (EPS) PERCENT OF FORMULA AWARD
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
5%
- -------------------------------------------------------------------------------------------------------------------
10
- -------------------------------------------------------------------------------------------------------------------
15
- -------------------------------------------------------------------------------------------------------------------
20
- -------------------------------------------------------------------------------------------------------------------
25
- -------------------------------------------------------------------------------------------------------------------
30
- -------------------------------------------------------------------------------------------------------------------
35
- -------------------------------------------------------------------------------------------------------------------
40
- -------------------------------------------------------------------------------------------------------------------
45
- -------------------------------------------------------------------------------------------------------------------
50
- -------------------------------------------------------------------------------------------------------------------
55
- -------------------------------------------------------------------------------------------------------------------
60
- -------------------------------------------------------------------------------------------------------------------
65
- -------------------------------------------------------------------------------------------------------------------
72
- -------------------------------------------------------------------------------------------------------------------
79
- -------------------------------------------------------------------------------------------------------------------
86
- -------------------------------------------------------------------------------------------------------------------
93
- -------------------------------------------------------------------------------------------------------------------
100
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
2. Special Adjustments
Upon the recommendations of the Senior Corporate Officers, the
Chairman and Chief Executive Officer may approve special adjustments
to Earnings Per Share necessary to give consideration to unbudgeted
and/or unplanned situations which developed
<PAGE> 8
EXHIBIT B - PERFORMANCE MEASURES
CORPORATE MANAGEMENT
PAGE 3
after finalization of the operating budget. Such adjustments will be
submitted for consideration only if required to correct major
inequities.
<PAGE> 1
EXHIBIT 13
color
2 pie charts
Customers
Percent of Revenue
Food: 70%
Cosmetics/Pharma-
ceuticals/specialty
inks: 30%
Products
Worldwide Markets
Food: 48%
Cosmetics/pharma-
ceuticals/specialty
inks: 41%
Other: 11%
Total Market: $2.7 billion
Technical Expertise
We are the acknowledged number one food color supplier in the world. Our
unique understanding of color-creating chemistry complements the most extensive
and skilled technical service staff in the industry. Basic research in natural
and synthetic colors and a responsive customer service group also deliver value
for our customers. Operates as Warner- Jenkinson.
1997 Review
Sales and income grew on the strength of pharmaceuticals, dispersions, lakes,
and natural color categories. This growth was complemented by the contribution
from Tricon Colors, which the company acquired in the second quarter. The
division's St. Louis facility achieved ISO 9001 certification, underscoring the
Color division's commitment to world- class quality.
Opportunities
We will leverage our core competencies to expand into non-food markets such as
specialty inks, pharmaceuticals, and cosmetics. Natural color sourcing and
manufacturing and advanced purification technology will also play an important
role in our worldwide growth.
Chart
Revenue
(in millions)
93 $123
94 $143
95 $149
96* $157
97 $191
*revised for revenue included
in Asia Pacific division
dehydrated
<PAGE> 2
pie chart
Customers
Percent of Revenue
Industrial food
processors: 100%
Products
Worldwide Markets
Garlic: 20%
Onion: 45%
Chili: 20%
Speciality
vegetables: 15%
Total Market: $1.2 billion
Technical Expertise
We produce high-quality dehydrated onion, garlic, chili, and other vegetables
in the U.S. using state-of-the-art dehydration technology, extensive plant
breeding and seed development programs, and comprehensive field management
techniques. Our laboratories develop customized blends and applications for
our customers. European operations produce premium vegetable products for the
world market. Operates as Rogers Foods in the U.S. and Universal Dehydrates in
Europe.
1997 Review
Operating income outpaced sales growth, as volume gains accompanied
improvements in operating efficiency. Productivity improvements in European
operation resulted from further implementation of U.S. field management
techniques and growing practices as well as more efficient production
scheduling.
Opportunities
Our ongoing focus on improving quality, consistency, and customer service
supports our efforts to capture new domestic and international business.
Further implementation of U.S. field management and growing practices in Europe
will help increase yield and efficiency.
Chart
Revenue
(in millions)
93 $78
94 $85
95 $117
96 $132
97 $135
Asia pacific
Technical Expertise
We market our full line of products through a focused effort under one unified
name. Regional technical teams enable us to provide high-quality flavor and
color solutions that appeal to local tastes and preferences. Operates as
Universal Foods Corporation (Asia Pacific).
<PAGE> 3
1997 Review
We integrated product lines, created a consumer marketing function and
strengthened management during the division's first year in operation.
Opportunities
The actions taken in fiscal 1997 have positioned the Asia Pacific division to
exceed market growth rates. Savory flavors and color products offer
particularly significant growth opportunities.
Chart
Revenue
(in millions)
93
94
95
96 $28
97 $32
page four
<PAGE> 4
yeast
chart
Revenue
(in millions)
93 $160
94 $163
95 $155
96 $156
97 $155
Technical Expertise
Efficient operations produce a diversified line of yeast products for baking,
nutritional and wine-making needs. Quality, consistency, and reliability are
critical to the production and delivery of yeast, a living organism. Operates
as Red Star Yeast & Products.
1997 Review
Improvements in operating efficiencies led to continued strong profitability
for the division. Volumes of cream yeast increased significantly, as the
division capitalized on the trend toward bulk deliveries to large commercial
bakeries. Results from the division's retail yeast business remained strong on
the continuing popularity of bread-making machines.
Opportunities
Productivity improvements and further market penetration through the conversion
of major customers to cream yeast systems will drive growth. International
sales of dry yeast also hold opportunity.
2 pie charts
Customers
Percent of Revenue
Commercial
bakers: 88%
Retail: 12%
Products
Worldwide Markets
Commercial compressed/
cream: 63%
Commercial dry: 24%
Consumer dry: 13%
Total Market: $2.2 billion
flavor
Revenue
(in millions)
93 $241
94 $263
<PAGE> 5
95 $273
96* $234
97 $216
*revised for revenue included in Asia Pacific division
Technical Expertise
Proprietary processes combine with compounding and reaction chemistry to
produce an exceptional range of flavors, flavor systems, and ingredients for
food, beverage and dairy applications. Our aroma chemicals operation creates
the building blocks for fragrances and flavors. Customized formulas improve
end-product performance, as food and flavors must endure a variety of demanding
processing conditions such as extreme temperature, mixing, and pumping.
Operates as Universal Flavors.
1997 Review
Improved results from international operations partially offset ongoing
softness in carbonated beverage and dairy segments. Operating costs
significantly declined, service levels improved, and aroma chemicals business
expansion accelerated. A realignment of sales and marketing has positioned the
division to win more business from targeted customers.
Opportunities
Natural flavors and flavor systems for new age and nutraceutical beverages
offer worldwide opportunities. Further expansion into savory food flavors and
aroma chemicals are also avenues for growth. In fiscal 1998, we will integrate
our Flavor and BioProducts divisions, which will allow our customers to choose
from a full range of flavor solutions from a single source.
2 pie charts
Customers
Percent of Revenue
Dairy: 32%
Beverage: 35%
Food processors: 21%
Other: 12%
Products
Worldwide Markets
Flavors: 34%
Fragrances: 33%
Essential oils: 17%
Aroma chemicals: 16%
Total Market: $14.5 billion
bioproducts
Revenue
(in millions)
93 $22
94 $37
95 $98
96 $99
97 $97
<PAGE> 6
Technical Expertise
We offer the broadest line of savory flavor products for meat, fish, poultry,
and cheese products from natural sources for the food and fermentation
industry. Our processes also create products for the bionutrient and health
food markets. Operates as Red Star BioProducts.
1997 Review
Healthy sales to North American customers offset lower demand for beef products
in the U.K. The new facility in Strasbourg, France, began building volumes to
commercial levels. The division commercialized 22 new products. Two plants
received ISO 9002 certification and one plant successfully completed
recertification.
Opportunities
Continued development of proprietary blends will improve product mix. With
completion of the first phase of our new facility in Strasbourgh, France, we
are building toward commercial levels of yeast extracts for the large European
markets. In fiscal 1998, we will integrate our Flavor and BioProducts
divisions, which will allow our customers to choose from a full range of flavor
solutions from a single source.
2 pie charts
Customers
Percent of Revenue
Food processors: 75%
Feed processors: 12%
Bionutrients: 13%
Products
Worldwide Markets
Bionutrients: 10%
Yeast extracts: 20%
HVPs: 26%
MSG: 44%
Total Market: $1.9 billion
page five
<PAGE> 7
PRODUCT
customized
From food ingredients to specialty inks, our growing product strength provides
customized solutions, enhancing the quality of our customers' distinctive
products.
WJ
Whether helping a packaged food company achieve just the right color
in a new product or working with a customer in the herb and spice business to
find the optimal seasoning blend, our business is based on delivering superior
solutions every time. Our commitment to supplying customized solutions
generated more than 1,300 color products in fiscal 1997 alone. This insight
into our customers' needs and our exceptional knowledge of our products'
capabilities and applications make us a valued and recognized resource for our
customers.
Although often comprising less than 1% of an end product's total cost,
our ingredients are critical to our customers' product success. Children of
all ages delight in the rainbow of colors candy receives from our color
systems. The yeast we supply puts more bread on American tables than any other
yeast producer in the United States. A growing array of prepared foods, from
soup mixes to microwaveable dinners, rely on our dehydrated vegetables and all-
natural flavor enhancers to provide consistently high-quality meals that
satisfy consumers' hunger for healthy, flavorful foods.
Superior service backs our superior products. Color service labs,
strategically located around the world, can ship specifically formulated
samples to customers within 24 hours. Our Flavor division is winning business
in the rapidly growing "New Age" beverage category for teas, flavored waters,
sports drinks, and natural sodas. Our ability to develop complete flavor
systems, including flavoring, color, and clarity, plus expert consulting in
packaging and marketing, is driving sales growth in this promising area.
Strategic acquisitions are also propelling Universal Foods into new,
higher-growth businesses. Our acquisition of Tricon Colors brought us into the
rapidly growing market for high-purity ink-jet inks, and today our largest
customer is outside the food arena.
Leveraging Technology
Highly purified colors create vibrant document from ink-jet printers, a rapidly
growing market.
TECHNOLOGY
Consistency
From dehydration to extraction, our technological strength opens new markets,
expands existing ones, and most importantly, adds value to our customers.
Universal Foods has a single strategic focus: to be a
technology-driven industrial marketer of high-performance ingredients and
systems for a growing number of markets and applications. With our superior
process technologies, we deliver remarkably consistent value-added solutions to
our customers. We are enlarging the potential market available to us, and our
business mix is shifting toward faster-growing, higher-margin products.
Universal Foods' competitive edge and growth opportunities rest in its
ability to create products through expertise in specialized chemical,
biological, and physical processes. Understanding process technologies,
however, is not enough. Our end-use applications knowledge enhances the
success of our customers' product development initiatives.
Our Dehydrated Products division is winning business because of the
quality and consistency of its dehydrated onion, garlic, and chili. Active
<PAGE> 8
seed development initiatives, plant tissue culture programs and comprehensive
field management techniques
page eight
<PAGE> 9
Leveraging Technology
Sub-critical CO2 extraction creates natural flavors from botanicals like
juniper berries.
are increasing acreage yields and improving plant quality. Exacting size
tolerances (to .01 of an inch) and carefully controlled drying processes help
this division ensure that it meets stringent customer requirements.
We use our fermentation technology to produce enough yeast every year
to make enough 12-inch pizzas to circle the earth 44 times. Our efficient
production and consistent quality have made us the exclusive yeast supplier to
a significant number of the largest commercial baking companies in the U.S.
Fermentation is also one of the cornerstone technologies of our BioProducts
division in the production of yeast extracts for flavor enhancers, bionutrients
for the pharmaceutical industry, and products for the health food market.
We took a big leap forward in our purification capabilities with the
acquisition of Tricon Colors. New purification processes are also being used
to develop our line of increasingly popular natural colors for foods, cosmetics
and pharmaceuticals.
page nine
<PAGE> 10
GLOBAL
Strategic
From Strasbourgh to Singapore, our global strength means we meed each
customer's unique process and application needs, wherever they may be.
Every corner of the world offers Universal Foods opportunities. Our
business is truly global, as our customers expand internationally, and the
markets we serve reach beyond local and regional borders. The developing
regions of Asia Pacific and Latin America and untapped markets in western
Europe and North America all hold exciting growth potential.
Today we have operations and sales offices in 20 countries serving
customers in 127 countries. We greatly improved our position in the Latin
American market for food color products with the September 1997 acquisition of
the food color business of Pyosa, S.A. Pyosa's food colors are sold under the
CertigamaMR trademark. Strong population growth and rising standards of living
are making this region attractive for international expansion.
In Granada, Spain, we are increasing the business opportunities of our
Flavor division by expanding our aroma chemicals operation. Aroma chemicals
are the building
page ten
<PAGE> 11
Leveraging Technology
Customers worldwide rely on our service and quality for their own product
success.
blocks for favors as well as the scents in a remarkably broad array of
household and industrial products, including soaps, detergents, and toiletries.
Our aroma chemicals operation also lowers the cost of raw materials for our own
operations and improves quality and consistency.
Our Asia Pacific division approaches customers in this region, from
New Zealand to Japan, with a complete line of products from a single source.
This enables us to pursue this broad and diverse market with a focused effort
and one corporate identity.
By focusing internally in technology and externally on product
applications and new markets, Universal Foods is enhancing its growth
opportunities. With broad vision and strategic drive, we are building a
larger, more capable, and more competitive company positioned for long-term
success.
page eleven
<PAGE> 12
Financial
Review
13 Management's Analysis of Operations
and Financial Condition
18 Quarterly Data
18 Common Stock Prices and Dividends
19 Consolidated Earnings
20 Consolidated Balance Sheets
21 Consolidated Shareholders' Equity
22 Consolidated Cash Flows
23 Notes to Consolidated Financial Statements
30 Management's Responsibility for Financial Statements
30 Independent Auditors' Report
31 Five Year Review
page twelve
<PAGE> 13
MANAGEMENT'S ANALYSIS
of operations and financial conditions
[ Years ended September 30, 1997, 1996 and 1995 ]
Results of Operations
Net earnings for 1997 were $64.7 million, or $2.54 per share, compared with
$44.2 million, or $1.71 per share, for 1996 and $66.1 million, or $2.54 per
share, for 1995. The 1996 earnings include pretax charges from unusual items
of $25.0 million ($16.7 million after tax, or $.65 per share). The 1995
results include a net pretax gain of $26.8 million ($9.2 million after tax, or
$.36 per share). Excluding unusual items, net earnings per share increased
7.6% in 1997 and 8.3% in 1996.
Unusual items in 1996 include a $20.0 million non-cash charge in adopting
Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." During 1996, the Company also recorded a $5 million
restructuring charge to address opportunities to streamline its production
base, improve efficiency and reduce operating costs. Unusual items in 1995
include a pretax gain of $49.6 million from the sale of the Frozen Foods
business, offset by the cost of discontinuing a product line of $14.1 million
and other items totaling $8.7 million.
Revenue for 1997 increased to $826 million from $806 million in 1996 and $793
million in 1995. The Color and Dehydrated Products divisions reported solid
revenue growth for 1997. The Company's Red Star Yeast & Products and Red Star
BioProducts divisions' revenues were flat. Yeast revenue reflects the impact
of customers moving to cream yeast, which reduces both revenue and product
cost. Red Star BioProducts' 1997 revenue was negatively impacted by the slack
demand for beef products in the U.K. Flavor division revenue declined 7.3%
primarily from continued weakness in the dairy segment. Revenue increases in
1996 were achieved by all divisions except the Flavor division, with the
Dehydrated Products division leading the way with revenue growth of 12.9%.
Revenue in the Flavor division decreased in 1996 as consolidations,
restructuring and a slow-down in new product roll-outs among the division's
customers in the food processing industry impacted the overall market.
chart
Foreign
Revenue
(in millions)
93 $184
94 $232
95 $313
96 $325
97 $330
Revenue generated outside the United States, including exports, was
approximately 40% of total revenue. Approximately 57% of 1997 foreign revenue
is derived from Europe. The Company also generates revenue in Canada, Mexico
and the Pacific Rim. Consistent with historical experience, changes in foreign
currency rates had no material effect on revenue and expenses in 1997, and
management currently expects no significant impact from foreign currency rate
changes in 1998.
The cost of products sold was 66.7% of revenue in 1997, 66.1% in 1996 and 65.3%
in 1995. The increases in 1997 and 1996 resulted primarily from decreased
margins in the Flavor business, as continued market weakness in
<PAGE> 14
North America negatively impacted both pricing and capacity utilization.
Selling and administrative expenses increased $3.2 million, or 2.0%, in 1997.
Included in 1997 selling and administrative expenses are $7.5 million of
integration expenses for the costs of combining the Company's BioProducts and
Flavor divisions. Excluding these expenses, selling and administrative
expenses would have been 19.4% of revenue, a decrease of $4.3 million, or 2.6%,
from 1996. In 1996, selling and administrative expenses decreased 4.5% to
20.4% of revenue from 21.7% in 1995.
page thirteen
<PAGE> 15
Operating income, excluding the integration costs in 1997 and unusual items in
1996 and 1995, increased $5.8 million in 1997 to $114.7 million from $108.9
million in 1996 and $102.9 in 1995. The 1997 increase is primarily the result
of strong gains by the Color and Dehydrated Products divisions. Color division
results include the results of Tricon Colors, Inc., since it was acquired in
the second quarter of 1997. The 1996 increase in operating income is
attributable to improved results in all divisions, except the Flavor division
which experienced weakness in certain markets.
The effective income tax rate was 28.5% in 1997, 35.6% in 1996 and 42.3% in
1995. The decrease in the effective tax rate to 28.5% in 1997 reflects
settlements of prior years' issues and other items. Excluding the effect of
these items, the effective tax rate would have been 33.8%. The effective tax
rate in 1995 was increased by a higher than normal tax rate on the gain from
the sale of the Frozen Foods business offset by increased tax credits.
The Company uses financial instruments in its management of foreign currency
and interest rate exposures. The Company has procedures in place to monitor
and control financial instruments, and they are not held or issued for trading
purposes. The Company's credit risk related to financial instruments is
considered low.
Liquidity and Financial Position
Cash provided by operating activities was $91.6 million in 1997, $91.3 million
in 1996 and $23.1 million in 1995. The 1997 amounts include increases in net
earnings and depreciation, offset by an increase in net working capital. The
increase in 1996 of $68.2 million reflects continued improvement in earnings
before unusual items and reduced working capital amounts.
Cash used for investing activities increased to $129.3 million in 1997 from
$61.6 million in 1996 and $16.3 million in 1995. Cash used for acquisitions
was $50.5 million in 1997, $.5 million in 1996 and $12.4 million in 1995.
Investing activities in 1995 included $39 million of cash received from the
sale of the Frozen Foods business.
Capital expenditures totaled $73.5 million in 1997, $59.0 million in 1996, and
$42.6 million in 1995. All years reflect expenditures for productivity
improvements and plant expansions. In 1998, capital expenditures are estimated
to be between $65 million and $75 million; depreciation expense should
approximate $40 million.
chart
Operating
Margins
93 11.9%
94 11.7%
95 13.0%
96 13.5%
97 13.0%
(excluding unusual items)
Financing activities provided cash of $35.6 million in 1997 and used $35.0
million in 1996 and $41.6 million in 1995. During 1997 the Company repurchased
142,600 shares of treasury stock at a cost of $5.8 million. In 1996 the
Company repurchased 763,118 shares at a cost of $27.6 million. Net additional
borrowings were $59.8 million in 1997 compared to $16.7 million in 1996. The
majority of the 1997 borrowings were used to finance acquisitions. The Company
uses debt financing to lower its overall cost of capital, which
<PAGE> 16
increases the return to shareholders. The Company maintains debt levels
considered prudent based on its cash flows, interest coverage and percentage of
total debt to total capital.
The Company has paid uninterrupted quarterly cash dividends since commencing
public trading in its stock over twenty years ago. In 1997, dividends paid per
share were $1.04, up 4.0% from $1.00 in 1996, which was an increase of 4.2%
over 1995. As evidence of the Company's continued effort to provide
page fourteen
<PAGE> 17
shareholders with immediate and tangible participation in current earnings, the
dividends paid in 1997 represented 41% of net earnings, 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 $1.06 per share.
The impact of inflation on both the Company's financial position and results of
operations has been minimal and is not expected to adversely affect 1998
results.
The Company's financial position continues to remain strong, enabling it to
meet cash requirements for operations, capital expansion programs and dividends
to shareholders.
Total Debt to
Total Capital
93 38.7%
94 37.6%
95 34.3%
96 36.9%
97 41.1%
Outlook
This report contains forward-looking statements that reflect management's
current assumptions and estimates of future economic circumstances, industry
conditions, Company performance and financial results, in particular, earnings
growth and return on shareholders' equity. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for such forward-looking statements.
A variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results. These factors and assumptions
include the pace and nature of new product introductions by the Company's
customers; execution of the Company's acquisition program; industry and
economic factors related to the Company's international business; and the
outcome of various productivity-improvement and cost-reduction efforts.
Universal Foods Corporation seeks to grow in both its primary market, the food
industry, and through leveraging its technology into non-food applications.
Currently, about 11% of revenue comes from non-food applications. These
include such diverse, but technically related applications as cosmetics,
personal care, pharmaceuticals, specialty inks and specialty chemicals. The
Company believes that technology in its Flavor, Color and Yeast divisions
offers opportunities to expand into non-food markets. In addition, the Company
is seeking strategic acquisitions to increase its business base, enhance its
technology and expand geographically. In fiscal 1997, the Company entered the
rapidly growing market for ink-jet inks and advanced its purification
technology with the acquisition of Tricon Colors, Inc.
Within the food industry, the Company expects to increase revenue and profits
by targeting faster growing niches and successful customers within each of its
businesses, leveraging its process and applications expertise to move into more
advanced and sophisticated product categories, and capitalizing on geographic
expansion. In fiscal 1997, the Company acquired the food color business of
Pyosa, S.A., located in Monterrey, Mexico, thereby expanding its geographic
presence in Latin America. The Company views current consolidations within the
food industry as an opportunity to be among the select number of companies
participating in long-term supplier relationships with its customers. 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.
<PAGE> 18
Certain of the Company's businesses and products provide slower, stable growth
and positive cash flows while others can be expected to achieve higher levels
of performance. As a supplier of value-added ingredients, the Company can
benefit from new
page fifteen
<PAGE> 19
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.
To further penetrate the growing market for flavors, flavor enhancers and
colors in Asia/Pacific Rim, the Company established a separate operating
division headquartered in Singapore. The Asia Pacific division operates as
Universal Foods Corporation (Asia Pacific) and coordinates sales, marketing and
technical functions previously directed from U.S.- based divisions. Resources
and personnel have been devoted to build an infrastructure for the expanded
technical and marketing support. These activities are considered an investment
in long-term growth and should significantly boost the Company's share of
revenue from the region, now 4%.
Capital
Expenditures/
Depreciation
(in millions)
93 $36.4 $29.6
94 $55.1 $31.0
95 $42.6 $28.2
96 $59.0 $29.2
97 $73.5 $32.4
Year 2000
The Company has developed preliminary plans to address the possible exposures
related to the impact on its computer systems of the Year 2000. Key financial,
information and operational systems have been assessed and detailed plans are
being developed to address systems modifications required by December 31, 1999.
The financial impact of making the required systems changes is not expected to
be material to the Company's consolidated financial position, results of
operations or cash flows.
Other Issues
Environmental Issues: Universal Foods has a proactive environmental program,
which is transforming environmental issues into positive business opportunities
to increase productivity and profitability resulting in a competitive advantage
for our business. Increased emphasis is being placed on waste minimization to
reduce any short- and long-term environmental issues. All environmental
compliance systems utilize the most cost-effective and innovative technology.
These efforts continue on a world-wide basis with increased emphasis on the
environmental aspects of European operations. New environmental control
systems completed in 1997 include upgrades to air emission control systems in
Dallas and Oakland. New wastewater systems at Midleton, Ireland, and Elberg,
Netherlands, are planned for completion in early calendar 1998. For fiscal
1998, new environmental systems are planned for facilities in California,
Indiana, and Marchais, France.
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.
<PAGE> 20
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.
page sixteen
<PAGE> 21
Independent Committees: The audit, finance, 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.
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.
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.
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 on the card.
Corporate Responsibility: The Company is committed to the health and well-being
of the communities in which it does business. The Company supports an
initiative to return 2% of pretax domestic 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
projects.
page seventeen
<PAGE> 22
Quarterly Data
[ Unaudited ]
<TABLE>
<CAPTION>
(Dollars in thousands Net Earnings
except per share amounts) Revenue Gross Profit Earnings Per Share
<S> <C> <C> <C> <C>
1997
First Quarter $193,484 $65,852 $13,883 $.55
Second Quarter 204,826 66,567 15,620 .61
Third Quarter 209,725 69,410 16,748 .66
Fourth Quarter 217,679 72,795 18,437 .72
1996
First Quarter $193,446 $66,979 $13,490 $ .52
Second Quarter 200,034 67,836 14,542 .56
Third Quarter 200,776 67,848 15,721 .61
Fourth Quarter 212,096 70,429 452 .02
</TABLE>
The fourth quarter of 1996 includes pretax charges of $25 million ($16.7
million after tax or $.65 per share).
Common Stock Prices and Dividends
<TABLE>
<CAPTION>
Market Price Dividends
High Low Per Share
<S> <C> <C> <C>
1997
First Quarter $37.75 $31.88 $.26
Second Quarter 37.88 33.25 .26
Third Quarter 39.25 32.00 .26
Fourth Quarter 41.38 36.88 .26
1996
First Quarter $41.00 $33.75 $.25
Second Quarter 40.13 36.63 .25
Third Quarter 38.13 33.00 .25
Fourth Quarter 36.25 28.00 .25
</TABLE>
page eighteen
<PAGE> 23
Consolidated Earnings
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Years ended September 30, 1997 1996 1995
<S> <C> <C> <C>
Earnings
Revenue $825,714 $806,352 $792,971
Operating costs and expenses:
Cost of products sold 551,090 533,260 518,194
Selling and administrative expenses 167,390 164,186 171,914
Unusual items 25,000 (26,847)
-------- -------- --------
718,480 722,446 663,261
-------- -------- --------
Operating income 107,234 83,906 129,710
Interest expense 16,798 15,266 15,107
-------- -------- --------
Earnings before income taxes 90,436 68,640 114,603
Income taxes 25,748 24,435 48,500
-------- -------- --------
Net earnings $ 64,688 $ 44,205 $ 66,103
-------- -------- --------
Earnings per Common Share $ 2.54 $ 1.71 $ 2.54
Weighted average shares 25,513 25,798 26,061
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
page nineteen
<PAGE> 24
Consolidated Balance Sheets
(Dollars in thousands except
per share amounts)
<TABLE>
<CAPTION>
September 30, 1997 1996
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,258 $ 3,395
Trade accounts receivable less
allowance for losses of $4,034
and $3,509 117,259 105,850
Inventories 185,552 174,193
Prepaid expenses and other
current assets 20,855 24,793
Prepaid income taxes 17,324 16,373
-------- --------
Total current assets 342,248 324,604
Investments 26,540 20,821
Other assets 28,653 25,099
Intangibles-at cost, less accumulated
amortization of $34,312 and $29,385 181,309 141,487
Property, Plant and Equipment:
Cost:
Land 16,360 15,901
Buildings 131,299 120,071
Machinery and equipment 388,402 343,793
-------- --------
536,061 479,765
Less accumulated depreciation 227,082 211,304
-------- --------
308,979 268,461
-------- --------
Total assets $887,729 $780,472
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ 7,971 $ 2,919
Accounts payable and accrued expenses 135,522 127,637
Salaries, wages and withholdings from
employees 13,978 11,579
Income taxes 16,151 14,207
Current maturities of long-term debt 4,905 5,810
-------- --------
Total current liabilities 178,527 162,152
Deferred income taxes 17,550 12,770
Other deferred liabilities 20,798 19,123
Accrued employee and retiree benefits 37,877 38,592
Long-term debt 252,526 196,869
Shareholders' Equity:
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 76,774 78,177
Earnings reinvested in the business 371,444 333,290
-------- --------
450,916 414,165
Less: Treasury stock, 1,386,248 and
1,557,008 shares, respectively, at cost 45,742 49,892
Other 24,723 13,307
-------- --------
380,451 350,966
-------- --------
Total liabilities and
shareholders' equity $887,729 $780,472
======== ========
</TABLE>
See notes to consolidated financial statements.
page twenty
<PAGE> 25
Consolidated Shareholders' Equity
<TABLE>
<CAPTION>
Other
Earnings Unearned Foreign
(Dollars in thousands Additional reinvested portion of currency
except per share Common paid-in in the Treasury Stock restricted translation
amounts) stock capital business Shares Amount stock adjustments
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30,
1994 $2,698 $80,066 $273,800 916,615 $(25,521) $(1,489) $(2,164)
Net earnings for the year 66,103
Cash dividends paid-$.96
a share (25,020)
Stock options exercised,
net of 81,593 shares
exchanged (1,180) (107,661) 2,744
Other 3 11,607 (412)
Restricted stock issued 66 (13,400) 376 (442)
Restricted stock canceled 5,800 (198) 81
Amortization of restricted
stock 515
Translation adjustment for
year (6,487)
Purchase of treasury stock 65,000 (1,759)
------- ------ ------- ------- ------- ------ ------
Balances at September 30,
1995 2,698 78,955 314,883 877,961 (24,770) (1,335) (8,651)
Net earnings for the year 44,205
Cash dividends paid-$1.00
a share (25,798)
Stock options exercised,
net of 6,020 shares
exchanged (788) (83,414) 2,451
Other 12 1,343 (48)
Restricted stock issued (2) (2,000) 64 (62)
Amortization of restricted stock 444
Translation adjustment for year (3,703)
Purchase of treasury stock 763,118 (27,589)
------- ------ ------- ------- ------- ------- ------
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30,
1996 2,698 78,177 333,290 1,557,008 (49,892) (953) (12,354)
Net earnings for the year 64,688
Cash dividends paid-$1.04 a
share (26,534)
Stock options exercised,
net of 19,248 shares
exchanged (1,513) (304,819) 9,768
Other 1 5,459 (287) 120
Restricted stock issued 109 (14,000) 454 (563)
Amortization of restricted
stock 420
Translation adjustment for
year (11,393)
Purchase of treasury stock 142,600 (5,785)
------ -------- --------- --------- --------- -------- ---------
Balances at September 30,
1997 $2,698 $ 76,774 $ 371,444 1,386,248 $ (45,742) $ (976) $ (23,747)
====== ======== ========= ========= ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
page twenty=one
<PAGE> 27
Consolidated Cash Flows
[Dollars in thousands]
<TABLE>
<CAPTION>
Years ended September 30, 1997 1996 1995
<S> <C> <C> <C>
Cash Flows from Operating
Activities
Net earnings $ 64,688 $ 44,205 $ 66,103
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 32,399 29,178 28,206
Amortization 4,927 4,341 6,435
Impairment of long-lived assets
and other unusual charges -- 25,000 22,713
Loss (gain) on sale of property, plant
and equipment and other
productive assets 16 (332) (50,530)
Changes in operating assets and
liabilities (net of effects from
acquisition of businesses):
Trade accounts receivable (9,709) (3) (5,187)
Inventories (8,481) 4,937 (11,109)
Prepaid expenses, income taxes
and other assets (6,603) (8,681) (3,935)
Accounts payable and accrued
expenses 4,244 715 (18,325)
Salaries, wages and withholdings
from employees 2,399 (136) 828
Income taxes 1,944 (6,548) (8,194)
Deferred income taxes 4,780 (1,744) (5,881)
Other liabilities 960 417 2,009
--------- -------- --------
Net cash provided by operating
activities 91,564 91,349 23,133
--------- -------- --------
Cash Flows from Investing Activities
Acquisition of property, plant and
equipment (73,502) (59,012) (42,562)
Acquisition of new businesses-net
of cash acquired (50,492) (529) (12,431)
Proceeds from disposition of
business and sale of property,
plant and equipment and other
productive assets 438 658 43,317
Increase in investments (5,719) (2,740) (4,574)
--------- -------- --------
Net cash used in investing
activities (129,275) (61,623) (16,250)
========= ======== ========
Cash Flows from Financing Activities
Proceeds from additional borrowings 66,455 76,822 11,948
Reduction in debt (6,651) (60,110) (27,920)
Purchase of treasury stock (5,785) (27,589) (1,759)
Dividends (26,534) (25,798) (25,020)
Proceeds from options exercised and
other equity transactions 8,089 1,627 1,155
--------- -------- --------
Net cash provided by (used in)
financing activities 35,574 (35,048) (41,596)
========= ======== ========
Net decrease in cash and
cash equivalents (2,137) (5,322) (34,713)
Cash and cash equivalents at
beginning of year 3,395 8,717 43,430
--------- -------- --------
Cash and cash equivalents at end
of year $ 1,258 $ 3,395 $ 8,717
--------- -------- --------
Cash paid during the year for:
Interest $ 16,062 $ 15,175 $ 15,352
Income taxes 16,261 27,222 53,500
--------- -------- --------
</TABLE>
See notes to consolidated financial statements.
page twenty-two
<PAGE> 28
Notes to Consolidated Financial Statements
[ Tabular amounts in thousands except per share data ]
[ Years ended September 30, 1997, 1996 and 1995 ]
1/Summary of Significant Accounting Policies
Nature of Business The Company manufactures and distributes flavors, colors,
flavor enhancers and other bioproducts, dehydrated products and yeast for foods
and other applications.
Principles of Consolidation The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions are eliminated. 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.
Use of Estimates The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Cash Equivalents 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, Goodwill and Long-Lived Assets The excess cost over net assets of
businesses acquired and other intangibles, principally formulae and customer
lists, are being amortized using the straight-line method over periods ranging
up to 40 years. In fiscal 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, ("SFAS No. 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (see note 3).
Under SFAS 121 long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or circumstances indicate that their
carrying value may not be recoverable. Prior to fiscal 1996, the carrying value
of intangibles, goodwill and long-lived assets was evaluated on the basis of
management's estimates of future undiscounted operating income associated with
the assets. Assets were generally grouped at major operating entity levels, and
these levels were reviewed for impairment.
Recoverability of other long-lived assets not included under SFAS No. 121,
primarily investments in unconsolidated affiliates and goodwill not identified
with impaired assets, will continue to be evaluated on a recurring basis. The
primary indicators of recoverability are current or forecasted profitability
over the estimated remaining life of these assets, based on the operating profit
of the businesses directly related to these assets. If recoverability is
unlikely based on the evaluation, the carrying amount is reduced by the amount
it exceeds the forecasted operating profit and any estimated disposal value.
Financial Instruments The Company uses financial instruments in its
<PAGE> 29
management of foreign currency. Financial instruments are not held or issued for
trading purposes. Non-U.S. dollar financing transactions may be used as hedges
of long-term investments or intercompany loans in the corresponding currency.
Foreign currency gains and losses on the hedges of long-term investments are
recorded as foreign currency translation adjustments included in shareholders'
equity. Gains and losses related to hedges of intercompany loans offset the
gains and losses on intercompany loans and are recorded in net earnings. The
Company uses short-term forward exchange contracts for hedging purposes.
Realized and unrealized gains and losses on these instruments are deferred and
recorded in the carrying amount of the related hedged asset, liability or firm
commitment.
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 international units
are included as foreign currency translation adjustments in the equity
section of the balance sheets. Net transaction gains (losses) of $632,000 in
1997, $23,000 in 1996, and $(140,000) in 1995, are included in earnings
before income taxes.
Stock-Based Compensation The Company currently accounts for its stock-based
compensation plans using the intrinsic value-based method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25).
page twenty-three
<PAGE> 30
Notes to Consolidated Financial Statements
[ Years ended September 30, 1997, 1996 and 1995]
New Accounting Pronouncement The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 128, "Earnings per
share." The statement will be effective for the Company in the first
quarter of 1998. The Company does not expect the impact of the new Standard
to be material.
2/Acquisitions
During the second quarter of 1997, the Company acquired Tricon Colors, Inc.,
an ink and dye producer, for cash of $44,492,000. The allocation of the
purchase price resulted in goodwill of $37,923,000 which is being amortized
on a straight-line basis over 40 years. In September 1997, the Company
acquired certain assets of the food color business of Pyosa S.A., for
cash and notes aggregating $7,500,000.
In 1995, the Company acquired the common stock of two foreign dehydrated
vegetable processors for $12,798,000.
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. On an unaudited pro-
forma basis, the effects of the acquisitions were not significant to the
Company's results of operations.
3/Restructuring, Integration and Other Charges
In 1997, the Company recorded an integration charge of $7,500,000
($4,600,000 after tax, or $.18 per share) for the cost of combining its
BioProducts and Flavor divisions. This charge, which is classified in
selling and administrative expenses, relates primarily to severance costs
which will be paid in 1998.
The Company adopted SFAS No. 121 as of the beginning of the fourth
quarter of 1996. Certain long-lived assets which were held and used in
the business were identified as impaired. The Company considers continued
operating losses, or significant and long-term changes in industry
conditions, to be its primary indicators of potential impairment. In
1996 an impairment was recognized when the future undiscounted cash flows
of each asset was estimated to be less than the asset's related carrying
value. As such, the carrying values of these assets were written down to
the Company's estimates of fair value. Fair value was based on sales of
similar assets, or other estimates of fair value such as discounting
estimated future cash flows. The non-cash charge for adoption of this
standard was $20,000,000 and resulted from changes in industry
conditions, continued operating losses and from the Company grouping
assets at a lower level than under its previous method of accounting.
In addition, in 1996 the Company identified opportunities to streamline
its production base, improve efficiency and enhance its competitiveness.
Accordingly, the Company adopted a restructuring plan which includes
closing or reconfiguring a number of production facilities and reducing
the workforce by approximately 130 employees. The restructuring charge of
approximately $5,000,000 includes charges primarily related to severance
costs, substantially all of which were paid in 1997.
The total 1996 charge for adopting SFAS No. 121 and restructuring was
$25,000,000 ($16,700,000 after tax or $.65 per share).
In 1995, the Company recorded unusual items resulting in a net pretax
gain of $26,847,000 ($9,247,000 after tax, or $.36 per share). Unusual
items include the gain on the sale of the Frozen Foods business of
$49,560,000,
<PAGE> 31
offset by the costs of discontinuing a product line of $14,047,000 and
other items which include the cost of a patent infringement judgment and
the write-down of intangible assets totaling $8,666,000.
In 1995, the Company finalized the sale of its Frozen Foods business and
amended the Stock Purchase Agreement ("Agreement") with ConAgra, Inc.
Under the amended Agreement, ConAgra agreed to acquire 100% of the stock
of Universal Frozen Foods Company for $202,000,000 cash. The sale of the
Frozen Foods business resulted in a pretax gain of $49,560,000.
In 1995, the Company reviewed its options relating to the BioVentures
product line. Based on the Company's comprehensive review, during the
fourth quarter of 1995, the Company decided to discontinue this product
line. Accordingly, the Company evaluated the ongoing value of the plant
and equipment and other assets associated with this product line. Based
on the evaluation, the Company recorded a charge of $14,047,000 to adjust
the assets to estimated fair value.
In August 1995, the Court of Appeals for the Federal Circuit Court
affirmed a judgment against the Company for patent infringement. The
Company has accrued $4,500,000 for the judgment. The Company has
appealed the judgment and the court should issue their findings in fiscal
1998.
page twenty-four
<PAGE> 32
4/Inventories
Inventories include finished and in-process products totaling $132,150,000 and
$122,775,000 at September 30, 1997 and 1996, respectively, and raw materials and
supplies of $53,402,000 and $51,418,000 at September 30, 1997 and 1996,
respectively.
5/Debt
Long-term debt consists of the following obligations:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Payable in U.S. Dollars:
9.06% senior notes due
through July 2004 $ 38,000 $ 42,000
7.59% senior notes due
through December 2008 30,000 30,000
6.99% senior notes due
through December 2007 40,000 40,000
6.77% senior notes due
through January 2010 15,000 15,000
6.70% senior notes due
through December 2009 20,000 20,000
6.68% senior notes due
through January 2011 15,000 15,000
6.38% senior notes due
through December 2003 20,000 20,000
Commercial paper and other
short-term notes 70,000 12,407
Various mortgage notes, capital
lease obligations and other notes 5,702 6,050
Notes and credit facilities payable
in foreign currencies 3,729 2,222
-------- --------
257,431 202,679
Current maturities 4,905 5,810
======== ========
Total long-term debt $252,526 $196,869
======== ========
</TABLE>
The Company has a $70,000,000 multicurrency revolving loan agreement with a
group of three banks. Under the agreement, the Company has the option to elect
to have interest rates determined based upon the LIBOR 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 September 2002. Uncommitted
lines of credit totaling $289,000,000 are also available to the Company from
several banks.
The Company issues short-term commercial paper obligations supported by
committed lines of credit included in the Revolving Loan Agreement. The Company
also issues other short-term notes. At September 30, 1997 and 1996, $70,000,000
and $12,407,000 of short-term borrowings were classified as long-term debt
reflecting the Company's intent and ability, through the existence of the unused
credit facility, to refinance these borrowings.
The aggregate amounts of maturities on long-term debt each year for the five
years subsequent to September 30, 1997 are as follows: 1998, $4,905,000; 1999,
$7,636,000; 2000, $12,868,000; 2001, $13,750,000 and 2002, $83,665,000.
Substantially all of the loan agreements contain restrictions concerning working
capital, borrowings, investments and dividends. Earnings reinvested of
$10,734,000 at September 30, 1997 were unrestricted.
Short-term borrowings consist of bankers acceptances and loans to foreign
<PAGE> 33
subsidiaries denominated in local currencies which are borrowed under various
foreign uncommitted lines of credit. The weighted average Interest rate on
short-term borrowings, including the amounts reclassified To long-term debt,
were 5.78% and 5.61% at September 30, 1997 and 1996, respectively.
6/Financial Instruments and Risk Management
Forward Exchange Contracts The Company uses forward exchange contracts to reduce
the effect of fluctuating foreign currencies on short-term foreign
currency-denominated intercompany transactions and other known foreign currency
exposures. At September 30, 1997 and 1996, the Company had forward exchange
contracts, generally with maturities of one year or less, of $105,726,000 and
$49,098,000, respectively.
Concentrations of Credit Risk Counterparties to currency exchange contracts
consist of large major international financial institutions. The Company
continually monitors its positions and the credit ratings of the counterparties
involved and limits the amount of credit exposure to any one party. While the
Company may be exposed to potential losses due to the credit risk of
non-performance by these counterparties, losses are not anticipated.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers, generally short payment terms, and their
dispersion across geographic areas.
page twenty-five
<PAGE> 34
Notes to Consolidated Financial Statements
[ Years ended September 30, 1997, 1996 and 1995 ]
Fair Values The carrying amount of cash and cash equivalents, trade receivables,
investments, financial instruments, accounts payable, and short-term borrowings
approximated fair value as of September 30, 1997 and 1996.
The fair value of the Company's long-term debt, including current maturities, is
estimated using discounted cash flows based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The fair value at
September 30, 1997 and 1996 was approximately $261,978,000 and $203,714,000,
respectively.
7/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. Generally stock options become exercisable over a three-year vesting
period and expire 10 years from the date of grant. The 1994 Plan also authorizes
the grant of up to 400,000 stock appreciation rights (SARs) in connection with
stock options.
The Plans have awarded shares of restricted stock which become freely
transferable at the end of 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.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the Company's stock option plans. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123, net earnings and earnings
per common share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Pro forma net earnings $63,120 $43,874
Pro forma net earnings per common share 2.47 1.70
</TABLE>
The pro forma effect on net earnings for 1997 and 1996 is not
representative of the pro forma effect on net earnings in future years
because it does not take into consideration pro forma compensation expense
<PAGE> 35
related to grants made prior to 1996.
The weighted-average fair value of options granted was $7.80 per share in
1997 and $7.77 per share in 1996.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Dividend yield 2.6% 3.1%
Volatility 19% 23%
Risk-free interest rate 5.8% 6.4%
Expected term (years) 5 5
</TABLE>
page twenty-six
<PAGE> 36
The changes in outstanding stock options during the three years ended
September 30, 1997 are summarized below:
<TABLE>
<CAPTION>
Shares Weighted
Outstanding average
Options Available price
<S> <C> <C> <C>
Balances at
September 30, 1994 1,600 1,189 $28.89
Granted 372 (372) 31.48
Restricted stock --- (13) 33.00
Exercised (189) --- 21.68
Canceled (167) 167 32.94
Balances at
September 30, 1995 1,616 971 29.94
Granted 442 (442) 33.62
Restricted stock --- (2) 31.13
Exercised (89) --- 21.21
Canceled (29) 29 34.33
Balances at
September 30, 1996 1,940 556 31.13
Granted 342 (342) 37.43
Restricted stock --- (14) 40.19
Exercised (324) --- 27.37
Canceled (60) 60 33.63
Balances at
September 30, 1997 1,898 260 $32.85
</TABLE>
<TABLE>
Weighted
Options average
exercisable price
<S> <C> <C>
September 30, 1995 965 $30.33
September 30, 1996 1,176 $30.09
September 30, 1997 1,231 $31.49
</TABLE>
The following summarizes information concerning currently outstanding and
exercisable options:
Range of exercise price
<TABLE>
<CAPTION>
$11.83 - $20.01 - $30.01 -
20.00 30.00 40.19
<S> <C> <C> <C>
Number outstanding 38 235 1,625
Weighted average remaining
contractual life, in years 0.8 4.8 7.4
Weighted average exercise price $15.15 $27.52 $34.05
Number exercisable 38 205 988
Weighted average exercise price $15.15 $27.41 $32.97
</TABLE>
The Company is authorized to issue 250,000 shares of cumulative preferred
stock.
8/Retirement Plans
The Company 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
<PAGE> 37
0 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 each employees' salary.
Total expense for the Company's defined contribution plans was $6,984,000,
$7,144,000 and $5,205,000 in 1997, 1996 and 1995, respectively.
9/Other Postretirement Benefits
The Company provides certain health insurance benefits to eligible domestic
retirees and their dependents. Effective in 1997 the Company implemented
programs intended to mitigate rising costs, including adopting a provision
that limits its future obligation to absorb health care cost inflation. The
amendment resulted in an unrecognized prior service gain of $4,318,000 which
is being amortized over the employees average remaining service life.
Postretirement benefit expense includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost $ 419 $ 831 $1,139
Interest cost on accumulated
benefit obligation 959 1,212 1,733
Amortization of prior
service cost (548) (278) (278)
Other (441) (363) (15)
------ ------ ------
Postretirement benefit expense $ 389 $1,402 $2,579
====== ====== ======
</TABLE>
The Company continues to fund benefit costs on a pay-as-you-go basis, with
retirees paying a portion of the costs.
page twenty-seven
<PAGE> 38
Notes to Consolidated Financial Statements
[ Years ended September 30, 1997, 1996, and 1995 ]
The status of the Company's postretirement benefit obligation was:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Retirees $ 6,629 $ 7,142
Fully eligible active plan
participants 1,763 2,032
4,898 8,327
------- -------
Accumulated benefit obligation 13,290 17,501
Unrecognized prior service cost 8,491 4,721
Unrecognized gain 10,503 10,477
------- -------
Postretirement benefits accrued $32,284 $32,699
======= =======
</TABLE>
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation at September 30, 1997 and 1996 were 7.5%. The
health care cost trend rates were assumed to be 9.25% in 1997 and 10% in 1996,
gradually declining to 5.5% by the year 2002 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,
1997 by approximately $2,150,000 and the aggregate of the service and interest
cost components of the 1997 postretirement benefit expense by $224,000.
10/Income Taxes
The provision for income taxes, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Currently payable:
Federal $10,556 $14,179 $33,181
State 3,192 2,683 5,636
Foreign 8,171 8,140 8,305
Deferred (benefit):
Federal 3,426 1,792 1,021
State 403 180 210
Foreign --- (2,539) 147
------- ------- --------
$25,748 $24,435 $ 48,500
======= ======= ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Benefit plans $(19,466) $(19,300)
Liabilities and reserves (10,674) (9,097)
Other (14,257) (13,605)
-------- --------
Gross deferred tax assets (44,397) (42,002)
Valuation allowance 11,468 8,794
-------- --------
Total deferred tax assets (32,929) (33,208)
-------- --------
Deferred tax liabilities:
Property, plant and equipment 16,405 15,587
Other 16,750 14,018
-------- --------
Total deferred tax liabilities 33,155 29,605
-------- --------
Net deferred tax (assets)
liabilities $ 226 (3,603)
-------- --------
</TABLE>
<PAGE> 39
The effective tax rate differs from the statutory Federal income tax rate of 35%
as described below:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Taxes at statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal income tax benefit 2.6 2.7 3.3
Tax credits (4.6) (3.3) (2.7)
Settlements of prior
years' issues (5.3) --- ---
Sale of business --- --- 5.1
Other, net 0.8 1.2 1.6
------ ------ ------
Effective tax rate 28.5% 35.6% 42.3%
====== ====== ======
</TABLE>
The 1997 effective tax rate declined to 28.5%, reflecting the reversal of
tax accruals no longer required resulting from settlement of prior years'
issues and other items. The 1997 effective tax rate would have been 33.8%
excluding the favorable impact of the above items.
Earnings before income taxes are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
United States $ 67,960 $ 55,228 $ 92,043
Foreign 22,476 13,412 22,560
-------- -------- --------
$ 90,436 $ 68,640 $114,603
======== ======== ========
</TABLE>
page twenty-eight
<PAGE> 40
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.
11/Foreign Operations
Summarized information relating to the Company's domestic and foreign operations
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenue:
United States $544,123 $517,678 $516,683
Europe 178,054 186,547 174,931
Other foreign 103,537 102,127 101,357
-------- -------- --------
$825,714 $806,352 $792,971
======== ======== ========
Operating Income:
United States $ 84,859 $ 67,850 $ 98,816
Europe 9,690 2,160 14,912
Other foreign 12,685 13,896 15,982
-------- -------- --------
$107,234 $ 83,906 $129,710
======== ======== ========
Identifiable Assets:
United States $528,272 $438,474 $434,011
Europe 246,379 234,686 231,873
Other foreign 113,078 107,312 110,986
-------- -------- --------
$887,729 $780,472 $776,870
======== ======== ========
</TABLE>
Operating income includes pre-tax charges for restructuring, integration and
other as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
United States $5,555 $11,100 $(26,847)
Europe 1,700 13,900 ---
Other foreign 245 --- ---
------ ------- -------
$7,500 $25,000 $(26,847)
====== ======= ========
</TABLE>
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.
12/Contingencies
The Company is involved in various claims and litigation arising in the normal
course of business. In the opinion of management and Company counsel, the
ultimate resolution of these actions will not materially affect the consolidated
financial position, results of operations, or cash flows of the Company.
page twenty-nine
<PAGE> 41
Management's Responsibility for Financial Statements
[ Years ended September 30, 1997, 1996 and 1995 ]
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 oversight 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.
Kenneth P. Manning
Chairman, President and Chief Executive Officer
Michael Fung
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, 1997 and 1996, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 1997. 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
<PAGE> 42
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,
1997 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, in fiscal 1996
the Company adopted the provisions of the Financial Accounting Standards Boards'
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Deloitte & Touche LLP
Milwaukee, Wisconsin
November 13, 1997
page thirty
<PAGE> 43
<TABLE>
<CAPTION>
Five Year Review
(Dollars in thousands except
per share data) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Revenue $825,714 100.0% $806,352 100.0% $792,971 100.0% $929,863 100.0% $891,566 100.0%
Operating costs
and expenses:
Cost of products sold 551,090 66.7 533,260 66.1 518,194 65.3 616,752 66.3 589,735 66.1
Selling and
administrative expenses 167,390 20.3 164,186 20.4 171,914 21.7 203,965 22.0 196,102 22.0
Unusual items --- --- 25,000 3.1 (26,847) (3.4) 12,125 1.3 - -
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
718,480 87.0 722,446 89.6 663,261 83.6 832,842 89.6 785,837 88.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income 107,234 13.0 83,906 10.4 129,710 16.4 97,021 10.4 105,729 11.9
Interest expense 16,798 2.0 15,266 1.9 15,107 1.9 15,888 1.7 15,172 1.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Earnings before income
taxes and cumulative
effect of accounting
changes 90,436 11.0 68,640 8.5 114,603 14.5 81,133 8.7 90,557 10.2
Income taxes 25,748 3.2 24,435 3.0 48,500 6.2 30,222 3.2 33,959 3.9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Earnings before cumulative
effect of accounting
changes 64,688 7.8 44,205 5.5 66,103 8.3 50,911 5.5 56,598 6.3
Cumulative effect of
accounting changes
net of tax - - - - - - - - 23,563 2.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net earnings $ 64,688 7.8% $ 44,205 5.5% $ 66,103 8.3% $ 50,911 5.5% $ 33,035 3.7%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
<PAGE> 44
<TABLE>
<C> <C> <C> <C> <C>
Earnings per common share
before cumulative effect
of accounting changes $ 2.54 $ 1.71 $ 2.54 $ 1.95 $ 2.15
Net earnings per
common share $ 2.54 $ 1.71 $ 2.54 $ 1.95 $ 1.25
=========== ========== ========== =========== ===========
Other Related Data
Earnings per common share
excluding unusual items
and cumulative effect of
accounting changes $ 2.54 $ 2.36 $ 2.18 $ 2.24 $ 2.15
Dividend per
common share 1.04 1.00 0.96 0.92 0.88
Average shares
outstanding 25,512,771 25,798,482 26,061,269 26,130,783 26,350,346
Book value per
common share $ 14.89 $ 13.85 $ 13.89 $ 12.60 $ 11.60
Price range per
common share 31.88-41.38 28.00-41.00 26.13-34.88 28.88-35.00 30.25-37.25
Share price at
September 30 40.25 32.50 34.88 29.63 33.88
Research and development
expenditures 31,510 29,824 28,558 32,217 28,460
Capital expenditures 73,502 59,012 42,562 55,071 36,363
Depreciation 32,399 29,178 28,206 31,012 29,644
Amortization 4,927 4,341 6,435 5,366 5,409
Total assets 887,729 780,472 776,870 763,664 729,993
Long-term debt 252,526 196,869 160,678 172,235 171,907
Shareholders' equity 380,451 350,966 361,780 327,390 305,066
Return on average
shareholders' equity
before cumulative effect
of accounting change 17.5% 12.2% 18.5% 16.1% 18.7%
Total debt to total capital 41.1% 36.9% 34.3% 37.6% 38.7%
Employees 4,127 4,035 4,104 4,063 5,450
</TABLE>
The 1997 results include a pretax charge of $7.5 million for integrating two
divisions. The 1996 results include pretax charges of $25 million relating to
adopting SFAS No. 121 and restructuring costs. The 1995 results include a net
pretax gain of $26.8 million relating to the sale of the Frozen Foods business,
the cost of discontinuing a product line and other items. The 1994 results
include a pretax restructuring charge of $12.1 million.
page thirty-one
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
UNIVERSAL FOODS CORPORATION
Warner-Jenkinson Company, a New York corporation formerly known as H.
Kohnstamm & Co., Inc. through which the Company conducts its food color
business, has 5 foreign subsidiaries and one domestic subsidiary.
Rogers Foods Inc., a California corporation formerly the Company's
Dehydrated Division has three foreign subsidiaries.
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 through which the
Company now conducts its food flavor and bio-products businesses, has 1
domestic and 11 foreign subsidiaries.
Universal Foods Corporation (Asia Pacific) PTE LTD., a Singapore
corporation, has 5 foreign subsidiaries.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to Registration
Statements No. 33-7235, 33-34555 and 33-55437, and Registration Statements No.
33-27356 and 33-35707 of Universal Foods Corporation on Form S-8 of our reports
dated November 13, 1997, which express an unqualified opinion and include a
paragragh relating to the adoption of the provisions of Statement of Financial
Accounting Standards No. 121, " Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," appearing in and
incorporated by reference in the Annual Report on Form 10-K of Universal Foods
Corporation for the year ended September 30, 1997.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
December 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
UNIVERSAL FOODS CORPORATION YEAR ENDED SEPTEMBER 30, 1997 FINANCIAL DATA
TAGGING SCHEDULES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,258
<SECURITIES> 0
<RECEIVABLES> 121,293
<ALLOWANCES> 4,034
<INVENTORY> 185,552
<CURRENT-ASSETS> 342,248
<PP&E> 536,061
<DEPRECIATION> 227,082
<TOTAL-ASSETS> 887,729
<CURRENT-LIABILITIES> 178,527
<BONDS> 252,526
0
0
<COMMON> 2,698
<OTHER-SE> 377,753
<TOTAL-LIABILITY-AND-EQUITY> 887,729
<SALES> 825,714
<TOTAL-REVENUES> 825,714
<CGS> 551,090
<TOTAL-COSTS> 551,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 572
<INTEREST-EXPENSE> 16,798
<INCOME-PRETAX> 90,436
<INCOME-TAX> 25,748
<INCOME-CONTINUING> 64,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,688
<EPS-PRIMARY> 2.54
<EPS-DILUTED> 2.54
</TABLE>
