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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, 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
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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 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
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NONE
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(Former name,former address and 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, 1999
- -------------------------------------- --------------------------------
Common Stock,par value $0.10 per share 50,947,929 shares
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<PAGE>
UNIVERSAL FOODS CORPORATION
INDEX
Page No.
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<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
- December 31, 1998 and September 30, 1998. 1
Consolidated Condensed Statements of Earnings
- Three Months Ended December 31, 1998 and 1997. 2
Consolidated Condensed Statements of Cash Flows
- Three Months Ended December 31, 1998 and 1997. 3
Notes to Consolidated Condensed Financial Statements. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 5
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. 7
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds. 8
Item 4. Submission of Matters to a Vote of
Security Holders. 8
Item 6. Exhibits and Reports on Form 8-K. 9
Signatures. 10
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
---------------------
<PAGE>
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE> December 31,
1998 September 30,
ASSETS (Unaudited) 1998
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 408 $ 1,632
Trade accounts receivable 119,117 121,833
Inventories:
Finished and in-process products 141,720 145,135
Raw materials and supplies 63,222 51,954
Prepaid expenses and other current assets 39,781 37,201
------- -------
TOTAL CURRENT ASSETS 364,248 357,755
INVESTMENTS AND OTHER ASSETS 60,834 60,885
INTANGIBLES 217,126 217,007
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land and buildings 157,967 155,685
Machinery and equipment 477,292 469,915
------- -------
635,259 625,600
Less accumulated depreciation 281,602 270,021
------- -------
353,657 355,579
------- -------
TOTAL ASSETS $ 995,865 $ 991,226
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 49,428 $ 42,773
Accounts payable and accrued expenses 112,490 122,297
Salaries, wages and withholdings from employees 14,225 15,744
Income taxes 25,770 22,066
Current maturities of long-term debt 6,929 6,940
------- -------
TOTAL CURRENT LIABILITIES 208,842 209,820
DEFERRED INCOME TAXES 25,397 25,489
OTHER DEFERRED LIABILITIES 21,779 22,619
ACCRUED EMPLOYEE AND RETIREE BENEFITS 35,952 36,065
LONG-TERM DEBT 291,304 291,588
SHAREHOLDERS' EQUITY:
Common stock 5,396 5,396
Additional paid-in capital 74,751 74,663
Earnings reinvested in the business 427,055 416,949
------- -------
507,202 497,008
Less: Treasury stock, at cost 56,047 51,979
Accumulated other comprehensive income 37,127 37,845
Other 1,437 1,539
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TOTAL SHAREHOLDERS' EQUITY 412,591 405,645
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 995,865 $ 991,226
======= =======
See accompanying notes to consolidated condensed financial statements.
</TABLE>
-1-
<PAGE>
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
December 31
-------------------------
1998 1997
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<TABLE>
<S> <C> <C>
Revenue $ 217,535 $ 208,889
Cost of products sold 141,847 137,007
Selling and administrative expenses 44,479 43,602
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Operating income 31,209 28,280
Interest expense 5,757 4,966
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Earnings before income taxes 25,452 23,314
Income taxes 8,577 8,043
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Net earnings $ 16,875 $ 15,271
======= =======
Average number of common shares outstanding:
Basic 51,033 50,982
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Diluted 51,732 51,547
======= =======
Earnings per common share:
Basic $.33 $.30
======= =======
Diluted $.33 $.30
======= =======
Dividends per common share $.1325 $.1325
======= =======
See accompanying notes to consolidated condensed financial statements.
</TABLE>
-2-
<PAGE>
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
December 31
----------------------
1998 1997
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<TABLE>
<S> <C> <C>
Net cash provided by operating activities $ 14,254 $ 4,785
Cash flows from investing activities:
Acquisition of property, plant and equipment (11,243) (14,819)
Other items, net 172 (278)
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Net cash used in investing activities (11,071) (15,097)
Cash flows from financing activities:
Proceeds from additional borrowings 6,974 32,473
Reduction in debt (535) (8,620)
Purchase of treasury stock (6,415) (6,832)
Dividends (6,769) (6,753)
Proceeds from options exercised and other 2,240 704
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Net cash (used in) provided by financing activities (4,505) 10,972
Effect of exchange rate changes on cash and cash
equivalents 98 (175)
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Net (decrease) increase in cash and cash
equivalents (1,224) 485
Cash and cash equivalents at beginning of period 1,632 1,258
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Cash and cash equivalents at end of period $ 408 $ 1,743
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 7,287 $ 5,956
Income taxes 2,961 9,277
See accompanying notes to consolidated condensed financial statements.
</TABLE>
-3-
<PAGE>
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, 1998 and September 30, 1998 and the results of
operations and cash flows for the three month periods ended
December 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, 1998, for a
description of the accounting policies, which have been
continued without change (except as discussed in note 6), 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, 1998 and 1997, the
Company repurchased 272,100 and 330,222 shares of common stock
for an aggregate price of $6,415,000 and $6,832,000,
respectively.
5. For the three months ended December 31, 1998, depreciation and
amortization were $10,720,000 and $1,722,000, respectively.
For the three months ended December 31, 1997, depreciation and
amortization were $9,618,000 and $1,415,000, respectively.
6. In the first quarter of fiscal 1999, the Company adopted
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), which
establishes standards for reporting comprehensive income in
financial statements. Comprehensive income includes all
changes in equity during a period except those resulting from
investments by or distributions to stockholders. The adoption
of this statement had no impact on net earnings or
shareholders' equity. Comprehensive income for all periods
presented consists of net earnings and foreign currency
translation adjustments. The Company deems its foreign
investments to be permanent in nature and does not provide for
taxes on currency translation adjustments arising from
converting the investment in a foreign currency to U.S.
dollars. There are no reclassification adjustments to be
reported.
The components of comprehensive income for the periods
presented are as follows:
Three Months Ended
---------------------------------------
December 31, 1998 December 31, 1997
<TABLE> ----------------- -----------------
<S> <C> <C>
Net earnings $ 16,875,000 $ 15,271,000
Other comprehensive income (loss):
Foreign currency translation adj. 718,000 (4,397,000)
----------- -----------
Comprehensive income $ 17,593,000 $ 10,874,000
=========== ===========
</TABLE>
7. The Financial Accounting Standards Board has issued statement
No. 131 "Disclosures about Segments of an Enterprise and
Related Information." This statement is effective for the
Company in fiscal 1999 but does not require interim disclosure
in the year of adoption. The Company is currently evaluating
the impact of this new pronouncement.
8. On January 21, 1999, the Company announced agreements to
acquire Les Colorants Wackherr located in Paris, France, and
certain assets of Quimica Universal located in Lima, Peru.
Les Colorants Wackherr formulates and produces colors for
major cosmetic houses throughout Europe, Asia and North
America. Quimica Universal specializes in the production of
carminic acid and annatto, natural colors used in food and
other applications. The two companies have annual combined
revenues of approximately $18 million. Both transactions are
for cash and are expected to be completed during the second
quarter.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Revenue from operations during the three months ended
December 31, 1998 increased 4.1% to $217,535,000, compared
with $208,889,000 a year ago. The Company reported strong
revenue increases in the Flavor division as a result of
volume gains in the U.S. combined with revenue from recent
acquisitions. The Dehydrated division also reported
increased domestic volumes. The Company's revenue gains
were partially offset by lower sales in the Color division
due to softness in the ink jet ink and synthetic dye
businesses.
Gross profit margins increased to 34.8% for the first
quarter of fiscal 1999 compared with 34.4% for the same
period last year primarily due to the improvements in the
U.S. market for the Flavor division and lower raw material
costs at most divisions.
Selling and administrative expenses decreased slightly
to 20.4% of revenue during the three months ended December
31, 1998, compared to 20.9% for the same period last year
as revenue increases significantly exceeded cost increases
in the Flavor and Dehydrated divisions.
As a result of higher average borrowings outstanding,
interest expense in the first quarter increased to
$5,757,000 from $4,966,000 in the same period last year.
The increased borrowings were used primarily to fund
acquisitions.
FINANCIAL CONDITION:
The current ratio remained constant at 1.7 at December
31, 1998 and September 30, 1998. Net working capital
increased $7,471,000 to $155,406,000 at December 31, 1998
from $147,935,000 at September 30, 1998.
Net cash provided by operating activities was
$14,254,000 for the quarter ended December 31, 1998,
compared to $4,785,000 for the quarter ended December 31,
1997. The increase in cash provided by operating
activities in fiscal 1999 was primarily due to higher
earnings and depreciation and lower income tax payments.
Net cash used in investing activities was $11,071,000
for the three months ended December 31, 1998. Included in
investing activities were capital additions of $11,243,000.
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 used in financing activities was $4,505,000 for
the quarter, compared with net cash provided by financing
activities of $10,972,000 in the comparable period last
year. Proceeds from net borrowings of $6,439,000 were used
primarily to fund capital expenditures and purchase
treasury stock. Dividends of $6,769,000 and $6,753,000
were paid during the first three months of fiscal 1999 and
1998, respectively.
YEAR 2000:
With the new millennium approaching, organizations are
examining their installed computer systems, network elements,
software applications, and other business systems to ensure
that they are Year 2000 ("Y2K") compliant. This issue occurs
because many computers and computer applications define the
year using only the last two digits. The assumption is that
the first two digits are always 19. Therefore, the year 2000
would be stored as "00" and could be mistakenly identified as
1900 by the computer. This mistake could lead to errors in
calculations, comparisons, and the sorting of data. If not
remedied, the potential risks to the company range from minor
business interruptions to, in the worst-case scenario, a
complete shutdown of various operations.
-5-
<PAGE>
The Company has developed a comprehensive Project Plan ("the
Plan") for addressing the Y2K issue. The Plan includes the
following components:
1) Vendor and system surveys, including an assessment of
Company systems, applications, and business-critical
third-party systems;
2) Development of action plans to remedy business critical,
non-compliant systems;
3) Implementation of those action plans;
4) System testing using multiple critical dates;
5) Creation of Y2K rollover and contingency plans;
6) Implementation of the Y2K rollover and contingency
plans; and
7) Post Y2K strategies.
The Company is implementing the Plan primarily using
internal personnel. The Company has engaged certain outside
consultants with recognized expertise in assessing and
dealing with Y2K needs to assist in the management of the
Plan. Each division is responsible for identifying and
fixing the problems within its operations. Plan
coordination is being overseen by the Corporate executive
staff and the Board of Directors.
To date, key financial, operational, and informational
systems, including equipment with embedded microprocessors,
have been inventoried and assessed. Detailed plans have
been developed, and implementation of those plans has
occurred or is occurring. System implementation at the
Company has included repairing system code, upgrading system
code or hardware, and replacing current systems. The Plan
also includes an evaluation of the Company's communication
systems, security systems and other non-IT systems for
purposes of determining whether Y2K issues exist. Since most
of the business critical systems at Universal Foods have
been purchased from third party vendors, the majority of
remedies have been through upgrades. When available, written
certifications of Y2K compliance for these systems will be
obtained.
Because of the nature of action plan implementation and
system testing, system-testing activities will overlap
implementation activities. System testing has begun at many
of the divisions. All business critical systems as well as
all interfaces between the various systems will be tested.
Once a system has been tested, no upgrades or modifications
will be made to that system until after March 2000. It is
expected that Y2K testing will be substantially completed by
September 1999.
The creation of rollover and contingency plans will begin in
March 1999 and is expected to be completed by July 1999. The
purpose of the rollover and contingency plans will be to
reduce or mitigate the risk to the Company from Y2K factors
beyond the Company's control.
The Company has also explored with vendors the impact that
the Y2K issue will have on their ability to source products
for the Company. Major suppliers of raw materials and
other goods and services have been sent a questionnaire
regarding their Y2K compliance and their plans to be Y2K
compliant. If it is determined that a critical vendor is not
adequately addressing the Y2K issue, a contingency plan for
that vendor has been or will be identified.
The engagement of outside consultants to assist with software
remediation and project management has not been and is not
expected to be material. During fiscal year 1999, the
Company estimates that it will incur capital expenditures of
approximately $10.0 million as a result of accelerating the
rollout of computer operating systems and the replacement of
non-compliant process control systems in various plants.
In addition, the Company estimates that during 1999,
approximately 30% of its Information Technology ("IT")
personnel will be dedicated to implementation of the
Company's Plan. The foregoing allocation of resources is not
expected to significantly impact other IT projects as many of
the planned and in process projects are normal business
system migrations that upgrade and improve the Company's
current systems in addition to resolving the Y2K issues.
-6-
<PAGE>
The Company believes it is taking reasonable steps which,
when fully implemented, will prevent major business
interruptions and will minimize the Company's risk of
exposure to liability to third parties due to Y2K issues.
There can be no assurance, however, that the Company will be
successful in its efforts. Further, the costs of the
Company's efforts to address Y2K issues and the dates on
which the Company believes it will complete the Plan
described above are based upon management's best estimates.
There can be no assurance that these estimates will prove to
be accurate, and the actual cost and progress on these
projects could differ materially from those currently
anticipated.
At the present time, the Company does not expect Y2K issues
to have a material effect on the Company's results of
operations, liquidity or financial condition. The Company
believes the decentralized environment of the Company's
information systems reduces its overall risk of
noncompliance with Y2K issues. The effect, if any, on the
Company's results of operations if the Company's customers
or its suppliers are not fully Y2K compliant is not
reasonably estimable and, therefore, the Company is unable
to predict and thus describe its most likely worst case Y2K
scenario.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's
market risk during the first quarter ended December 31,
1998. Even though the Company does business in Latin
America, it was not significantly impacted by the recent
economic difficulties in that region. For additional
information on market risk, refer to pages 14 and 15 of
the Company's 1998 Annual Report.
FORWARD-LOOKING INFORMATION
This document contains forward-looking statements that
reflect management's current assumptions and estimates of
future economic circumstances, industry conditions, Company
performance and financial results, and Year 2000
compliance. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for such forward-looking
statements. Such forward-looking statements are not
guarantees of future performance and involve known and
unknown risks, uncertainties and other factors that could
cause actual events to differ materially from those
expressed in those 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 domestic and international
business; the timely resolution of the Year 2000 issue by
the Company and its customers and suppliers; and the
outcome of various productivity-improvement and cost-
reduction efforts. The Company does not undertake to
publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any
projected results expressed or implied therein will not be
realized.
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<PAGE>
PART II
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OTHER INFORMATION
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
At the Annual Meeting of Shareholders of Universal Foods
Corporation held on January 21, 1999, the shareholders
approved the Amended and Restated Articles of
Incorporation for Universal Foods Corporation, including
an amendment to Section 3.1 thereof increasing the number
of authorized shares of common stock from 100,000,000 to
250,000,000. The Amended and Restated Articles of
Incorporation, in the form as so approved, were included
as Exhibit A to the definitive proxy statement for the
Company's Annual Meeting and are incorporated by reference
therefrom as an exhibit to this report.
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 21, 1999. At
the meeting the following matters were voted upon by the
Shareholders.
Shares totaling 51,161,121 were entitled to vote at the
meeting, and 45,118,453 shares (88.2%) were voted.
The following persons were elected to a three-year term as
Directors of the Company:
For Against
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<TABLE>
<S> <C> <C>
Richard A. Abdoo 44,326,941 791,512
Alberto Fernandez 44,479,689 638,764
James L. Forbes 44,399,083 719,370
Dr. Carol I. Waslien Ghazaii 44,385,597 732,856
The following person was elected to a two-year term as
Director of the Company:
For Against
--------- ---------
Dr. Fergus M. Clydesdale 44,538,524 579,929
</TABLE>
Dr. Clydesdale was appointed to the Board of Directors in
June, 1998 for a three-year term expiring in 2001, subject
to ratification of his appointment by the shareholders at
the 1999 Annual Meeting.
The following persons continued in office as Directors
in accordance with their previous election:
Michael E. Batten
John F. Bergstrom
James A. D. Croft
William V. Hickey
Kenneth P. Manning
Essie Whitelaw
The Shareholders approved the Amended and Restated
Articles of Incorporation for Universal Foods Corporation,
including an amendment to Section 3.1 thereof increasing
the number of authorized shares of common stock from
100,000,000 to 250,000,000. See Item 2, above. Of the
51,161,121 shares entitled to vote at the meeting,
26,382,454 shares voted for ratification, 18,174,727
shares voted against ratification and 561,272 shares
abstained.
The Shareholders also approved an amendment to Section 5.1
of the 1998 Stock Option Plan which adds a limitation on
the total number of stock options which may be awarded to
any person who is granted options or Restricted Stock
under the 1998 Plan over the term of the 1998 Plan. Of
the 51,161,121 shares entitled to vote at the meeting,
43,240,211 shares voted for ratification, 1,352,326 shares
voted against ratification and 525,916 shares abstained.
The Shareholders ratified the appointment of Deloitte &
Touche LLP, certified public accountants, as the
independent auditors of the Company for fiscal 1999. Of
the 51,161,121 shares entitled to vote at the meeting,
44,770,164 shares voted for ratification, 209,088 shares
voted against ratification and 139,201 shares abstained.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
Filed
(a) Exhibit Description Herewith Incorporated by Reference From
------ --------------- --------------- ------------------------------
<S> <C> <C> <C> <C>
3.1 Universal Foods Corporation Exhibit A to the Company's
Amended and Restated Definitive Proxy Statement
Articles of Incorporation filed on Schedule 14A on
adopted January 21,1999 December 15, 1998
(Commission File No.1-7626)
27 Financial Data Schedule. X
</TABLE>
(b) No reports on Form 8-K were filed during the quarter
ended December 31, 1998.
-9-
<PAGE>
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, 1999 By: /s/ John L. Hammond
----------------------------
John L. Hammond, Vice President,
Secretary and General Counsel
Date: February 12, 1999 By: /s/ Michael L. Hennen
----------------------------
Michael L.Hennen, Corporate Controller
-10-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 124,029
<ALLOWANCES> 4,912
<INVENTORY> 204,942
<CURRENT-ASSETS> 364,248
<PP&E> 635,259
<DEPRECIATION> 281,602
<TOTAL-ASSETS> 995,865
<CURRENT-LIABILITIES> 208,842
<BONDS> 291,304
0
0
<COMMON> 5,396
<OTHER-SE> 407,195
<TOTAL-LIABILITY-AND-EQUITY> 995,865
<SALES> 217,535
<TOTAL-REVENUES> 217,535
<CGS> 141,847
<TOTAL-COSTS> 141,847
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 157
<INTEREST-EXPENSE> 5,757
<INCOME-PRETAX> 25,452
<INCOME-TAX> 8,577
<INCOME-CONTINUING> 16,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,875
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
