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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: December 31, 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
incorporation or organization) 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
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 January 31, 1998
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Common Stock, par value $0.10 per share 25,549,190 shares
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UNIVERSAL FOODS CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: Page No.
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<S> <C>
Consolidated Condensed Balance Sheets
- December 31, 1997 and September 30, 1997. 1
Consolidated Condensed Statements of Earnings
- Three Months Ended December 31, 1997 and 1996. 2
Consolidated Condensed Statements of Cash Flows
- Three Months Ended December 31, 1997 and 1996. 3
Notes to Consolidated Condensed Financial
Statements. 4
Management's Discussion and Analysis of Results of
Operations, Financial Condition and Forward
Looking Information. 5
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of
Security Holders. 7
Item 6. Exhibits and Reports on Form 8-K. 8
Signatures. 9
</TABLE>
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PART I
FINANCIAL INFORMATION
<PAGE> 4
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($000's Omitted)
<TABLE>
<CAPTION>
December 31,
1997 September 30,
ASSETS (Unaudited) 1997
------ ------------- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,743 $ 1,258
Trade accounts receivable 110,567 117,259
Inventories:
Finished and in-process products 130,106 132,150
Raw materials and supplies 61,812 53,402
Prepaid expenses and other current assets 37,806 38,179
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TOTAL CURRENT ASSETS 342,034 342,248
INVESTMENTS AND OTHER ASSETS 56,055 55,193
INTANGIBLES 179,306 181,309
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land and buildings 146,325 147,659
Machinery and equipment 401,623 388,402
-------- --------
547,948 536,061
Less accumulated depreciation 235,813 227,082
-------- --------
312,135 308,979
-------- --------
TOTAL ASSETS $889,530 $887,729
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 1,797 $ 7,971
Accounts payable and accrued expenses 119,395 135,522
Salaries, wages and withholdings from employees 11,738 13,978
Income taxes 15,064 16,151
Current maturities of long-term debt 4,904 4,905
-------- --------
TOTAL CURRENT LIABILITIES 152,898 178,527
DEFERRED INCOME TAXES 17,573 17,550
OTHER DEFERRED LIABILITIES 20,561 20,798
ACCRUED EMPLOYEE AND RETIREE BENEFITS 37,422 37,877
LONG-TERM DEBT 282,554 252,526
SHAREHOLDERS' EQUITY:
Common stock 2,698 2,698
Additional paid-in capital 77,205 76,774
Earnings reinvested in the business 379,962 371,444
-------- --------
459,865 450,916
Less: Treasury stock, at cost 52,301 45,742
Other 29,042 24,723
-------- --------
378,522 380,451
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $889,530 $887,729
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
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1997 1996
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<S> <C> <C>
Revenue $208,889 $193,484
Operating costs and expenses:
Cost of products sold 137,007 127,632
Selling and administrative
expenses 43,602 40,969
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Total operating costs and expenses 180,609 168,601
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Operating income 28,280 24,883
Interest expense 4,966 3,687
-------- --------
Earnings before income taxes 23,314 21,196
Income taxes 8,043 7,313
-------- --------
Net earnings $ 15,271 $ 13,883
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Weighted average number of
common shares outstanding:
Basic 25,491 25,428
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Diluted 25,773 25,600
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Net earnings per common share:
Basic $ .60 $ .55
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Diluted $ .59 $ .54
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Dividends per common share $ .265 $ .260
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
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UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($000's Omitted)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
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1997 1996
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<S> <C> <C>
Net cash provided by operating activities $ 4,610 $ 12,171
Cash flows from investing activities:
Acquisition of property, plant and equipment (14,819) (13,266)
Other items, net (278) 245
-------- --------
Net cash used in investing activities (15,097) (13,021)
Cash flows from financing activities:
Proceeds from additional borrowings 32,473 12,813
Reduction in debt (8,620) (2,295)
Purchase of treasury stock (6,832) ---
Dividends (6,753) (6,610)
Proceeds from options exercised and other 704 273
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Net cash provided by financing activities 10,972 4,181
Net increase in cash and cash equivalents 485 3,331
Cash and cash equivalents at beginning of period 1,258 3,395
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Cash and cash equivalents at end of period $ 1,743 $ 6,726
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $5,956 $3,708
Income taxes 9,277 4,091
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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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 December 31, 1997 and September 30, 1997 and the results of
operations and cash flows for the three month periods ended December 31,
1997 and 1996. 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 8), 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 three months ended December 31, 1997, the Company repurchased
165,111 shares of common stock for an aggregate price of $6,832,000.
5. For the three months ended December 31, 1997, depreciation and
amortization were $9,618,000 and $1,415,000, respectively. For the three
months ended December 31, 1996, depreciation and amortization were
$7,813,000 and $1,197,000, 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. 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. 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. For the three months ended December 31, 1997 and 1996,
respectively, weighted average shares outstanding were increased by
282,000 and 172,000 in calculating diluted earnings per share.
9. 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS, FINANCIAL CONDITION
AND FORWARD LOOKING INFORMATION
-------------------------------------------
RESULTS OF OPERATIONS:
Revenue from operations during the three months ended December 31, 1997
increased 8% to $208,889,000, compared with $193,484,000 a year ago. All
divisions reported higher revenue during the first quarter as compared to
the prior year. The Color division revenue increased 33% as several
product categories were up significantly. In addition, strong volume gains
in domestic dehydrated markets resulted in revenue growth of 11% for the
Dehydrated division.
Gross profit margins increased to 34.4% for the first quarter of fiscal 1997
compared with 34.0% for the same period last year primarily due to a
percentage shift in Company sales to the higher margin products in the Color
division.
The Company's continued focus on productivity programs and cost containment
resulted in a decrease of selling and administrative expenses to 20.9% of
revenue during the three months ended December 31, 1997, compared to 21.2%
for the same period last year.
As a result of higher average borrowings outstanding, interest expense in
the first quarter increased to $4,966,000 from $3,687,000 in the same period
last year.
FINANCIAL CONDITION:
The current ratio increased to 2.2 at December 31, 1997, compared with 1.9
at September 30, 1996, due to a decrease of $25,629,000 in current
liabilities. Net working capital increased $25,415,000 to $189,136,000 at
December 31, 1997 from $163,721,000 at September 30, 1997.
Net cash provided by operating activities was $4,610,000 for the quarter
ended December 31, 1997, compared to $12,171,000 provided by operating
activities for the quarter ended December 31, 1996. The decrease in cash
provided by operating activities in fiscal 1998 was primarily due to the
funding of fiscal 1997 contributions to benefit plans and an increase in
income tax payments.
Net cash used in investing activities was $15,097,000 for the three months
ended December 31, 1997. Included in investing activities are capital
additions of $14,819,000. 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.
Net cash provided by financing activities was $10,972,000 for the quarter,
compared with $4,181,000 in the comparable period last year. Proceeds from
net borrowings of $32,473,000 were used primarily to fund capital
expenditures and purchase treasury stock. Dividends of $6,753,000 and
$6,610,000 were paid during the first three months of fiscal 1998 and 1997,
respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS, FINANCIAL CONDITION
AND FORWARD LOOKING INFORMATION
-------------------------------------------
(Continued)
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 introduction 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.
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<PAGE> 10
PART II
OTHER INFORMATION
<PAGE> 11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Universal Foods Corporation was
held on Thursday, January 22, 1998. At the meeting the following
matters were voted upon by the Shareholders.
Shares totaling 25,525,066 were entitled to vote at the meeting, and
22,626,919 shares (88.65%) were voted.
The following persons were elected to a three year term as Directors
of the Company:
For Against
--- -------
Michael E. Batten 22,301,652 325,267
James A. D. Croft 22,357,287 269,632
Guy A. Osborn 22,343,559 283,360
Essie Whitelaw 22,295,214 331,705
The following persons continued in office as Directors in accordance
with their previous election:
John F. Bergstrom
James L. Forbes
William V. Hickey
Leon T. Kendall
James H. Keyes
Kenneth P. Manning
Dr. Carol I. Waslien-Ghazaii
The Shareholders ratified the appointment of Deloitte & Touche
LLP, certified public accountants, as the independent auditors of the
Company for fiscal 1998. Of the 25,525,066 shares entitled to vote at
the meeting, 22,492,210 shares voted for ratification, 61,101 shares
voted against ratification and 73,608 shares abstained.
The Shareholders also approved the 1998 Employee Stock Plan. Of the
25,525,066 entitled to vote at the meeting, 21,156,680 shares voted
for ratification, 1,207,159 voted against ratification and 168,650
shares abstained.
There were 94,430 broker non-votes related to the 1998 Stock Option
Plan. There were no broker non-votes for the other items.
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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 December 31, 1997.
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<PAGE> 13
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: February 12, 1998 By: /s/ John L. Hammond
---------------------------------------
John L. Hammond, Vice President,
Secretary and General Counsel
Date: February 12, 1998 By: /s/ Michael L. Hennen
---------------------------------------
Michael L. Hennen, Corporate Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,743
<SECURITIES> 0
<RECEIVABLES> 114,626
<ALLOWANCES> 4,059
<INVENTORY> 191,918
<CURRENT-ASSETS> 342,034
<PP&E> 547,948
<DEPRECIATION> 235,813
<TOTAL-ASSETS> 889,530
<CURRENT-LIABILITIES> 152,898
<BONDS> 282,554
0
0
<COMMON> 2,698
<OTHER-SE> 375,824
<TOTAL-LIABILITY-AND-EQUITY> 889,530
<SALES> 208,889
<TOTAL-REVENUES> 208,889
<CGS> 137,007
<TOTAL-COSTS> 137,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 191
<INTEREST-EXPENSE> 4,966
<INCOME-PRETAX> 23,314
<INCOME-TAX> 8,043
<INCOME-CONTINUING> 15,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,271
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.59
</TABLE>
