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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-7626
UNIVERSAL FOODS CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0561070
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
433 East Michigan Street, Milwaukee, Wisconsin 53202
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(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 271-6755
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NONE
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock as of the latest practicable date.
Class Outstanding at April 30, 1998
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Common Stock, par value $0.10 per share 25,693,102 shares
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UNIVERSAL FOODS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I FINANCIAL INFORMATION 3
Consolidated Condensed Balance Sheets
- March 31, 1998 and September 30, 1997 4
Consolidated Condensed Statements of Earnings
- Three and Six Months Ended March 31, 1998 and 1997 5
Consolidated Condensed Statements of Cash Flows
- Six Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Condensed Financial Statements 7
Management's Discussion and Analysis of Results
of Operations, Financial Condition and
Forward Looking Information 9
PART II OTHER INFORMATION 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
</TABLE>
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PART I
FINANCIAL INFORMATION
3
<PAGE> 4
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($000's Omitted)
<TABLE>
<CAPTION>
March 31,
1998 September 30,
ASSETS (Unaudited) 1997
- ------ ------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,720 $ 1,258
Trade accounts receivable 119,793 117,259
Inventory:
Finished and in-process products 124,347 132,150
Raw materials and supplies 60,971 53,402
Prepaid expenses and other current assets 41,064 38,179
-------- --------
TOTAL CURRENT ASSETS 347,895 342,248
INVESTMENTS AND OTHER ASSETS 58,214 55,193
INTANGIBLES 192,042 181,309
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land and buildings 147,512 147,659
Machinery and equipment 428,227 388,402
-------- --------
575,739 536,061
Less accumulated depreciation 250,114 227,082
-------- --------
325,625 308,979
-------- --------
TOTAL ASSETS $923,776 $887,729
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 28,634 $ 7,971
Accounts payable and accrued expenses 110,339 135,522
Salaries, wages and withholdings from employees 12,013 13,978
Income taxes 14,927 16,151
Current maturities of long-term debt 4,948 4,905
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TOTAL CURRENT LIABILITIES 170,861 178,527
DEFERRED INCOME TAXES 17,549 17,550
OTHER DEFERRED LIABILITIES 20,642 20,798
ACCRUED EMPLOYEE AND RETIREE BENEFITS 37,567 37,877
LONG-TERM DEBT 282,444 252,526
SHAREHOLDERS' EQUITY
Common stock 2,698 2,698
Additional paid-in capital 77,254 76,774
Earnings reinvested in the business 390,539 371,444
-------- --------
470,491 450,916
Less: Treasury stock, at cost 45,384 45,742
Other 30,394 24,723
-------- --------
394,713 380,451
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $923,776 $887,729
======== ========
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements.
4
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UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($000's Omitted Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- -----
<S> <C> <C> <C> <C>
Revenue $205,015 $204,826 $413,904 $398,310
Operating costs and expenses:
Cost of products sold 132,574 138,259 269,581 265,891
Selling and administrative expenses 40,815 38,626 84,417 79,595
-------- -------- -------- --------
Total operating costs and expenses 173,389 176,885 353,998 345,486
-------- -------- -------- --------
Operating income 31,626 27,941 59,906 52,824
Interest expense 5,508 4,095 10,474 7,782
-------- -------- -------- --------
Earnings before income taxes 26,118 23,846 49,432 45,042
Income taxes 8,764 8,226 16,807 15,539
-------- -------- -------- --------
Net earnings $ 17,354 $ 15,620 $ 32,625 $ 29,503
======== ======== ======== ========
Weighted average number of common shares outstanding:
Basic 51,158 50,936 51,070 50,896
Diluted 51,902 51,266 51,724 51,234
Net earnings per common share:
Basic $ .34 $ .31 $ .64 $ .58
Diluted $ .33 $ .30 $ .63 $ .58
Dividends per common share $.1325 $ .13 $ .265 $ .26
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements.
5
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UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($000's Omitted)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 20,959 $ 25,105
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (29,160) (29,213)
Acquisition of new businesses (net of cash acquired) (24,800) (44,492)
Other items, net (3,674) (2,753)
-------- --------
Net cash used in investing activities (57,634) (76,458)
-------- --------
Cash flows from financing activities:
Proceeds from additional borrowings 51,682 69,050
Reduction in debt (1,058) (3,472)
Purchase of treasury stock (7,556) --
Dividends (13,530) (13,234)
Proceeds from options exercised and other 7,599 1,454
-------- --------
Net cash provided by financing activities 37,137 53,798
-------- --------
Net increase in cash and cash equivalents 462 2,445
Cash and cash equivalents at beginning of period 1,258 3,395
-------- --------
Cash and cash equivalents at end of period $ 1,720 $ 5,840
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 10,474 $ 7,169
Income taxes 16,369 12,935
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements.
6
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UNIVERSAL FOODS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 1998 and September 30, 1997, the results of operations for the
three and six month periods ended March 31, 1998 and 1997 and cash flows for the
six month periods ended March 31, 1998 and 1997. The results of operations for
any interim period are not necessarily indicative of the results to be expected
for the full fiscal year.
2. Refer to the footnotes in the Company's annual financial statements for the
year ended September 30, 1997, for a description of the accounting policies,
which have been continued without change (except as discussed in Note 7), and
additional details of the Company's financial condition. The details in those
notes have not changed except as a result of normal transactions in the interim.
3. Expenses are charged to operations in the year incurred. However, for interim
reporting purposes, certain of these expenses are charged to operations based on
an estimate rather than as expenses are actually incurred.
4. During the six months ended March 31, 1998, the Company repurchased 180,111
shares of common stock for $7,556,000.
5. For the six months ended March 31, 1998, depreciation and amortization were
$18,970,000 and $2,940,000, respectively. For the six months ended March 31,
1997, depreciation and amortization were $17,673,000 and $2,869,000,
respectively.
6. On December 23, 1997, the Company issued a $30,000,000 senior note bearing
interest at 7.06% due December 2002. Proceeds were used to refinance existing
indebtedness and for general corporate purposes.
7. In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share."
SFAS No. 128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously required fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where necessary, restated
to conform to SFAS No. 128 requirements. The difference between basic and
diluted earnings per share is the dilutive effect of employee stock options and
restricted stock.
8. On January 6, 1998, the Company announced that it acquired the stock of
Arancia Ingredientes Especiales, S.A. de C.V., a manufacturer of savory flavors
and other food ingredients for cash of approximately $24.8 million. With annual
revenue of approximately $16 million, this acquisition further improves access
to certain markets and creates opportunities for synergies with existing flavor
operations in North America.
On April 1, 1998, the Company announced an agreement to acquire
substantially all of the assets and business of Sundi GmbH, a German flavor
manufacturer. The acquired business has sales of approximately $15 million.
Sundi's broad product line emphasizes all-natural flavor ingredients, an
important factor for the German market. The cash transaction should be completed
in the third quarter.
7
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UNIVERSAL FOODS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
On April 29, 1998, the Company announced that it acquired DC Flavours
Ltd., a manufacturer of savory flavors and seasonings for cash of approximately
$7 million. Annual sales are less than $10 million.
On an unaudited pro forma basis the acquisitions are not significant to
the Company's 1998 results of operations.
9. On April 9, 1998, the Company declared a 2-for-1 stock split in the form of
a 100% dividend. The new shares will be distributed on May 22, 1998 to
shareholders of record on May 6, 1998. Fractional shares will be paid out in
cash. All references in the financial statements to per share amounts and
average number of shares have been restated for the stock split.
10. The Financial Accounting Standards Board has issued statements No. 130
"Reporting Comprehensive Income" and No. 131 "Disclosures about Segments of an
Enterprise and Related Information." These statements will be effective for the
Company in fiscal 1999. The Company is currently evaluating the impact of
adopting these new pronouncements.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS, FINANCIAL CONDITION
AND FORWARD LOOKING INFORMATION
RESULTS OF OPERATIONS:
Revenue for the three and six months ended March 31, 1998, was
$205,015,000 and $413,904,000, respectively, compared with $204,826,000 and
$398,310,000 a year ago. Revenue for the three and six months ended March 31,
1998 increased by 0.1% and 3.9%, respectively, from the prior year periods. For
the quarter, record domestic volumes for the Dehydrated division and solid
revenue gains in the Flavor division were offset by decreases in the Color
division due to lower sales throughout Asia and a planned shift toward higher
margin products. All divisions reported revenue increases from last year for the
six month period.
Gross profit margins increased to 35.3% of revenues for the second
quarter from 32.5% during the same period last year. Gross profit margins for
the first six months increased to 34.9% of revenue compared to 33.2% of revenue
during the same period last year. The increase in the gross profit margin is
primarily the result of a shift in sales to higher margin products in the Color
division.
Selling and administrative expenses increased to 19.9% of revenue
during the second quarter from 18.9% during the same period last year. For the
first six months of fiscal 1998, selling and administrative expenses increased
slightly to 20.4% of revenue from 20.0% last year. The change is due to
increased goodwill amortization, market development activities in Color, Red
Star and Asia Pacific offset by cost savings in the Flavor division.
Interest expense in the second quarter increased to $5,508,000 from
$4,095,000 in the same period last year and increased to $10,474,000 from
$7,782,000 for the six months ended March 31, 1998 and 1997, respectively. The
increase is primarily the result of additional debt related to acquisitions.
FINANCIAL CONDITION:
The current ratio increased slightly to 2.0 at March 31, 1998, from 1.9
at September 30, 1997 due to a decrease of $7,666,000 in current liabilities.
Net working capital increased $13,313,000 to $177,034,000 at March 31, 1998 from
$163,721,000 at September 30, 1997. The acquisition of Arancia accounts for
approximately $2,186,000 of the increase in net working capital.
Net cash provided by operating activities was $20,959,000 for the six
months ended March 31, 1998, compared to net cash provided by operating
activities of $25,105,000 for the six months ended March 31, 1997. The decrease
in cash provided by operating activities in fiscal 1998 was primarily the timing
of payments to fund fiscal 1997 contributions to benefit plans and an increase
in income tax payments.
Net cash used in investing activities was $57,634,000 for the six
months ended March 31, 1998 as compared with $76,458,000 in fiscal 1997. The
decrease is primarily due to the cost of acquisitions in 1997 compared to 1998.
Included in investing activities are capital additions of $29,160,000 and
$29,213,000 for the six months ended March 31, 1998 and 1997, respectively. The
capital expenditure program reflects the Company's continuing commitment to
maintain and enhance product quality, further automate and upgrade manufacturing
processes, and expand the business through internal growth.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS, FINANCIAL CONDITION
AND FORWARD LOOKING INFORMATION
(Continued)
Net cash provided by financing activities was $37,137,000 for the six
months ended March 31, 1998 as compared with $53,798,000 used in financing
activities in the comparable period last year. Proceeds from additional
borrowings of $51,682,000 were used primarily to fund capital expenditures,
acquisitions and treasury stock purchases. Dividends of $13,530,000 and
$13,234,000 were paid during the first six months of fiscal 1998 and 1997,
respectively.
FORWARD LOOKING INFORMATION:
This document contains forward-looking statements that reflect
management's current assumptions and estimates of future economic circumstances,
industry conditions, Company's performance and financial results, in particular,
earnings growth. 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 economic factors related to the
Company's international business; and the outcome of various
productivity-improvement and cost-reduction efforts.
10
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PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were required to be filed during the quarter
ended March 31, 1998.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL FOODS CORPORATION
Date: May 14, 1998 By: /s/ John L. Hammond
--------------------
John L. Hammond, Vice President,
Secretary and General Counsel
Date: May 14, 1998 By: /s/ Michael L. Hennen
----------------------
Michael L. Hennen, Corporate Controller
12
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UNIVERSAL FOODS CORPORATION
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENED MARCH 31, 1998
<TABLE>
<CAPTION>
Exhibit Incorporated Herein By Filed
Number Description Reference Herewith
- ----------- -------------------------------- ----------------------- --------------
<S> <C> <C> <C>
27.1 Financial Data Schedule X
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,720
<SECURITIES> 0
<RECEIVABLES> 123,563
<ALLOWANCES> 3,770
<INVENTORY> 185,318
<CURRENT-ASSETS> 347,895
<PP&E> 575,739
<DEPRECIATION> 250,114
<TOTAL-ASSETS> 923,776
<CURRENT-LIABILITIES> 170,861
<BONDS> 282,444
0
0
<COMMON> 2,698
<OTHER-SE> 392,015
<TOTAL-LIABILITY-AND-EQUITY> 923,776
<SALES> 413,904
<TOTAL-REVENUES> 413,904
<CGS> 269,581
<TOTAL-COSTS> 269,581
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 455
<INTEREST-EXPENSE> 10,474
<INCOME-PRETAX> 49,432
<INCOME-TAX> 16,807
<INCOME-CONTINUING> 32,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,625
<EPS-PRIMARY> .64
<EPS-DILUTED> .63
</TABLE>
