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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
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(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, 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 July 1, 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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INDEX
<TABLE>
PAGE
<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
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
------------------------------
UNITED FOODS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
MAY 31, FEBRUARY 29,
1996 1996
--------- ------------
Unaudited
---------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 1,203 $ 1,029
Accounts Receivable 15,500 14,502
Inventories (Note 3) 38,035 43,099
Prepaid Expenses and Miscellaneous 3,450 4,592
Deferred Income Taxes (Note 5) 896 777
-------- --------
Total Current Assets 59,084 63,999
-------- --------
Property and Equipment:
Land and Land Improvements 8,900 8,965
Buildings and Leasehold Improvements 21,108 21,039
Machinery, Equipment and Improvements 92,401 92,536
-------- --------
122,409 122,540
Less Accumulated Depreciation (61,867) (60,204)
-------- --------
Net Property and Equipment 60,542 62,336
-------- --------
Other Assets 1,791 1,853
-------- --------
Total Assets $121,417 $128,188
======== ========
</TABLE>
See accompanying notes to financial statements.
2
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UNITED FOODS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
MAY 31, FEBRUARY 29
1996 1996
--------- -----------
Unaudited
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 12,100 $ 11,092
Accruals 5,196 5,870
Income Taxes Payable (Note 5) 306 206
Current Maturities of Long-term Debt 4,672 4,667
-------- --------
Total Current Liabilities 22,274 21,835
Long-term Debt, Less Current Maturities 39,414 46,650
Deferred Income Taxes (Note 5) 5,097 5,169
-------- --------
Total Liabilities 66,785 73,654
-------- --------
Stockholders' Equity:
Common Stock, Class A (Note 6) 7,650 7,650
Common Stock, Class B, Convertible (Note 6) 7,096 7,096
Additional Paid-in Capital 8,644 8,644
Retained Earnings 41,359 41,261
-------- --------
64,749 64,651
Less Cost of Treasury Stock (10,117) (10,117)
-------- --------
Total Stockholders' Equity 54,632 54,534
-------- --------
Total Liabilities and Stockholders' Equity $121,417 $128,188
======== ========
</TABLE>
See accompanying notes to financial statements.
3
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UNITED FOODS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
FOR THE THREE
MONTHS ENDED MAY 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Gross Sales and Services Less Discounts, Returns and
and Allowances $ 48,708 $ 44,819
Costs of Sales and Services (Note 3) 39,841 35,643
---------- ----------
Gross Profit 8,867 9,176
Selling, Administrative and General Expenses 8,047 7,962
---------- ----------
Operating Income 820 1,214
---------- ----------
Interest Income (Expense) - Net (1,064) (687)
Miscellaneous Income (Expense) - Net (Note 4) 403 (4)
---------- ----------
Total Other Income and (Expense) (661) (691)
---------- ----------
Income Before Taxes on Income 159 523
Taxes on Income (Note 5) 61 207
---------- ----------
Net Income $ 98 $ 316
---------- ----------
Weighted Average Common Share and Common Share Equivalents 11,116,214 12,217,539
========== ==========
Earnings Per Common Share and Common
Share Equivalents (Note 7) .01 $ .03
========== ==========
Cash Dividends Per Common Share:
Class A $ -0- $ -0-
Class B $ -0- $ -0-
</TABLE>
See accompanying notes to financial statements.
4
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UNITED FOODS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MAY 31,
--------------------
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to reconcile net income to net cash $ 98 $ 316
provided by operations:
Depreciation and amortization
Provision for losses on accounts receivable 1,974 1,808
(Gain) Loss on disposal of property and equipment 42 43
Adjustments to property held for disposal (21) 4
Deferred income taxes (212) -
Change in assets and liabilities: (72) 54
Accounts and notes receivable
Inventories (1,040) 1,505
Prepaid expenses and miscellaneous 5,064 (4,260)
Other assets 1,142 873
Accounts payable and accruals 62 207
Income taxes 459 3,411
(19) (405)
Net cash provided by operations ------- -------
7,477 3,556
CASH FLOWS FROM INVESTING ACTIVITIES: ------- -------
Capital expenditures
Proceeds from sale of other property and equipment (491) (4,208)
419 16
Net cash used by investing activities ------- -------
(72) (4,192)
CASH FLOWS FROM FINANCING ACTIVITIES: ------- -------
Proceeds from long-term borrowings
Payments of long-term debt - 554
Exercise of Stock Options (7,231) -
- 6
Net cash provided (used) by financing activities ------- -------
(7,231) 560
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD ------- -------
CASH AND CASH EQUIVALENTS, beginning of period 174 (76)
1,029 452
CASH AND CASH EQUIVALENTS, end of period ------- -------
$ 1,203 $ 376
======= =======
</TABLE>
See accompanying notes to financial statements.
5
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UNITED FOODS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONCLUDED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MAY 31,
--------------------
1996 1995
------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the three months for:
Interest $1,205 $778
Income taxes $ 214 $620
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures of $35, $160, $336 and $310 are included
in accounts payable at May 31, 1996, February 29, 1996, May
31, 1995 and February 28, 1995, respectively.
</TABLE>
See accompanying notes to financial statements.
6
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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 May 31,
1996 and its results of operations and cash flows for the three months
ended May 31, 1996 and 1995.
2. The results of operations for the three months ended May 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>
MAY 31, 1996 FEBRUARY 29, 1996
------------ -----------------
<S> <C> <C>
Finished products $30,262,000 $36,863,000
Raw materials 2,655,000 3,129,000
Growing crops 3,740,000 1,948,000
Merchandise and supplies 1,378,000 1,159,000
----------- -----------
$38,035,000 $43,099,000
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</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 three months ended May 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 $1,700,000 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. 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, 1996 and May 31, 1995. The assumed
exercise of common stock options does not materially dilute earnings per
share for the three months ended May 31, 1996 and May 31, 1995.
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, 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.
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 $7,477,000 during the three months ended May
31, 1996 and $3,556,000 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, and prepaid expenses and other
assets, offset in part by increases in accounts and notes receivable.
Investing activities used cash of $72,000 for the three months ended May 31,
1996 compared with cash used of $4,192,000 during the same period of the prior
year, primarily as the result of decreased capital expenditures.
Financing activities used cash of $7,231,000 for the three months ended May 31,
1996. This net decreased in borrowings was due to the decreased inventories
and capital expenditures previously mentioned. Financing activities provided
cash of $560,000 for the three months ended May 31, 1995.
Working capital at May 31, 1996 was $36,810,000, compared to $42,164,000 at
February 29, 1996. The decrease is primarily due to the decrease in
inventories.
The Company's ratio of debt to equity decreased to 1.22 to 1 at May 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
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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 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 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 processed at the Company's Tennessee and
California facilities to the other food processors.
REVENUES
Net sales and service revenue increased $3,889,000 (8.7%) and volume increased
15.9% for the quarter ended May 31, 1996, compared with the same period of the
prior year. 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 quarter sales volumes for existing distribution as compared with the
first quarter of the prior year. Sales allowances increased $405,000 (5.1%)
primarily as the result of extremely competitive market conditions. The
adverse effect of the competitive market conditions on the Company's sales and
operating results is expected to continue.
COST OF SALES AND SERVICES
Gross profit decreased $309,000 (3.4%) for the quarter ended May 31, 1996 as
compared with the same period of the prior year and the gross margin decreased
to 18.2% from 20.5%. 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 $4,198,000 (11.8%) for the three months ended May 31, 1996
as compared with the same period of the prior year, primarily as the result of
increase in sales volume, increased mushroom farm costs, offset in part by
improved processing costs.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, general administrative expenses increased $85,000 (1.1%) for the
quarter compared with the same period of the prior year. Storage expense
increased $29,000 (1.4%). Brokerage, advertising and other direct selling
expenses increased $62,000 (4.3%) primarily as the result of increased sales
volume. Administrative and general selling expenses decreased $6,000 primarily
as the result of a $258,000 (56.5%) decrease in production incentive expense at
the Company's mushroom farms, offset by increased administrative expenses of
$252,000 primarily associated with the severance of approximately 50 full-time
employees during the quarter.
9
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INTEREST EXPENSE
Interest expense - net increased $377,000 (54.9%) for the quarter primarily due
to fiscal 1996 capital expenditures which were financed.
MISCELLANEOUS INCOME
Miscellaneous income in the amount of $403,000 for the three months ended May
31, 1996 consist 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.
TAXES ON INCOME
Taxes on income for the three months ended May 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
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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.
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 May 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: July 12, 1996 By /s/ C.W. Gruenewald, II
------------------- -----------------------------------
C. W. Gruenewald, II
Senior Vice President,
Chief Financial Officer & Treasurer
11
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UNITED FOODS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MAY 31,
-----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
SHARES:
Weighted average number of common shares outstanding 10,809,929 11,794,183
Effect of shares issuable under option plan, as
determined by the treasury stock method 306,285 422,356
----------- -----------
Weighted average number of common shares and share
equivalents outstanding, as adjusted 11,116,214 12,216,539
=========== ===========
PER COMMON SHARE COMPUTATIONS:
Net Income $ 98,000 $ 316,000
=========== ===========
Net Income $ .01 $ .03
=========== ===========
</TABLE>
12
<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,
1996, 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-28-1997
<PERIOD-END> MAY-31-1996
<CASH> 1,203
<SECURITIES> 0
<RECEIVABLES> 15,804
<ALLOWANCES> 304
<INVENTORY> 38,035
<CURRENT-ASSETS> 59,084
<PP&E> 122,409
<DEPRECIATION> 61,867
<TOTAL-ASSETS> 121,417
<CURRENT-LIABILITIES> 22,274
<BONDS> 39,414
14,746
0
<COMMON> 0
<OTHER-SE> 39,886
<TOTAL-LIABILITY-AND-EQUITY> 121,417
<SALES> 48,708
<TOTAL-REVENUES> 48,708
<CGS> 39,841
<TOTAL-COSTS> 39,841
<OTHER-EXPENSES> 8,047
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 1,064
<INCOME-PRETAX> 159
<INCOME-TAX> 61
<INCOME-CONTINUING> 98
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
