<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended:
OR
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from October 1, 1999 to December 31, 1999
-------------------------------------
Commission file number: 1-7626
------
UNIVERSAL FOODS CORPORATION
----------------------------------------------------------------------
(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)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5304
-----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 271-6755
--------------
SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
(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 September 30, 2000
-------------------------------------------- ---------------------------------
Common Stock, par value $0.10 per share 48,192,086 shares
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<PAGE> 2
CONFORMED
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended:
OR
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from October 1, 1999 to December 31, 1999
-------------------------------------
Commission file number: 1-7626
------
UNIVERSAL FOODS CORPORATION
----------------------------------------------------------------------
(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)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5304
-----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 271-6755
--------------
SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
(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 September 30, 2000
------------------------------------------ ---------------------------------
Common Stock, par value $0.10 per share 48,192,086 shares
================================================================================
<PAGE> 3
UNIVERSAL FOODS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<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. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 9
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders. 10
Item 6. Exhibits and Reports on Form 8-K. 11
SIGNATURES. 12
EXHIBIT INDEX. 13
</TABLE>
<PAGE> 4
PART I
FINANCIAL INFORMATION
<PAGE> 5
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1999 1999
------ --------------- --------------
<S> <C> <C>
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> 6
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenue $ 198,693 $ 178,202
Cost of products sold 132,138 121,037
Selling and administrative expenses 38,648 34,050
----------- ----------
Operating income 27,907 23,115
Interest expense 7,149 5,757
----------- ----------
Earnings before income taxes 20,758 17,358
Income taxes 6,634 5,501
----------- ----------
Earnings from continuing operations 14,124 11,857
Earnings from discontinued operations 4,373 5,018
----------- ----------
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:
Continuing Operations:
Basic $.28 $.23
==== ====
Diluted $.28 $.23
==== ====
Net Earnings:
Basic $.37 $.33
==== ====
Diluted $.37 $.33
==== ====
Dividends per common share $.1325 $.1325
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-2-
<PAGE> 7
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
---------------------------------
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
---------- ---------
Net decrease in cash and cash equivalents (4,531) (1,224)
Cash and cash equivalents at beginning of period 4,645 1,632
--------- ---------
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.
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<PAGE> 8
UNIVERSAL FOODS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of Universal Foods Corporation (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 for the change in reporting a discontinued operation as
discussed in Note 5, or 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. On September 7, 2000, the Company's Board of Directors approved a change of
the Company's fiscal year end from September 30 to December 31. The first
annual period to be reported on the new fiscal year end will be the twelve
months ending December 31, 2000. This change will result in the reporting
of financial results that will compare more directly with other
business-to-business companies that serve the same customer base. This
filing contains the results of the transition period from October 1, 1999
through December 31, 1999.
5. In June 2000, the Company's Board of Directors approved a plan to dispose
of the operations of its Yeast business. Accordingly, the operating results
of the Yeast business have been reported separately from continuing
operations and reported as a separate line item on the statements of
earnings. The Company has also restated its prior statements of earnings to
present the earnings of the Yeast division as a discontinued operation. The
Company anticipates that the sale of the Yeast division will result in a
gain.
Operating results from discontinued operations are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months
Ended December 31
-----------------
1999 1998
---- ----
<S> <C> <C>
Revenue $ 36,190 $ 39,333
Earnings before income taxes 7,054 8,094
Income taxes 2,681 3,076
--------- ---------
Earnings from discontinued
operations $ 4,373 $ 5,018
========= =========
Earnings per common share:
Basic $ .09 $ .10
========= =========
Diluted $ .09 $ .10
========= =========
</TABLE>
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<PAGE> 9
6. 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.
7. 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.
8. For the three months ended December 31, 1999, depreciation and amortization
related to continuing operations were $9,177,000 and $2,156,000,
respectively. For the three months ended December 31, 1998, depreciation
and amortization related to continuing operations were $8,285,000 and
$1,714,000, respectively.
9. 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
=========== ==========
</TABLE>
There are no reclassification adjustments to be reported.
10. During the quarter ended June 30, 2000 the Company decided to dispose of
its Yeast division and integrate its Dehydrated Products division with the
Flavor division. As a result of these changes reportable segments were
changed to Flavor and Color and all segment data has been restated to
reflect this change. Operating results and the related assets by segment
for the periods presented are as follows (in thousands):
<TABLE>
<CAPTION>
Corporate Continuing
Flavor Color and Other Operations
------ ----- --------- ----------
<S> <C> <C> <C> <C>
Quarter ended December 31, 1999:
--------------------------------
Revenue from external customers $ 127,171 $ 58,051 $ 13,471 $ 198,693
Intersegment revenues 4,334 4,012 -- 8,346
---------- --------- ---------- ------------
Total revenue $ 131,505 $ 62,063 $ 13,471 $ 207,039
========== ========= ========== ============
Operating profit $ 19,090 $ 13,737 $ (4,920) $ 27,907
Interest expense -- -- 7,149 7,149
---------- --------- ---------- ------------
Earning before income taxes $ 19,090 $ 13,737 $ (12,069) $ 20,758
========== ========= ========== ============
Assets $ 444,010 $ 222,170 $ 362,613 $ 1,028,793
Quarter ended December 31, 1998:
--------------------------------
Revenue from external customers $ 125,146 $ 42,514 $ 10,542 $ 178,202
Intersegment revenues 3,532 2,420 -- 5,952
---------- --------- ---------- ------------
Total revenue $ 128,678 $ 44,934 $ 10,542 $ 184,154
========== ========= ========== ============
Operating profit $ 17,566 $ 10,185 $ (4,636) $ 23,115
Interest expense -- -- 5,757 5,757
---------- --------- ---------- ------------
Earning before income taxes $ 17,566 $ 10,185 $ (10,393) $ 17,358
========== ========= ========== ============
Assets $ 438,879 $ 160,812 $ 291,020 $ 890,711
</TABLE>
11. 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.
-5-
<PAGE> 10
12. 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.
13. On February 29, 2000, the Company refinanced $40,000,000 of senior notes
that were due through December 2009 using proceeds from additional
short-term borrowings.
-6-
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS:
Revenue from continuing operations during the three months ended
December 31, 1999 increased 11.5% to $198,693,000 compared with
$178,202,000 during the three months ended December 31, 1998. This
increase includes a 38.1% increase in revenue for the Color segment and
a 2.2% increase for the Flavor segment. Gross profit margins increased
to 33.5% for the quarter ended December 31, 1999 compared with 32.1%
for the same period in the prior year. The stronger margins were due to
increased volumes and cost improvements. Selling and administrative
expenses were 19.5% and 19.1% of revenue for the quarters ended
December 31, 1999 and 1998, respectively.
As a result of higher average borrowings outstanding, interest expense
in the quarter increased to $7,149,000 from $5,757,000 in the same
period in the prior year. The increased borrowings were used primarily
to fund acquisitions and working capital requirements.
DISCONTINUED OPERATIONS
During the quarter ended June 30, 2000, the Company announced its
decision to consider strategic alternatives for its Yeast division.
After reviewing options for growth, the Company decided to sell this
business. Beginning with the quarter ended June 30, 2000, the Yeast
business is being reported as a discontinued operation. Earnings from
discontinued operations were $4,373,000, net of tax for the quarter
ended December 31, 1999 compared with earnings from discontinued
operations of $5,018,000 for the quarter ended December 31, 1998. The
decrease is a result of lower fresh yeast prices and volumes. The
Company has entered into a letter of intent and expects to finalize a
sale by the end of calendar 2000.
SEGMENT INFORMATION
During the quarter ended June 30, 2000 the Company decided to dispose
of its Yeast division and integrate its Dehydrated Products division
with the Flavor division. As a result of these actions, the Company's
reportable segments became Flavor and Color and all segment data has
been restated to reflect this change.
Flavor - The Flavor segment reported revenue of $131,505,000 for the
quarter ended December 31, 1999 compared to $128,678,000 for the
quarter ended December 31, 1998. The most significant gains were in the
dairy, aroma chemicals and the fragrance product lines. These gains
were partially offset by reduced revenue for dehydrated products as
customers had stockpiled inventory in the previous quarters. In
addition, the closure of the Irish frozen vegetable business reduced
dehydrated product sales by about 5 percent from the prior year.
Operating income for the Flavor segment was up 8.7% for the three
months compared to the same period in the prior year due to increased
volumes and lower manufacturing costs.
Color - The Color segment reported a 38.1% increase in revenue to
$62,063,000 for the quarter ended December 31, 1999. Significant volume
increases were achieved in several major product categories, including
synthetic dyes, natural colors, inks and cosmetic colors. Operating
income for the Color segment increased 34.9% to $13,737,000 from
$10,185,000 in the prior year.
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.
-7-
<PAGE> 12
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 quarter ended December 31,
1999 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 quarters ended
December 31, 1999 and 1998, 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 prior period. 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 quarter ended December 31, 1999 and 1998, respectively.
-8-
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during
the 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; the sale of the
Yeast division and the anticipated proceeds from the sale; 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> 14
PART II
OTHER INFORMATION
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information responsive to this item was provided in, and
incorporated by reference from the Company's quarterly report on Form
10-Q for the quarter ended December 31, 1999, filed on February 11,
2000.
-10-
<PAGE> 16
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 transition period from
October 1, 1999 to December 31, 1999.
-11-
<PAGE> 17
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: October 19, 2000 By: /s/ John L. Hammond
----------------------------------
John L. Hammond, Vice President,
Secretary and General Counsel
Date: October 19, 2000 By: /s/ Michael L. Hennen
----------------------------------
Michael L. Hennen, Vice President
and Controller
-12-
<PAGE> 18
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: October 19, 2000 By:
----------------------------------------
John L. Hammond, Vice President,
Secretary and General Counsel
Date: October 19, 2000 By:
----------------------------------------
Michael L. Hennen, Vice President
and Corporate Controller
-12-
<PAGE> 19
UNIVERSAL FOODS CORPORATION
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Exhibit Description Filed Herewith Incorporated by Reference From
------- ----------- -------------- -------------------------------
<S> <C> <C> <C>
3.1 Universal Foods Corporation Exhibit A to the Registrant's
Amended and Restated Articles Definitive Proxy Statement
of Incorporation adopted filed on Schedule 14A on
January 21, 1999 December 15, 1998
(Commission File No. 1-7626)
3.2 Universal Foods Corporation Exhibit 3.2 to Annual Report
Amended and Restated Bylaws, on Form 10-K for the fiscal
adopted November 11, 1999 year ended September 30, 1999
(Commission File No. 1-7626)
27.1 Restated Financial Data Schedule. X
</TABLE>
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