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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 MAY 31, 1995
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 1-8574
UNITED FOODS, INC.
(Exact name of regisrant as specified in its charter)
DELAWARE 74-1264568
(State of Incorporation) (I.R.S. Employer Identification No.)
TEN PICTSWEET DRIVE, BELLS, TN 38006
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (901) 422-7600
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
On June 23, 1995, 5,914,719 shares of Class A Common Stock and
5,882,779 shares of Class B Common Stock of United Foods, Inc. were
outstanding.
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I: Financial Information:
Item 1: Financial Statements:
Balance Sheets 2-3
Statements of Operations 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Part II: Other Information and Signatures 11
Exhibit 11 - Computation of Earnings Per Common Share
</TABLE>
1
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
UNITED FOODS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, February 28,
1995 1995
----------- ------------
Unaudited
-----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 376 $ 452
Accounts Receivable 14,398 15,328
Inventories (Note 3) 44,624 40,364
Prepaid Expenses and Miscellaneous 3,570 5,061
Deferred Income Taxes (Note 4) 557 557
-------- ---------
Total Current Assets 63,525 61,762
-------- ---------
Property and Equipment:
Land and Land Improvements 8,145 8,083
Buildings and Leasehold Improvements 18,438 18,224
Machinery, Equipment and Improvements 79,112 75,163
-------- ---------
105,695 101,470
Less Accumulated Depreciation (54,047) (52,241)
-------- ---------
Net Property and Equipment 51,648 49,229
-------- ---------
Other Assets 2,946 3,166
-------- ---------
Total Assets $118,119 $ 114,157
======== =========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
UNITED FOODS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, February 28,
1995 1995
--------- ------------
Unaudited
---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 13,994 $ 8,301
Accruals 5,148 7,404
Income Taxes Payable (Note 4) 337 742
Current Maturities of Long-term Debt 4,302 4,302
--------- --------
Total Current Liabilities 23,781 20,749
Long-term Debt, Less Current Maturities 30,630 30,076
Deferred Income Taxes (Note 4) 5,946 5,892
--------- --------
Total Liabilities 60,357 56,717
--------- --------
Stockholders' Equity:
Common Stock, Class A (Note 5) 7,648 7,648
Common Stock, Class B, Convertible (Note 5) 7,098 7,098
Additional Paid-in Capital 8,679 8,687
Retained Earnings 42,237 41,921
--------- --------
65,662 65,354
Less Cost of Treasury Stock (7,900) (7,914)
--------- --------
Total Stockholders' Equity 57,762 57,440
--------- --------
Total Liabilities and Stockholders' Equity $ 118,119 $114,157
========= ========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
UNITED FOODS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MAY 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Gross Sales and Services Less Discounts, Returns and
and Allowances $ 44,819 $ 44,428
Costs of Sales and Services (Note 3) 35,643 34,255
---------- ---------
Gross Profit 9,176 10,173
Selling, Administrative and General Expenses 7,962 8,014
---------- ---------
Operating Income 1,214 2,159
---------- ---------
Interest Income (Expense) - Net (687) (618)
Miscellaneous Income (Expense) - Net (4) (3)
---------- ---------
Total Other Income and (Expense) (691) (621)
---------- ---------
Income Before Taxes on Income 523 1,538
Taxes on Income (Note 4) 207 592
---------- ---------
Net Income $ 316 $ 946
========== =========
Common Share and Common Share Equivalent 12,217 13,202
========== =========
Earnings Per Common Share and Common
Share Equivalent: (Note 6) $ .03 $ .07
========== =========
Cash Dividends Per Common Share:
Class A $ -0- $ -0-
Class B $ -0- $ -0-
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
UNITED FOODS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MAY 31,
---------------------------
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 316 $ 946
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 1,808 1,733
Provision for losses on accounts receivable 43 13
(Gain) Loss on disposal of property and equipment 4 24
Deferred income taxes 54 224
Change in assets and liabilities:
Accounts and notes receivable 1,505 (134)
Inventories (4,260) (2,233)
Prepaid expenses and miscellaneous 873 443
Recoverable income taxes - 159
Other assets 207 25
Accounts payable and accruals 3,411 5,669
Income taxes payable (405) 237
------- -------
Net cash provided by operations 3,556 7,106
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,208) (5,094)
Proceeds from sale of other property and equipment 16 2
------- -------
Net cash (used) by investing activities (4,192) (5,092)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 554 -
Reductions of long-term debt - (2,211)
Exercise of Stock Options 6 -
------- -------
Net cash provided (used) by financing activities 560 (2,211)
------- -------
NET DECREASE IN CASH FOR THE PERIOD (76) (197)
CASH AND CASH EQUIVALENTS, beginning of period 452 3,996
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 376 $ 3,799
======= =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
UNITED FOODS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONCLUDED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MAY 31,
--------------------------
1995 1994
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the three months for:
Interest $ 778 $ 710
Income taxes $ 620 $ 35
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures of $336, $310, $77 and $1,469 are included in accounts
payable at May 31, 1995, February 28, 1995, May 31, 1994 and February 28,
1994, respectively.
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 8
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
1. The interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended February 28, 1995.
Significant accounting policies and other disclosures normally provided
have been omitted since such items are disclosed therein.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly its financial position as of May 31,
1995 and its results of operations and cash flows for the three months
ended May 31, 1995 and 1994.
2. The results of operations for the three months ended May 31, 1995 and 1994
are not necessarily indicative of the results to be expected for the
fiscal year.
3. Inventories are summarized as follows:
<TABLE>
<CAPTION>
MAY 31, 1995 FEBRUARY 28, 1995
------------ -----------------
<S> <C> <C>
Finished products $ 37,914,000 $ 35,358,000
Raw materials 2,255,000 2,296,000
Growing crops 3,336,000 2,008,000
Merchandise and supplies 1,119,000 702,000
------------- --------------
$ 44,624,000 $ 40,364,000
============= ==============
</TABLE>
Substantially all of the Company's inventories are valued at the lower of
cost (first-in, first-out) or market at each fiscal year end. However, due
to the seasonality of vegetable processing, the gross profit method, at
the estimated annual rate, is used to determine frozen vegetable cost of
goods sold in interim financial statements.
4. Taxes on income consist of the current and deferred taxes required to be
recognized for the periods. Approximately $2,300,000 in operating loss
carryforwards is available to reduce future taxable income through 2008
and, in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", the related
future income tax benefits have been recognized by the Company.
5. Each Class B common share is convertible into one share of Class A common
stock at the holder's election. Holders of the Class A common stock are
entitled to a preference dividend of $.025 per share for any quarter and
each preceding quarter of the Company's fiscal year before the holders of
the Class B common stock are entitled to any regular cash dividend. Class
A shareholders have the right to elect a number of directors that equal at
least 25% of the members of the board of directors. In addition, on
matters requiring the classes to vote together, the Class A holders are
entitled to 1/10 vote per share and holders of Class B common stock are
entitled to one vote per share.
6. Earnings per share of common stock and common stock equivalents have been
computed based upon the weighted average number of shares outstanding
during the three months ended May 31, 1995 and May 31, 1994. The assumed
exercise of common stock options does not materially dilute earnings per
share for the three months ended May 31, 1995 and May 31, 1994.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and earnings
during the periods included in the accompanying balance sheets and statements
of income.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are operations and external committed
credit facilities. At May 31, 1995 the Company's revolving credit facilities
provide a maximum availability of $26,000,000 (reduced by $10,000,000 during
the months of January - May of each year). The Company's sources of liquidity
are expected to adequately meet requirements for the fiscal year and the
foreseeable future; however, new financing alternatives are constantly
evaluated to determine their practicality and availability in order to provide
the Company with sufficient and timely funding at the least possible cost. The
Company's revolving credit facilities mature in fiscal 1999. One year
extensions of the maturity dates of the revolving credit facilities are
considered by the lenders annually. If annual extensions are not granted, the
Company will then investigate revolving credit facilities with other lenders
and believes it can replace any current revolving credit facility within 24
months.
Operations provided net cash of $3,556,000 during the three months ended May
31, 1995 and $7,106,000 during the same period of the prior year. A substantial
portion of this decrease is attributable to increases in inventories, offset in
part by decreases in accounts and notes receivable and increases in accounts
payable and accrued expenses both as the result of normal timing factors.
Investing activities used cash of $4,192,000 for the three months ended May 31,
1995, compared with cash used of $5,092,000 during the same period of the prior
year, primarily as the result of capital expenditures.
Financing activities provided cash of $560,000 for the three months ended May
31, 1995. This net increase in borrowings was due to the increase in inventory
and the capital expenditures previously mentioned. Financing activities used
cash of $2,211,000 for the three months ended May 31, 1994, as the result of
scheduled debt reductions.
Working capital at May 31, 1995 was $39,744,000, compared to $41,013,000 at
February 28, 1995. The decrease is primarily due to the increase in accounts
payable.
The Company's ratio of debt to equity increased to 1.04 to 1 at May 31, 1995,
from .99 to 1 at February 28, 1995.
CAPITAL EXPENDITURES
Capital expenditures for fiscal 1996, including the $4,208,000 made during the
quarter, are expected to approximate $12,000,000 which is approximately
$5,000,000 more than depreciation expense expected to be taken in fiscal 1996.
In addition, the Company is currently negotiating to purchase its leased
facility located in Santa Maria, California for approximately $8,000,000. Under
the proposed terms, the purchase will be 100% financed, at 10% interest and
amortized over 15 years.
Capital expenditures will be for normal replacement of older equipment with
more efficient and energy saving equipment, to restore the throughput of the
Company's facilities to their approximate original capacity, and to expand
production capacity to permit the Company to meet its customer needs and
obligations under its five-year reciprocal supply agreement with another food
processing company. These expenditures are expected to be funded from
operations and the Company's revolving credit facilities.
8
<PAGE> 10
RESULTS OF OPERATIONS
OVERVIEW AND TRENDS
The Company's product line is made up of agricultural products which are
subject to the cyclical conditions and risks inherent in the agricultural
industry. The Company bears part of the growing risks and all of the processing
and marketing risks of these agricultural products. Weather abnormalities and
excess inventories sometimes cause substantial reductions in the annual volume
of product processed in facilities that are owned or leased by the Company.
When this happens, the unit cost of that year's production will increase
substantially, resulting in reduced profit margins for one or more years. On
the other hand, when bumper crops occur unit costs will decrease but selling
prices will, in general, be depressed.
The Company has always been faced with very strong competition in the
marketplace from large brand name competitors, private regional U.S. vegetable
processors, and privately-owned Mexican vegetable processors. These competitive
pressures, coupled with low overall industry growth, have led to weak market
pricing. We anticipate that this condition will continue for several years.
In addition to general inflation and the growing, processing and marketing
risks described above, the Company is facing the significant costs associated
with increasing governmental regulation, the loss of land and water available
for agriculture in California and the increasing competition due to world-wide
facilitation of trade. As a result of these factors, the Company's earnings
history is cyclical and will continue to be so in the future.
The effect on the Company's operations and its ability to withstand the costs
of future healthcare, labeling, OSHA, EPA, taxation and other governmental
regulations is unknown.
SUPPLY AGREEMENT
During fiscal 1993, the Company entered into a multi-year reciprocal supply
agreement with another food processing company, under which deliveries began in
fiscal 1994. Through this agreement the Company procures vegetables grown and
processed in the Northwest region of the United States. Also, the Company sells
frozen vegetables processed at the Company's Tennessee and California
facilities to the other food processor.
9
<PAGE> 11
REVENUES
Net sales and service revenue increased $391,000 (.9%) and volume decreased
1.4% for the quarter ended May 31, 1995, compared with the same period of the
prior year. Sales allowances increased $316,000 (4.1%) primarily as the result
of competitive market conditions. The increase in revenues, which occurred
despite a decline in sales volume, is attributable primarily to continued
growth in higher price branded sales as well as certain favorable pricing
actions taken during the first quarter of fiscal 1996.
COST OF SALES AND SERVICES AND GROSS PROFIT
Gross profit decreased $997,000 (9.8%) for the quarter ended May 31, 1995 and
the gross margin decreased to 20.5% from 22.9%. The gross profit method, at the
estimated annual gross profit rate is used to determine cost of goods sold in
interim financial statements (See Note 3 - Notes to Financial Statements). Cost
of sales and services increased $1,388,000 (4.1%) for the three months ended
May 31, 1995 as compared with the same period of the prior year primarily as
the result of increased packaging and plant operating costs. Additionally,
during the quarter ended May 31, 1995, the Company recorded a repair and
maintenance charge to operations of approximately $400,000 as part of an
ongoing program to restore the throughput of the Company's facilities to their
approximate original capacity. It is expected that repair and maintenance
expenditures under this program will continue to be significant during the next
two to three fiscal years.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, general and administrative expenses decreased $52,000 (.6%) for the
quarter compared with the same period of the prior year. Storage expense
increased $136,000 primarily due to higher average frozen inventories in fiscal
1996. Brokerage, advertising and other direct selling expenses decreased
$49,000 (3.3%). Administrative and general selling expenses decreased $139,000
primarily the result of a $139,000 (23.3%) decrease in production incentive
expense at the Company's mushroom farms.
INTEREST EXPENSE
Interest expense - net increased $69,000 (11.2%) for the quarter due to higher
average borrowings primarily as the result of higher average inventories and
higher average interest rates.
TAXES ON INCOME
Taxes on income for the three months ended May 31, 1995 and 1994 consist of
current and deferred taxes provided at the estimated effective federal and
state tax rates expected to be recognized for the respective periods.
10
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit -
11 Computation of earnings per common share.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - There were no reports
on Form 8-K filed for during the three
months ended May 31, 1995.
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.
UNITED FOODS, INC.
Date: July 5, 1995 By s/n C. W. Gruenewald, II
------------------ ------------------------------
C. W. Gruenewald, II
Senior Vice President,
Chief Financial Officer & Treasurer
11
<PAGE> 1
EXHIBIT 11
UNITED FOODS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MAY 31,
---------------------------------
1995 1994
---------- ---------
<S> <C> <C>
SHARES:
Weighted average number of common shares outstanding 11,794,183 12,870,575
Effect of shares issuable under option plan and warrants as
determined by the treasury stock method 422,356 331,526
----------- -----------
Weighted average number of common shares
outstanding as adjusted 12,216,539 13,202,101
=========== ===========
PER COMMON SHARE COMPUTATIONS:
Net Income $ 316,000 $ 946,000
=========== ===========
Net Income $ .03 $ .07
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNITED FOODS, INC. FOR THE THREE MONTHS ENDED MAY 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> MAY-31-1995
<CASH> 376
<SECURITIES> 0
<RECEIVABLES> 14,676
<ALLOWANCES> 278
<INVENTORY> 44,624
<CURRENT-ASSETS> 63,525
<PP&E> 105,695
<DEPRECIATION> 54,047
<TOTAL-ASSETS> 118,119
<CURRENT-LIABILITIES> 23,781
<BONDS> 30,630
<COMMON> 14,746
0
0
<OTHER-SE> 43,016
<TOTAL-LIABILITY-AND-EQUITY> 118,119
<SALES> 44,819
<TOTAL-REVENUES> 44,819
<CGS> 35,643
<TOTAL-COSTS> 35,643
<OTHER-EXPENSES> 7,966
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 687
<INCOME-PRETAX> 523
<INCOME-TAX> 207
<INCOME-CONTINUING> 316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
