<PAGE> 1
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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 AUGUST 31, 1996
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 registrant 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 October 10, 1996, 5,110,425 shares of Class A Common Stock and
5,699,504 shares of Class B Common Stock of United Foods, Inc. were
outstanding.
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<PAGE> 2
INDEX
PAGE
<TABLE>
<S> <C> <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
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II: Other Information and Signatures 11
Exhibit A - Computation of Earnings Per Common Share 12
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
UNITED FOODS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 29,
1996 1996
---------- ------------
Unaudited
---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 538 $ 1,029
Accounts Receivable 14,598 14,502
Inventories (Note 3) 47,800 43,099
Prepaid Expenses and Miscellaneous 3,114 4,592
Deferred Income Taxes (Note 5) 1,015 777
-------- --------
Total Current Assets 67,065 63,999
-------- --------
Property and Equipment:
Land and Land Improvements 8,825 8,965
Buildings and Leasehold Improvements 21,098 21,039
Machinery, Equipment and Improvements 92,444 92,536
-------- --------
122,367 122,540
Less Accumulated Depreciation (63,754) (60,204)
-------- --------
Net Property and Equipment 58,613 62,336
-------- --------
Other Assets 1,428 1,853
-------- --------
Total Assets $127,106 $128,188
-------- --------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
UNITED FOODS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 29,
1996 1996
---------- ------------
Unaudited
---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 17,166 $ 11,092
Accruals 7,045 5,870
Income Taxes Payable (Note 5) 187 206
Current Maturities of Long-term Debt 4,672 4,667
-------- --------
Total Current Liabilities 29,070 21,835
Long-term Debt, Less Current Maturities 38,454 46,650
Deferred Income Taxes (Note 5) 4,924 5,169
-------- --------
Total Liabilities 72,448 73,654
-------- --------
Stockholders' Equity:
Common Stock, Class A (Notes 6 and 7) 5,110 7,650
Common Stock, Class B, Convertible (Notes 6 and 7) 5,700 7,096
Additional Paid-in Capital 2,463 8,644
Retained Earnings 41,385 41,261
-------- --------
54,658 64,651
Less Cost of Treasury Stock (Note 7) - (10,117)
-------- --------
Total Stockholders' Equity 54,658 54,534
-------- --------
Total Liabilities and Stockholders' Equity $127,106 $128,188
-------- --------
</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 FOR THE SIX MONTHS
ENDED AUGUST 31, ENDED AUGUST 31,
-------------------- ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross Sales and Services Less Discounts, Returns
and Allowances $42,628 $39,885 $91,336 $84,704
Costs of Sales and Services (Note 3) 34,809 32,489 74,650 68,132
------- ------- ------- -------
Gross Profit 7,819 7,396 16,686 16,572
Selling, Administrative and General Expenses 6,924 7,446 14,971 15,408
------- ------- ------- -------
Operating Income (Loss) 895 (50) 1,715 1,164
------- ------- ------- ------
Interest Income (Expense) - Net (887) (855) (1,951) (1,542)
Miscellaneous Income (Expense) - Net (Note 4) 34 (9) 437 (13)
------- ------- ------ -------
Total Other Income and (Expense) (853) (864) (1,514) (1,555)
------- ------- ------ -------
Income (Loss) Before Taxes on Income (Benefit) 42 (914) 201 (391)
Taxes on Income (Benefit) (Note 5) 16 (362) 77 (155)
------- ------- ------ -------
Net Income (Loss) $ 26 $ (552) $ 124 $ (236)
======= ======= ====== =======
Common Share and Common Share Equivalent
(Note 8) 11,107 11,797 11,112 11,796
======= ======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE AND COMMON
SHARE EQUIVALENT: (NOTE 8) $ .00 $ (.05) $ .01 $ (.02)
======= ======= ======= =======
Cash Dividends Per Common Share:
Class A $ -0- $ -0- $ -0- $ -0-
Class B $ -0- $ -0- $ -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 SIX
MONTHS ENDED AUGUST 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 124 $ (236)
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 3,947 3,577
Provision for losses on accounts receivable 83 94
(Gain) loss on disposal of property and equipment (55) 4
Adjustments to property held for disposal (212) -
Deferred income taxes (483) (475)
Change in assets and liabilities:
Accounts and notes receivable (179) 1,467
Inventories (4,701) (17,150)
Prepaid expenses and miscellaneous 1,478 1,283
Other assets 425 516
Accounts payable and accruals 7,409 10,298
Income taxes (19) (919)
------- --------
Net cash provided (used) by operations 7,817 (1,541)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (669) (8,815)
Proceeds from sale of other property and equipment 552 16
------- --------
Net cash used by investing activities (117) (8,799)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings - 12,865
Payments of long-term debt (8,191) (2,233)
Exercise of stock options - 6
------- --------
Net cash provided (used) by financing activities (8,191) 10,638
------- --------
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD (491) 298
CASH AND CASH EQUIVALENTS, beginning of period 1,029 452
------- --------
CASH AND CASH EQUIVALENTS, end of period $ 538 $ 750
======= ========
</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 SIX
MONTHS ENDED AUGUST 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the six months for:
Interest $2,215 $1,441
Income taxes $ 704 $1,364
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures of $-0-, $160, $142 and $310 are included
in accounts payable at August 31, 1996, February 29, 1996,
August 31, 1995 and February 28, 1995, 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 29, 1996.
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 August
31, 1996 and its results of operations and cash flows for the six months
ended August 31, 1996 and 1995.
2. The results of operations for the six months ended August 31, 1996 and
1995 are not necessarily indicative of the results to be expected for the
fiscal year.
3. Inventories are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1996 FEBRUARY 29, 1996
--------------- -----------------
<S> <C> <C>
Finished products $41,783,000 $36,863,000
Raw materials 2,450,000 3,129,000
Growing crops 2,389,000 1,948,000
Merchandise and supplies 1,178,000 1,159,000
----------- -----------
$47,800,000 $43,099,000
=========== ===========
</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. Miscellaneous Income for the six months ended August 31, 1996 includes
the recognition of a claim in the amount of $167,000 and $212,000 to
restore the carrying value of property held for disposal to its original
cost, based on its current estimated fair value.
5. Taxes on income consist of the current and deferred taxes required to be
recognized for the periods. Approximately $2,000,000 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.
6. 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.
7. In August 1996, the Company cancelled and retired 2,539,382 shares of
Class A Common Stock, $1.00 par value and 1,396,326 shares of Class B
Common Stock, $1.00 par value, previously held in its treasury.
8. 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 and six months ended August 31, 1996 and August 31, 1995,
respectively. The assumed exercise of common stock options does not
materially dilute earnings per share for the three and six months ended
August 31, 1996 and common stock equivalents are not considered in the
computation for the three and six months ended August 31, 1995, as the
effect would be anti-dilutive.
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 August 31, 1996 the Company's revolving credit
facilities totaled $26,000,000, all of which was currently available. During
fiscal 1996, the Company obtained a $5,000,000 increase in one of its revolving
credit facilities for the months of September through November, 1995, such
increase reducing to $3,000,000 for December, 1995, $2,000,000 for January,
1996 and $1,000,000 for February, 1996.
In September 1996, the Company received a $6,000,000, 8.98%, 10-year term loan
commitment, with a 15-year amortization, on its Ogden, Utah facility. Closing
is expected during October, 1996 and funds received will be applied against
current revolving debt.
The Company's sources of liquidity are expected to adequately meet requirements
for the upcoming 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 $3,000,000 and $23,000,000 revolving credit
facilities currently mature in fiscal 1999. One-year extensions of maturity
dates of the revolving credit facilities will be 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 its remaining 24-month
term.
Operations provided net cash of $7,817,000 during the six months ended August
31, 1996 and used cash of $1,541,000 during the same period of the prior year.
A substantial portion of this increase is attributable to decreases in
inventories, primarily as the result of weather related shortages and delays
related to the current year's vegetable pack, offset in part by increases in
accounts and notes receivable and decreases in accounts payable and accruals.
Investing activities used cash of $117,000 for the six months ended August 31,
1996 compared with cash used of $8,799,000 during the same period of the prior
year, primarily as the result of decreased capital expenditures in the current
year.
Financing activities used cash of $8,191,000 for the six months ended August
31, 1996 and provided net cash of $10,638,000 during the same period of the
prior year. This decrease was primarily due to reduced borrowings attributable
to the decreased inventories and capital expenditures previously mentioned.
Working capital at August 31, 1996 was $37,995,000, compared to $42,164,000 at
February 29, 1996. The decrease is primarily due to the increases in accounts
payable and accruals, offset in part by increased inventories.
The Company's ratio of debt to equity decreased to 1.33 to 1 at August 31, 1996
from 1.35 to 1 at February 29, 1996.
CAPITAL EXPENDITURES
Capital expenditures for fiscal 1997 are estimated to be approximately
$1,000,000, which is approximately $7,000,000 less than depreciation expense
projected for fiscal 1997. Capital expenditures are expected to be for normal
replacement of older equipment with more efficient and energy saving equipment.
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 growth, have led to weak market
pricing. We anticipate that this condition will continue.
In addition to general inflation and the growing, processing and marketing
risks described above, the Company faces 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 ongoing and developing healthcare, labeling, OSHA, EPA, taxation and other
governmental regulations is unknown.
SUPPLY AGREEMENTS
The Company has entered into two multi-year reciprocal supply agreements with
other food processing companies. Through these agreements the Company procures
frozen vegetables to meet certain production and inventory requirements. Also,
the Company sells frozen vegetables and fresh mushrooms to the other food
processors.
REVENUES
Net sales and service revenue increased $2,743,000 (6.9%) and $6,632,000 (7.8%)
for the three and six months periods ended August 31, 1996, respectively, as
compared with the same periods of the prior year. Sales volume increased 8.3%
and 12.4% for the three and six month periods, respectively. The increase in
revenues is attributable primarily to sales associated with the Company's
Supply Agreements (previously mentioned), distribution gains for certain of the
Company's marketing programs and stronger first six months sales volumes for
existing customers as compared with the first six months of the prior year.
Sales allowances increased $227,000 (6.5%) for the quarter and $222,000 (2.8%)
for the six months, as compared to the prior year, primarily due to increased
gross sales.
COST OF SALES AND SERVICES AND GROSS PROFIT
Gross profit increased $423,000 (5.7%) and $114,000 (.7%) for the three and
six month periods ended August 31, 1996, respectively as compared with the same
periods of the prior year. The gross margin decreased from 18.54% to 18.34%
and from 19.56% to 18.26% for the quarter and six months, respectively. 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
$2,320,000 (7.1%) for the quarter and $6,518,000 (9.6%) for the six months as
compared with the same periods of the prior year, primarily as the result of
the 8.3% and 12.4% respective sales volume increases in the current year.
9
<PAGE> 11
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, general administrative expenses decreased $522,000 (7.0%) and
$437,000 (2.8%) respectively, for the three and six month periods ended August
31, 1996, as compared with the same periods of the prior year. Administrative
and general expenses accounted for $327,000 (8.2%) and $333,000 (3.9%) of the
decrease for the three and six months respectively, primarily as the result of
decreased incentive compensation and related benefits and decreased production
incentive compensation related to the Company's mushroom farms. Storage
expenses decreased $238,000 (10.9%) and $209,000 (4.9%) for the three and six
months respectively, primarily due to lower average inventories in fiscal 1997.
Other expenses increased $43,000 (3.3%) and $105,000 (3.9%) for the three and
six months, respectively, primarily as the result of increased brokerage,
advertising and other selling expenses.
INTEREST EXPENSE
Interest expense - net increased $32,000 (3.7%) for the quarter and $409,000
(26.5%) for the six months as compared to the same periods of the prior year,
primarily as the result of borrowings related to fiscal 1996 capital
expenditures, offset in part by decreased borrowings related to lower average
inventories.
MISCELLANEOUS INCOME
Miscellaneous income in the amount of $34,000 for the three months ended August
31, 1996 consists primarily of net gains from the sale of plant, property and
equipment.
Miscellaneous income in the amount of $437,000 for the six months ended August
31, 1996 consists of $212,000 to restore the carrying value of certain property
held for disposal to its original cost, based on its current fair market value.
Further, miscellaneous income includes the recognition of a claim in the
amount of $167,000 and net gains on the sale of plant, property and equipment.
TAXES ON INCOME
Taxes on income for the three and six months ended August 31, 1996 and 1995
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
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 12 - Computation of earnings per common share.
Exhibit 27 - Financial Data Schedule (SEC use only).
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for during the three months ended August 31, 1996.
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: October 14, 1996 By s/n Carl W. Gruenewald, II
-------------------- ---------------------------------------
C. W. Gruenewald, II
Senior Vice President,
Chief Financial Officer & Treasurer
11
<PAGE> 1
EXHIBIT 12
UNITED FOODS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED AUGUST 31, ENDED AUGUST 31,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
SHARES:
Weighted average number of
common shares outstanding 10,809,929 11,797,498 10,809,929 11,795,840
Effect of shares issuable under
option plan and warrants as
determined by the treasury
stock method 297,500 (A) 301,822 (A)
---------- ----------- ----------- -----------
Weighted average number of
common shares outstanding as
adjusted 11,107,429 11,797,498 11,111,751 11,795,840
========== =========== =========== ===========
PER COMMON SHARE COMPUTATIONS:
Net Income (Loss) $ 26,000 $ (552,000) $ 124,000 $ (236,000)
=========== =========== =========== ===========
Net Income (Loss) $ .00 $ (.05) $ .01 $ (.02)
=========== =========== =========== ===========
</TABLE>
(A) Not considered in computation as the effect would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<CASH> 538
<SECURITIES> 0
<RECEIVABLES> 14,945
<ALLOWANCES> 347
<INVENTORY> 47,800
<CURRENT-ASSETS> 67,065
<PP&E> 122,367
<DEPRECIATION> 63,754
<TOTAL-ASSETS> 127,106
<CURRENT-LIABILITIES> 29,070
<BONDS> 38,454
0
0
<COMMON> 10,810
<OTHER-SE> 43,848
<TOTAL-LIABILITY-AND-EQUITY> 127,106
<SALES> 91,336
<TOTAL-REVENUES> 91,336
<CGS> 74,650
<TOTAL-COSTS> 74,650
<OTHER-EXPENSES> 14,971
<LOSS-PROVISION> 83
<INTEREST-EXPENSE> 1,951
<INCOME-PRETAX> 201
<INCOME-TAX> 77
<INCOME-CONTINUING> 124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
