CONFORMED
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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, 1999
-----------------
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 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, 2000
- --------------------------------------- -------------------------------
Common Stock, par value $0.10 per share 49,700,808 shares
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<PAGE>
UNIVERSAL FOODS CORPORATION
INDEX
Page No.
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<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
- December 31,1999 and September 30,1999. 1
Consolidated Condensed Statements of Earnings
- Three Months Ended December 31, 1999 and 1998. 2
Consolidated Condensed Statements of Cash Flows
- Three Months Ended December 31, 1999 and 1998. 3
Notes to Consolidated Condensed Financial Statements. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk. 7
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders. 8
Item 6. Exhibits and Reports on Form 8-K. 9
SIGNATURES. 10
EXHIBIT INDEX 11
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
<PAGE>
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 114 $ 4,645
Trade accounts receivable 139,120 143,435
Inventories 229,203 217,217
Prepaid expenses and other current assets 37,236 39,273
---------- ----------
TOTAL CURRENT ASSETS 405,673 404,570
INVESTMENTS AND OTHER ASSETS 70,571 69,521
INTANGIBLES 271,065 278,309
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land and buildings 173,537 172,656
Machinery and equipment 508,127 509,107
---------- ----------
681,664 681,763
---------- ----------
Less accumulated depreciation 297,260 291,455
---------- ----------
384,404 390,308
---------- ----------
TOTAL ASSETS $1,131,713 $1,142,708
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 77,995 $ $51,464
Accounts payable and accrued expenses 111,536 140,119
Salaries, wages and withholdings from employees 14,321 16,777
Income taxes 24,368 23,849
Current maturities of long-term debt 9,495 9,484
---------- ----------
TOTAL CURRENT LIABILITIES 237,715 241,693
DEFERRED INCOME TAXES 27,513 28,446
OTHER DEFERRED LIABILITIES 20,670 20,912
ACCRUED EMPLOYEE AND RETIREE BENEFITS 34,565 34,678
LONG-TERM DEBT 380,378 385,397
SHAREHOLDERS' EQUITY:
Common stock 5,396 5,396
Additional paid-in capital 74,279 74,524
Earnings reinvested in the business 482,080 470,253
---------- ----------
561,755 550,173
Less: Treasury stock, at cost 81,046 71,309
Accumulated other comprehensive income 47,966 45,278
Other 1,871 2,004
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 430,872 431,582
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,131,713 $1,142,708
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-1-
<PAGE>
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
December 31
-------------------
1999 1998
---- ----
<S> <C> <C>
Revenue $234,884 $217,535
Cost of products sold 152,051 141,847
Selling and administrative expenses 47,872 44,479
-------- --------
Operating income 34,961 31,209
7,149 5,757
Interest expense -------- --------
Earnings before income taxes 27,812 25,452
-------- --------
Income taxes 9,315 8,577
Net earnings $ 18,497 $ 16,875
======== ========
Average number of common shares outstanding:
Basic 50,091 51,033
====== ======
Diluted 50,462 51,732
====== ======
Earnings per common share:
Basic $.37 $.33
==== ====
Diluted $.37 $.33
==== ====
Dividends per common share $.1325 $.1325
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
-2-
<PAGE>
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31
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1999 1998
---- ----
<S> <C> <C>
Net cash (used in) provided by operating activities $(5,162) $14,254
Cash flows from investing activities:
Acquisition of property, plant and equipment (10,350) (11,243)
Other items, net (510) 172
-------- --------
Net cash used in investing activities (10,860) (11,071)
Cash flows from financing activities:
Proceeds from additional borrowings 30,461 6,974
Reduction in debt (3,511) (535)
Purchase of treasury stock (12,575) (6,415)
Dividends (6,670) (6,769)
Proceeds from options exercised and other 3,792 2,240
-------- -------
Net cash provided by (used in) financing activities 11,497 (4,505)
Effect of exchange rate changes on cash and
cash equivalents (6) 98
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Net decrease in cash and cash equivalents (4,531) (1,224)
Cash and cash equivalents at beginning of period 4,645 1,632
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Cash and cash equivalents at end of period $ 114 $ 408
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $11,277 $7,287
Income taxes 6,317 4,984
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-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 of the Company as of December 31, 1999 and September 30,
1999 and the results of operations and cash flows for the three month
periods ended December 31, 1999 and 1998. 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, 1999, for a description of the accounting
policies, which have been continued without change, 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. At December 31, 1999 and September 30, 1999, inventories included
finished and in-process products totaling $154,261,000 and
$159,117,000, respectively, and raw materials and supplies of
$74,942,000 and $58,100,000, respectively.
5. During the three months ended December 31, 1999 and 1998, the Company
repurchased 680,600 and 272,100 shares of common stock for an aggregate
price of $13,776,000 and $6,415,000, respectively.
6. For the three months ended December 31, 1999, depreciation and
amortization were $11,731,000 and $2,164,000, respectively. For the
three months ended December 31, 1998, depreciation and amortization
were $10,720,000 and $1,722,000, respectively.
7. The components of comprehensive income for the periods presented are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net earnings $18,497 $16,875
Other comprehensive (loss) income:
Foreign currency translation adjustment (2,688) 718
-------- -------
Comprehensive income $15,809 $17,593
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</TABLE>
There are no reclassification adjustments to be reported.
-4-
<PAGE>
8. Operating results by segment for the periods presented are as follows
(in thousands):
<TABLE>
<CAPTION>
Performance Natural Corporate
Products Products and Other Consolidated
-------- -------- --------- ------------
Quarter ended December 31, 1999:
--------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $149,051 $72,359 $ 13,474 $234,884
Intersegment revenues 10,114 2,618 -- 12,732
-------- ------- ------- --------
Total revenue $159,165 $74,977 $ 13,474 $247,616
======== ======= ======== ========
Operating profit $ 24,915 $14,974 $ (4,928) $34,961
Interest expense -- -- 7,149 7,149
-------- ------- -------- -------
Earning before income taxes $ 24,915 $14,974 $(12,077) $ 27,812
======== ======= ========= ========
Quarter ended December 31, 1998:
--------------------------------
Revenues from external customers $123,669 $83,323 $ 10,543 $217,535
Intersegment revenues 7,386 2,865 -- 10,251
-------- ------- -------- --------
Total revenue $131,055 $86,188 $ 10,543 $227,786
======== ======= ======== ========
Operating profit $ 18,951 $16,901 $ (4,643) $ 31,209
Interest expense -- -- 5,757 5,757
-------- ------- --------- --------
Earning before income taxes $ 18,951 $16,901 $(10,400) $ 25,452
======== ======= ========= ========
</TABLE>
9. On January 4, 2000, the Company announced an agreement to acquire for
cash the stock of Dr. Marcus GmbH, a leading manufacturer of natural
colors, located in Hamburg, Germany. Annual revenue is approximately
$14 million.
10.On January 27, 2000, the Company announced that it had acquired for
cash the remaining interest in Monarch Food Colors, L.P., located
in High Ridge, Missouri. The Company previously held a 24% ownership
interest in Monarch as a result of the Company's April 1999 purchase of
Pointing Holdings Ltd. Annual revenues for 1999 were just under $10
million. Monarch manufactures colors for the food, pharmaceutical and
cosmetic industries.
-5-
<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,
1999 increased 8.0% to $234,884,000, compared with $217,535,000 a
year ago. A 21% increase in revenue for the Performance Products
segment more than offset lower revenues in the Natural Products
segment. Gross profit margins increased to 35.3% for the first
quarter of fiscal 2000 compared with 34.8% for the same period last
year. The stronger margins were due to increased volumes and cost
improvements in the Performance Products segment. Selling and
administrative expenses were 20.4% of revenue for the quarters ended
December 31, 1999 and 1998.
As a result of higher average borrowings outstanding, interest
expense in the first quarter increased to $7,149,000 from $5,757,000
in the same period last year. The increased borrowings were used
primarily to fund acquisitions and working capital requirements.
SEGMENT INFORMATION
Performance Products - The Performance Products segment reported a
21% increase in revenues to $159 million for the first quarter of
fiscal 2000. Revenues for the segment's Color division were up 38%
from the prior year with significant volume increases in several
major product categories, including synthetic dyes, natural colors,
inks and cosmetic colors. Revenues for the Flavor division rose 13%
with gains in every product category. The most significant gains were
in dairy, aroma chemicals and fragrances. Operating income for the
Performance Products segment increased 32% to $24.9 million from $19.0
million a year ago. Operating income as a percent of sales increased
120 basis points as gross margins and selling and administrative
expenses as a percent of sales improved with higher volumes.
Natural Products - Revenues for the Natural Products segment were
down 13% from the record levels achieved in the first quarter of
last year. A 7% decrease in revenue at the Yeast division was due
to continued pricing pressure throughout the yeast industry.
Revenues for Dehydrated Products fell 19% primarily due to soft
demand as customers stockpiled inventory during the second half of
last year. In addition, the closure of the Irish frozen vegetable
business in fiscal 1999 reduced sales of the division by about 5
percentage points from the prior year. Segment operating income was
down 11% primarily as a result of decreased revenues.
FINANCIAL CONDITION:
The current ratio remained constant at 1.7 at December 31, 1999 and
September 30, 1999. Net working capital increased $5,081,000 to
$167,958,000 at December 31, 1999 from $162,877,000 at September 30,
1999.
Net cash used in operating activities was $5,162,000 for the quarter
ended December 31, 1999, compared to $14,254,000 provided by
operating activities for the quarter ended December 31, 1998. The
decrease in cash provided by operating activities in the first
quarter of fiscal 2000 was primarily due to increased inventories of
dehydrated products and the timing of benefit plan contributions,
interest and taxes as compared to the prior year.
Net cash used in investing activities was $10,860,000 for the three
months ended December 31, 1999 and $11,071,000 for the three months
ended December 31, 1998. Included in investing activities were
capital additions of $10,350,000 and $11,243,000 during the first
quarter of fiscal 2000 and 1999, 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.
Net cash provided by financing activities was $11,497,000 for the
quarter, compared with net cash used in financing activities of
$4,505,000 in the comparable period last year. Proceeds from net
borrowings of $26,950,000 were used primarily to fund capital
expenditures and purchase treasury stock. Dividends of $6,670,000
and $6,769,000 were paid during the first quarter of fiscal 2000 and
1999, respectively.
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<PAGE>
YEAR 2000
The Company has taken the necessary steps to ensure Year 2000
compliance with its computer systems, network elements, software
applications and other business systems. A comprehensive project
plan was developed and implemented by the Company to address the
Year 2000 issue. The Company has experienced no significant Year 2000
problems to date and all manufacturing facilities continue to operate
without interruption. The Company will continue to monitor normal
daily activities through March 2000 as part of the Year 2000 plan.
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, 1999. For additional
information on market risk, refer to page 15 of the Company's 1999
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. 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; 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
OTHER INFORMATION
<PAGE>
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 27, 2000. At the meeting the
following matters were voted upon by the shareholders.
Shares totaling 50,234,023 were entitled to vote at the meeting,
and 44,627,940 were voted.
The following persons were elected to a three-year term as
Directors of the Company:
<TABLE>
<CAPTION>
For Against
--- -------
<S> <C> <C>
John F. Bergstrom 43,627,751 1,000,189
William V. Hickey 43,651,634 976,306
Kenneth P. Manning 43,549,123 1,078,817
</TABLE>
The following persons continued in office as Directors in
accordance with their previous election:
Richard A. Abdoo
Michael E. Batten
Dr. Fergus M. Clydesdale
James A. D. Croft
Alberto Fernandez
James L. Forbes
Dr. Carol I. Waslien Ghazaii
Essie Whitelaw
The shareholders approved the Universal Foods Corporation 1999 Non-
Employee Director Stock Option Plan to provide for the annual grant
of non-statutory stock options to non-employee directors of the
Company. Of the 50,234,023 shares entitled to vote at the meeting,
39,434,054 shares voted for ratification, 4,803,117 shares voted
against ratification and 390,769 shares abstained.
The shareholders approved an amendment to the Directors' Deferred
Compensation Plan which provides for deferral of director fees into
Company stock. Of the 50,234,023 shares entitled to vote at the
meeting, 42,889,267 shares voted for ratification, 1,392,481 shares
voted against ratification and 346,192 abstained.
The shareholders also approved an amendment to the Management
Incentive Plan for Elected Officers to qualify the plan under
Section 162(m) of the Internal Revenue Code. Of the 50,234,023
shares entitled to vote at the meeting, 42,003,657 shares voted
for ratification, 2,043,118 shares voted against ratification and
581,165 shares abstained.
The shareholders ratified the appointment of Deloitte & Touche LLP,
certified public accountants, as the independent auditors of the
Company for fiscal 2000. Of the 50,234,023 shares entitled to vote at
the meeting, 44,197,018 shares voted for ratification, 247,959
shares voted against ratification and 182,963 shares abstained.
-8-
<PAGE>
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
-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 11, 2000 By: /s/ John L. Hammond
-------------------------------
John L. Hammond, Vice President,
Secretary and General Counsel
Date: February 11, 2000 By: /s/ Michael L. Hennen
-------------------------------
Michael L. Hennen, Vice President
and Controller
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<PAGE>
UNIVERSAL FOODS CORPORATION
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
Filed Incorporated by
Exhibit Description Herewith Reference From
------- ----------- -------- ---------------
3.1 Universal Foods Exhibit A to the
Corporation Amended Registrant's Definitive
and Restated Articles Proxy Statement filed on
of Incorporation adopted Schedule 14A on
January 21, 1999 December 15, 1998
(Commission File
No. 1-7626)
3.2 Universal Foods Amended Exhibit 3.2 to Annual
and Corporation Restated Report on Form 10-K
Bylaws, adopted for the fiscal year
November 11, 1999 ended September 30, 1999
(Commission File
No. 1-7626)
27 Financial Data Schedule. X
-11-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Sep-30-2000
<PERIOD-START> Oct-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 114
<SECURITIES> 0
<RECEIVABLES> 143,171
<ALLOWANCES> 4,051
<INVENTORY> 229,203
<CURRENT-ASSETS> 405,673
<PP&E> 681,664
<DEPRECIATION> 297,260
<TOTAL-ASSETS> 1,131,713
<CURRENT-LIABILITIES> 237,715
<BONDS> 380,378
0
0
<COMMON> 5,396
<OTHER-SE> 425,476
<TOTAL-LIABILITY-AND-EQUITY> 1,131,713
<SALES> 234,884
<TOTAL-REVENUES> 234,884
<CGS> 152,051
<TOTAL-COSTS> 152,051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 7,149
<INCOME-PRETAX> 27,812
<INCOME-TAX> 9,315
<INCOME-CONTINUING> 18,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,497
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.37
</TABLE>
