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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, 1998
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 1-08574
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 September 30, 1998, 2,617,243 shares of Class A Common Stock and
4,192,686 shares of Class B Common Stock of United Foods, Inc. were outstanding.
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<PAGE> 2
INDEX
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<TABLE>
<CAPTION>
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 7-8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
Part II: Other Information and Signatures
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
1
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
UNITED FOODS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1998 1998
------------ -----------
Unaudited
------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 627 $ 646
Accounts Receivable 15,185 19,263
Inventories (Note 3) 40,900 37,344
Prepaid Expenses and Miscellaneous 3,596 3,935
Deferred Income Taxes (Note 4) 1,249 1,249
----------- -----------
Total Current Assets 61,557 62,437
----------- -----------
Property and Equipment:
Land and Land Improvements 9,968 9,968
Buildings and Leasehold Improvements 23,044 21,399
Machinery, Equipment and Improvements 97,915 94,870
----------- -----------
130,927 126,237
Less Accumulated Depreciation (77,904) (74,151)
----------- -----------
Net Property and Equipment 53,023 52,086
----------- -----------
Other Assets 1,513 1,361
----------- -----------
Total Assets $ 116,093 $ 115,884
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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UNITED FOODS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1998 1998
----------- ------------
Unaudited
-----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 15,083 $ 12,191
Accruals 7,424 6,594
Income Taxes Payable (Note 4) 109 46
Current Maturities of Long-term Debt 4,300 4,427
-------- --------
Total Current Liabilities 26,916 23,258
Long-term Debt, Less Current Maturities 38,949 42,168
Deferred Income Taxes (Note 4) 4,710 4,710
-------- --------
Total Liabilities 70,575 70,136
-------- --------
Stockholders' Equity:
Common Stock, Class A (Notes 5 and 6) 2,616 2,616
Common Stock, Class B, Convertible (Notes 5 and 6) 4,194 4,194
Additional Paid-in Capital 3,993 3,993
Retained Earnings 34,715 34,945
-------- --------
Total Stockholders' Equity 45,518 45,748
-------- --------
Total Liabilities and Stockholders' Equity $116,093 $115,884
======== ========
</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,
----------------------- ---------------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Gross Sales and Services Less Discounts, Returns
and Allowances $ 45,888 $ 42,579 $ 95,822 $ 89,542
Costs of Sales and Services (Note 3) 37,948 35,706 78,493 73,791
-------- -------- -------- --------
Gross Profit 7,940 6,873 17,329 15,751
Selling, Administrative and General Expenses 7,774 7,490 15,875 14,898
-------- -------- -------- --------
Operating Income (Loss) 166 (617) 1,454 853
-------- -------- -------- --------
Interest Income (Expense) - Net (945) (925) (1,832) (1,786)
Miscellaneous Income (Expense) - Net 4 -- 4 41
-------- -------- -------- --------
Total Other Income and (Expense) (941) (925) (1,828) (1,745)
-------- -------- -------- --------
Loss Before Income Tax Benefit (775) (1,542) (374) (892)
Income Tax Benefit (Note 4) (298) (593) (144) (343)
-------- -------- -------- --------
Net Loss $ (477) $ (949) $ (230) $ (549)
======== ======== ======== ========
Weighted Average Common Shares
(Notes 5 and 6) 6,810 8,549 6,810 9,679
======== ======== ======== ========
BASIC AND DILUTED LOSS PER COMMON SHARE
(NOTES 5 AND 6) $ (.07) $ (.11) $ (.03) $ (.06)
======== ======== ======== ========
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,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (230) $ (549)
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 3,816 3,702
Provision for losses on accounts receivable 93 86
Gain on disposal of property and equipment (4) (41)
Change in assets and liabilities:
Accounts and notes receivable 3,985 1,326
Inventories (3,556) (16,036)
Prepaid expenses and miscellaneous 339 648
Other assets (152) (63)
Accounts payable and accruals 3,922 15,331
Income taxes 63 (323)
-------- --------
Net cash provided by operations 8,276 4,081
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,187) (2,716)
Proceeds from sale of other property and equipment 238 83
-------- --------
Net cash used by investing activities (4,949) (2,633)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 1,348 420
Payments of long-term debt (2,271) (2,318)
Revolving credit borrowings increase (decrease) (2,423) 7,424
Purchase of treasury stock -- (10,129)
-------- --------
Net cash used by financing activities (3,346) (4,603)
-------- --------
NET DECREASE IN CASH FOR THE PERIOD (19) (3,155)
CASH AND CASH EQUIVALENTS, beginning of period 646 3,772
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 627 $ 617
======== ========
</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,
-----------------------
1998 1997
--------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the six months for:
Interest $ 1,638 $ 1,651
Income taxes $ 294 $ 723
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures of $28, $228, $104 and
$0 are included in accounts payable at
August 31, 1998, February 28, 1998, August 31,
1997 and February 28, 1997, 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, 1998.
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, 1998 and its results of operations for the three and six months ended
August 31, 1998 and 1997, and its cash flows for the six months ended
August 31, 1998 and 1997.
2. The results of operations for the three and six months ended August 31,
1998 and 1997 are not necessarily indicative of the results to be expected
for the fiscal year.
3. Inventories are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1998 FEBRUARY 28, 1998
--------------- -----------------
<C> <C> <C>
Finished products $ 34,388,000 $ 31,607,000
Raw materials 2,685,000 2,303,000
Growing crops 3,105,000 2,644,000
Merchandise and supplies 722,000 790,000
------------ ------------
$ 40,900,000 $ 37,344,000
============ ============
</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 presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
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.
On May 19, 1997, the Company initiated a cash tender offer for up to one
million shares of its Class A and Class B Common Stock at a price of $2.50
per share. On June 17, 1997, the Company amended the cash tender offer by
extending the Expiration Date to July 3, 1997 and by increasing the number
of shares it offered to purchase from 1,000,000 shares of its Class A and
Class B Common Stock to up to 2,500,000 shares of its Class A Common Stock
and up to 1,500,000 shares of its Class B Common Stock, each at $2.50 per
share. A total of approximately 2,641,299 shares of Class A Common Stock
and 1,720,932 shares of Class B Common Stock were validly tendered and not
withdrawn in response to the offer, as amended. The purchase of shares was
prorated in accordance with the terms of the offer, as amended, for each
class of common stock.
6. Basic and diluted earnings per share of common stock have been computed
based upon the weighted average number of shares outstanding during the
three and six months ended August 31, 1998 and August 31, 1997.
7. On September 16, 1998, the Company received an offer from its chairman and
chief executive officer, James I. Tankersley, and his wife and children to
acquire the shares of the Company's common stock that are not owned by
Mr. Tankersley, his wife or his children for $3.00 per share.
7
<PAGE> 9
On receiving the proposal, the Board of Directors of the Company appointed
two outside directors to a special committee. The Board designated the
committee for the purpose of evaluating and making recommendations with
respect to the proposal.
8
<PAGE> 10
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.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q and other reports and statements issued on
behalf of the Company may include forward-looking statements in reliance on the
safe harbor provided by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to substantial risks and
uncertainties, including those discussed below, and actual results may differ
materially from those contained in any such forward-looking statement. The
review of factors pursuant to the Private Securities Litigation Reform Act of
1995 should not be construed as exhaustive. Further, the Company undertakes no
obligation to update or revise any such forward-looking statements to reflect
subsequent events or circumstances.
The Company's liquidity, capital resources and results of operations may be
affected from time to time by a number of factors and risks, including, but not
limited to: trends in the economy as a whole, which may affect consumer
confidence and consumer demand for the types of food products sold by the
Company; competitive pressures from domestic and foreign processors and
distributors of fresh, dry, frozen and canned food products which may affect the
nature and viability of the Company's business strategy; competitive pressures
from imported food products; unpredictable changes in growing conditions
inherent in agriculture; other agricultural risks, including those associated
with pesticides, herbicides and disease control and crop protection efforts; the
Company's ability to maintain and expand its distribution base; the Company's
ability to maintain and improve its plants, equipment and technological systems;
changes in the Company's customer base as the result of competition and/or
consolidation of retail grocery chains; governmental regulation and taxation;
availability and cost of labor employed; changes in industry capacity and
production; the availability, costs and terms of financing, including the risk
of rising interest rates; availability of trade credit and terms with vendors;
the Company's use of financial leverage and the potential impact of such
leverage on the Company's ability to execute its operating strategies; the
ability to maintain gross profit margins; the seasonal nature of the Company's
business and the ability of the Company to predict consumer demand as a whole,
as well as demand for specific items; costs associated with the storage,
shipping, handling and control of inventory; potential adverse publicity for the
food industry or certain of the Company's food products; the ability of the
Company and significant third parties with whom it does business to effect
conversions to new technological systems, including becoming Year 2000
compliant; and the impact of the offer of James I. Tankersley and his wife and
children referred to herein.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are operations and external committed
credit facilities. At August 31, 1998, the Company's revolving credit facilities
totaled $21,000,000, of which $13,975,000 was available. The Company's sources
of liquidity are expected to meet adequately the 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 $18,000,000 and $3,000,000 revolving credit facilities currently
mature in fiscal 2002. 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.
In March 1998, the Company entered into a $10,000,000 credit facility for the
acquisition of certain handling equipment, rolling stock, vehicles, trailers and
composting equipment. The facility is evidenced by a master security agreement
with separate loans under the agreement being made for equipment when acquired
and with acquired equipment being secured under the terms of the agreement. The
loans are amortized using respective estimated equipment lives and bear interest
at 160 basis points over the applicable treasury yield. The Company expects to
incur total borrowings of approximately $8,500,000 under the agreement during
fiscal 1999 and had borrowed a total of approximately $900,000 through August
31, 1998.
Operations provided net cash of $8,276,000 during the six months ended August
31, 1998 and $4,081,000 during the same period of the prior year. Changes in
accounts receivable resulted in a cash increase of $3,985,000 during the six
months ended August 31, 1998 as compared with $1,326,000 during the same period
of the prior year. The increase for the current year results primarily from
strong sales during February 1998 that were subsequently collected during the
first quarter of the current fiscal year. Changes in inventories resulted in a
cash decrease of $3,556,000 during the six months ended August 31, 1998 as
9
<PAGE> 11
compared with a decrease of $16,036,000 during the same period of the prior
year. The change results primarily from changes in the timing of product
deliveries under the reciprocal supply agreements, as well as from the effect of
adverse weather conditions during the six months ended August 31, 1998, which
resulted in less than expected packs. However, the pack shortfall is expected to
be made up during the remainder of the current fiscal year.
Changes in accounts payable and accruals result primarily from the changes in
inventories previously mentioned.
Investing activities used cash of $4,949,000 for the six months ended August 31,
1998 compared with cash used of $2,633,000 during the same period of the prior
year, primarily as the result of increased capital expenditures.
Financing activities used cash of $3,346,000 for the six months ended August 31,
1998 as compared with cash used of $4,603,000 during the same period of the
prior year. Cash provided by operations was used to reduce borrowings under the
Company's revolving credit agreements during the six months ended August 31,
1998.
On May 19, 1997, the Company initiated a cash tender offer for up to 1,000,000
shares of its Class A and Class B Common Stock at a price of $2.50 per share. On
June 17, 1997, the Company amended the cash tender offer by extending the
Expiration Date to July 3, 1997 and by increasing the number of shares it
offered to purchase from 1,000,000 shares of its Class A and Class B Common
Stock to up to 2,500,000 shares of its Class A Common Stock and up to 1,500,000
shares of its Class B Common Stock, each at a price of $2.50 per share. A total
of approximately 2,641,299 shares of Class A Common Stock and approximately
1,720,932 shares of Class B Common Stock were validly tendered and not withdrawn
in response to the offer, as amended. The purchases of shares were prorated in
accordance with the terms of the offer, as amended, for each class of Common
Stock. The purchase, which totaled approximately $10,168,000, including
expenses, was funded with borrowings from the Company's revolving credit
facilities and available cash.
On September 16, 1998, the Company received an offer from its chairman and chief
executive officer, James I. Tankersley, and his wife and children to acquire the
shares of the Company's common stock that are not owned by Mr. Tankersley, his
wife or his children for $3.00 per share. On receiving the proposal, the Board
of Directors of the Company appointed two outside directors to a special
committee. The Board designated the committee for the purpose of evaluating and
making recommendations with respect to the proposal and the committee has
engaged counsel and a financial advisor to assist it in its review of the
proposal. The Company will bear the costs of the committee and its advisors.
Working capital at August 31, 1998 was $34,641,000, and was $39,179,000 at
February 28, 1998. The decrease results primarily from changes in accounts
receivable, inventories and accounts payable, previously mentioned.
The Company's ratio of debt to equity was 1.55 to 1 at August 31, 1998 and 1.53
to 1 at February 28, 1998.
CAPITAL EXPENDITURES
Capital expenditures for fiscal 1999 are estimated to be approximately
$17,000,000, which is approximately $9,500,000 more than depreciation expense
projected for fiscal 1999. Capital expenditures anticipated for fiscal 1999
include the purchase of certain farm land, outlays to be funded under the terms
of the $10,000,000 credit facility, previously mentioned, as well as for
improvements to the Company's plants, equipment and technological systems. These
expenditures are expected to be funded from operations and the Company's
revolving credit facilities. The Company's capital plan may change from time to
time and the actual amount spent may vary materially from amounts anticipated
herein.
YEAR 2000 ISSUES
The Company has developed a comprehensive strategy for updating its systems for
Year 2000 ("Y2K") compliance. The Company's information technology ("IT")
systems include in-house developed software, as well as software purchased from
outside parties. All software has been identified and assessed to determine the
extent of renovations required in order to be Y2K compliant. Renovations to
programs that utilize in-house developed computer code are nearly complete and
the Company anticipates that the renovations will be fully completed and
validated before the end of the Company's current fiscal year. Also, the Company
believes vendor developed software will be made Y2K compliant before the end of
the Company's current fiscal year through vendor-provided updates or replacement
with other Y2K compliant hardware and software.
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<PAGE> 12
The Company has identified significant non-IT systems which may be impacted by
the Y2K problem, including those relating to production, processing, storage and
communication equipment and is in the process of determining through inquiries
of equipment suppliers, as well as testing of such equipment, the extent of
renovations required, if any. The Company believes assessment will be completed
before the end of the Company's current fiscal year, and that renovation,
validation and implementation will be completed early in the next fiscal year.
The Company has identified third parties with which it has a significant
relationship that, in the event of a Y2K failure, could have a material impact
on its financial position or operating results. The third parties include energy
and utility suppliers, creditors, material and product suppliers, communication
vendors, including value-added network ("VAN") vendors, and the Company's
significant customers. These relationships, especially those associated with
certain suppliers and customers, are material to the Company and a Y2K failure
for one or more of these parties could result in a material adverse effect on
the Company's operating results and financial position. The Company is making
inquiries of these third parties to assess their Y2K readiness. The Company
expects that this process will be on-going throughout the current and next
fiscal year.
The Company expects that costs to address Y2K issues will total approximately
$600,000, of which approximately $450,000 (approximately 30% of the current year
MIS budget) will be spent in the current fiscal year, with the remainder being
spent during the first two quarters of fiscal 2000. Costs include salary and
fringe benefits for personnel, hardware and software costs, and consulting and
travel expenses associated, directly or indirectly, with addressing Y2K issues.
Y2K issues have received a high priority within the Company and, as a result,
certain other IT projects have been delayed. While such non-Y2K projects are
expected to enhance operational efficiencies and improve the quality of
information available to management, the delay of such projects is not expected
to have a material impact on the Company's operations.
Worst case Y2K scenarios could be as insignificant as a minor interruption in
production or shipping resulting from unanticipated problems encountered in the
IT systems of the Company or any of the significant third parties with whom the
Company does business. The pervasiveness of the Y2K issue makes it likely that
previously unidentified issues will require remediation during the normal course
of business. In such a case, the Company anticipates that transactions could be
processed manually while IT and other systems are repaired and that such
interruptions would have a minor effect on the Company's operations. On the
other hand, a worst case Y2K scenario could be as catastrophic as an extended
loss of utility service resulting from interruptions at the point of power
generation, long-line transmission, or local distribution to the Company's
processing and storage facilities. Such an interruption could result in an
inability to provide products to the Company's customers, as well as impairment
of the Company's fresh and frozen inventories, resulting in a material adverse
effect on the Company's operating results and financial position.
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 the Company's facilities. 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 is faced with very strong competition in the marketplace from large
brand name competitors, private regional U.S. growers and processors, and
privately-owned Mexican and Canadian growers and processors. These competitive
pressures, coupled with low overall growth, have led to weak market pricing, and
a substantial increase in trade spending required for the Company to maintain
its market position. These factors have adversely impacted earnings in certain
prior periods and, as a result, certain discretionary repair and maintenance
projects were deferred to later periods. The Company anticipates that these
competitive conditions will continue.
The Company believes that a recently imposed interim tariff, which expires in
February 1999, on certain imported canned mushrooms has increased prices and
profitability for this portion of the Company's product line; however, the
Company does not know whether the interim tariff will be made permanent.
The Company believes that in order to address the intense competition within its
industry, it must improve its operational efficiency, lower its costs, improve
its customer service and provide value-added services to its customers.
Accordingly, the Company intends to continue to invest in maintaining and
expanding its distribution base and to make substantial expenditures to maintain
and improve its plants, equipment and technological systems. The Company
believes these expenditures are
11
<PAGE> 13
necessary to keep its business competitive and will fund such spending during
periods when earnings are available. As a result, the Company expects that its
future earnings, if any, may be decreased from historical levels.
In addition to general inflation and the growing, processing and marketing risks
described above, the Company is facing significant costs associated with
governmental regulation, the loss of land and water available for agriculture in
California and the increasing competition due to worldwide facilitation of
trade, notwithstanding the impact of the previously mentioned interim tariff on
certain imported canned mushrooms. As a result of these factors, the Company's
earnings are subject to fluctuations and will continue to be so in the future.
The effect on the Company's operations and its ability to withstand the costs of
evolving healthcare, OSHA, EPA, taxation and other governmental regulations is
unknown.
REVENUES
Net sales and service revenues increased $3,309,000 (7.8%) and $6,280,000 (7.0%)
for the three and six month periods ended August 31, 1998, respectively, as
compared with the same periods of the prior year. Sales volume increased 7.6%
and 4.6 % and the average selling price per pound increased 1.3% and 3.7% for
the three and six month periods ended August 31, 1998, respectively, as compared
with the same periods of the prior year. The average selling price per pound was
favorably impacted by increased prices for certain of the Company's food
products, as well as by a favorable change in sales mix. Sales to other food
processors decreased $97,000 (5.6%) and $1,178,000 (20.7%) for the three and six
month periods ended August 31, 1998, respectively, as compared with the same
periods of the prior year. Sales allowances increased $1,214,000 (13.4%) and
$2,369,000 (13.5%) for the three and six month periods ended August 31, 1998,
respectively, as compared with the same periods of the prior year. The increases
result primarily from increased sales volume, previously mentioned, as well as
competitive market conditions and the Company's efforts in maintaining its
market share.
COST OF SALES AND SERVICES
Cost of sales and services increased $2,242,000 (6.3%) and $4,702,000 (6.4%) for
the three and six month periods ended August 31, 1998, respectively, as compared
with the same periods of the prior year. The changes result primarily from
increased sales volumes, previously mentioned, and changes in sales mix. Gross
profit increased $1,067,000 (15.5%) and $1,578,000 ( 10.0%) for the three and
six month periods ended August 31, 1998, respectively, as compared with the same
periods of the prior year. The increase results primarily from margin realized
on additional sales volumes and improved sales prices, previously mentioned, as
well as a favorable change in sales mix. The gross profit method, at the
estimated annual gross profit rate, is used to determine frozen vegetable cost
of goods sold in interim financial statements. (See Note 3 - Notes to Financial
Statements.)
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling, general and administrative expenses increased $284,000 (3.8%) and
$977,000 (6.6%) for the three and six month periods ended August 31, 1998, as
compared with the same periods of the prior year. Storage expense increased
$80,000 (3.8%) and $524,000 (12.4%) for the quarter and year-to-date periods, as
compared with the same periods of the prior year, primarily as the result of
repairs to the Company's cold storage facilities. Other selling, general and
administrative expenses increased $204,000 (3.8%) and $453,000 (4.1%), primarily
as the result of increased general and administrative expenses.
INTEREST EXPENSE
Interest expense - net increased $20,000 (2.2%) and $46,000 (2.6%) for the three
and six months ended August 31, 1998, as compared with the same periods of the
prior year, primarily as the result of changes in average borrowings and cash
and short term investments.
12
<PAGE> 14
TAXES ON INCOME
Taxes on income for the three and six months ended August 31, 1998 and 1997
consist of current and deferred taxes provided at the estimated effective
federal and state tax rates expected to be recognized for the respective
periods. (See Note 4 Notes to Financial Statements.)
13
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on July 11, 1998, the
following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Votes Votes
For Withheld
--------------------------------------------------------------------
<S> <C> <C> <C>
Class A Director Joseph A. Geary 2,032,156 58,653
Class B Director B. M. Ennis 3,776,697 26,957
Class B Director Daniel B. Tankersley 3,777,752 25,902
Class B Director James I. Tankersley 3,777,752 25,902
--------------------------------------------------------------------
</TABLE>
The following proposals were approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Abstained/
Not Voted
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Approve appointment of BDO Seidman, 3,978,990 31,787 1,958
LLP as independent public accountants
for the Company
</TABLE>
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) - EXHIBITS
See Exhibit Table.
(b) - REPORTS ON FORM 8-K
On September 17, 1998, the Company filed a report on Form 8-K, reporting under
Item 5 the fact that the Company had received an offer from its chairman, James
I. Tankersley, and his wife and children to acquire the shares of the Company's
common stock that are not owned by Mr. Tankersley, his wife or his children for
$3.00 per share.
14
<PAGE> 16
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: September 30, 1998 By /s/ Carl W. Gruenewald, II
----------------------- -----------------------------------
Carl W. Gruenewald, II
Senior Vice President,
Chief Financial Officer & Treasurer
15
<PAGE> 17
UNITED FOODS, INC.
EXHIBITS TABLE
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
-----------------------------------------------------------------------
<S> <C>
10.1 Seventh Amendment, dated July 16, 1998, to that certain
Revolving Loan Agreement between First American
National Bank and United Foods, Inc. dated April 7, 1993.
10.2 Twelfth Amendment, dated July 22, 1998, to each of that
certain Term Loan Agreement and that certain Revolving
Credit Agreement, each dated August 20, 1992 between
United Foods, Inc. and Cooperatieve Centrale
Raiffeisen - Boerenleenbank B. A., "Rabobank-Nederland."
27 Financial Data Schedule (For SEC use only).
</TABLE>
<PAGE> 1
Exhibit 10.1
SEVENTH AMENDMENT TO REVOLVING LOAN AGREEMENT
THIS SEVENTH AMENDMENT TO REVOLVING LOAN AGREEMENT (the "Agreement")
made and entered into as of July 16, 1998, by and between FIRST AMERICAN
NATIONAL BANK, a national banking association organized and existing under the
statutes of the United States of America (hereinafter "Lender"), and UNITED
FOODS, INC., a corporation organized and existing under the laws of the State of
Delaware ("Borrower").
W I T N E S S E T H:
WHEREAS, Lender and Borrower executed a Loan Agreement dated as of
April 7, 1993 (the "Loan Agreement") pursuant to which the Lender made a
Twenty-Three Million Dollar ($23,000,000.00) revolving credit loan to Borrower
for the purpose of providing working capital to the Borrower (the "Revolving
Loan");
WHEREAS, the Lender and Borrower have previously amended the Loan
Agreement; and
WHEREAS, the Lender and Borrower desire to further modify the Loan
Agreement as hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged by each of the parties, the parties do mutually agree as follows:
I. Section 1.17 of the Loan Agreement is hereby deleted in its entirety
and the following subparagraph is substituted in lieu thereof:
1.17 Eurodollar Rate. With respect to any Interest Period for any
Eurodollar Loan, (a) the rate per annum equal to the applicable London interbank
offered rate for U.S. Dollar deposits appearing on Telerate Page 3750 as of
11:00 a.m. London time two Business Days prior to the first day of such Interest
Period (and if no London interbank offered rate of such maturity then appears on
Telerate Page 3750, then the Eurodollar Rate shall be equal to the London
interbank offered rate for U.S. Dollar deposits maturing immediately before or
immediately after such maturity, whichever is higher, as determined by the
Lender from Telerate Page 3750) for the number of days during such Interest
Period divided by (b) a number equal to 1.00 minus the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements current on the date two Business Days prior to the beginning of
such Interest Period (including, without limitation, basic, supplemental,
marginal and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto), as now and from time to time hereafter in
effect, dealing with reserve requirements prescribed for Eurocurrency funding
(currently referred to as "Eurocurrency liabilities" in Regulation D of such
Board) maintained by a member bank of such System (such Eurodollar Rate to be
rounded upwards, if necessary, to the next higher 1/100th of one percent), plus
(c) one and one half percent (1.5%) per annum.
I. Section 1.35 of the Loan Agreement is hereby deleted in its entirety
and the following subparagraph is substituted in lieu thereof:
1.35 Prime Rate. The reference or base rate of interest publicly
announced from time to time by Lender as its prime or base lending rate minus
one half percent (.5%) per annum.
I. Section 1.42 of the Loan Agreement is hereby deleted in its entirety
and the following subparagraph is substituted in lieu thereof:
1.42 Revolving Credit Loan Maturity Date. June 1, 2001, provided,
however, that the Revolving Credit Loan Maturity Date may be extended by Lender,
at the request of the Borrower but in Lender's sole and absolute discretion, for
one additional year on each anniversary date of this Agreement.
<PAGE> 2
As amended hereby, the Loan Agreement, as previously amended, is
confirmed and ratified in all other respects.
IN WITNESS WHEREOF, this Amendment has been executed on the day and
year first above written.
FIRST AMERICAN NATIONAL BANK
By: /s/ David C. May
-------------------------------------
David C. May
Title: Executive Vice President
UNITED FOODS, INC.
By: /s/ Carl W. Gruenewald, II
---------------------------------------
Carl W. Gruenewald, II
Title: Senior Vice President,
Chief Financial Officer & Treasurer
<PAGE> 1
Exhibit 10.2
AMENDMENT NO. 12
Dated as of July 22, 1998
This TWELFTH AMENDMENT between UNITED FOODS, INC., a Delaware
corporation (the "Borrower"), and COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B. A., "RABOBANK NEDERLAND", NEW YORK BRANCH (the
"Bank").
PRELIMINARY STATEMENTS. The Borrower and the Bank have entered into a
Revolving Credit Agreement dated as of August 20, 1992 (as the same may be
amended, supplemented or otherwise modified from time to time, said Revolving
Credit Agreement being the "Credit Agreement"; the terms defined in the Credit
Agreement being used herein as therein defined). Each of the Borrower and the
Bank wishes to amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, the Borrower and the Bank hereby agree as follows:
SECTION 1. Amendment to Credit Agreement. Section 1.01 and 6.09 of the
Credit Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, hereby
amended by deleting the date "August 31, 2000" appearing in such Sections and
substituting, in lieu thereof, the date "August 31, 2001".
SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Bank shall have received counterparts of this
Amendment executed by the Borrower.
SECTION 3. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by the Borrower of this
Amendment, and the Credit Agreement, as amended hereby, are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action and do not contravene (i) the Borrower's charter or by-laws, or
(ii) law or any contractual restriction binding on or affecting the Borrower, or
result in, or require, the creation of any lien, security interest or other
charge or encumbrance upon or with respect to any of its properties.
(c) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Borrower of this Amendment or the
Credit Agreement, as amended hereby.
(d) This Amendment and the Credit Agreement, as amended hereby,
constitute, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms, subject,
however, to the effect on such enforceability of (i) any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and (ii) general principles of equity (regardless whether such
enforceability is considered in a proceeding in equity or at law).
(e) There is no pending or threatened action or proceeding affecting
the Borrower or any of its subsidiaries before any court, governmental agency or
arbitrator, which may materially adversely affect the condition, financial or
otherwise, or operations of the Borrower.
(f) No event has occurred and is continuing which constitutes an Event
of Default or would constitute an Event of Default but for the requirement that
notice be given or time elapse or both.
SECTION 4. Reference to and Effect on the Credit Agreement. (a) Upon
the effectiveness of Section 1 hereof, on and after the date hereof, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import shall mean and be a reference to the Credit
Agreement as amended hereby, and each reference in the
<PAGE> 2
Revolving Credit Note and the other Revolving Credit Loan Documents to the
Credit Agreement shall mean and be a reference to the Credit Agreement as
amended hereby.
(b) Except as specifically amended above, the Credit Agreement and the
Revolving Credit Note shall remain in full force and effect and are hereby
ratified and confirmed in all respects.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Bank under the Credit Agreement, nor constitute a waiver
of any provision of the Credit Agreement.
SECTION 5. Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses of the Bank in connection with the preparation,
execution and delivery of this Amendment and the other instruments and documents
to be delivered hereunder, including, without limitation, the reasonable fees
and out-of-pocket expenses of counsel (who may be in-house counsel) for the Bank
with respect thereto and with respect to advising the Bank as to its rights and
responsibilities hereunder and thereunder. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes.
SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to any conflicts of laws principles thereof).
SECTION 8. Final Agreement. This Amendment represents the final
agreement between you and us as to the subject matter hereof and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
UNITED FOODS, INC.
By: /s/ Carl W. Gruenewald, II
----------------------------------------------
Carl W. Gruenewald, II
Title: Sr. Vice President - Finance, Treasurer
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
By: /s/ W. Jeffrey Vollack
----------------------------------------------
W. Jeffrey Vollack
Authorized Officer
Senior Credit Officer
Senior Vice President
By: /s/ Hans F. Breukhoven
----------------------------------------------
Hans F. Breukhoven
Authorized Officer
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNITED FOODS, INC. FOR THE SIX MONTHS ENDED AUGUST 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> AUG-31-1998
<CASH> 627
<SECURITIES> 0
<RECEIVABLES> 15,185
<ALLOWANCES> 0
<INVENTORY> 40,900
<CURRENT-ASSETS> 61,557
<PP&E> 130,927
<DEPRECIATION> 77,904
<TOTAL-ASSETS> 116,093
<CURRENT-LIABILITIES> 26,916
<BONDS> 38,949
0
0
<COMMON> 6,810
<OTHER-SE> 38,708
<TOTAL-LIABILITY-AND-EQUITY> 116,093
<SALES> 95,822
<TOTAL-REVENUES> 95,822
<CGS> 78,493
<TOTAL-COSTS> 78,493
<OTHER-EXPENSES> 15,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,832
<INCOME-PRETAX> (374)
<INCOME-TAX> (144)
<INCOME-CONTINUING> (230)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (230)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
