<PAGE> 1
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 June 30, 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 0-26096
THE UNIMARK GROUP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2436543
(State of incorporation or organization) (I.R.S. Employer Identification No.)
UNIMARK HOUSE
124 MCMAKIN ROAD
BARTONVILLE, TEXAS 76226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 491-2992
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 .
--- ---
As of August 12, 1998, the number of shares outstanding of each class
of common stock was:
Common Stock, $.01 par value: 11,938,326 shares
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets,
December 31, 1997 and June 30, 1998............................................3
Condensed Consolidated Statements of Operations
for the three months and six months ended June 30, 1997 and 1998...............4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1998................................5
Notes to Condensed Consolidated Financial Statements - June 30, 1998..............6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................14
SIGNATURES................................................................................14
</TABLE>
2
<PAGE> 3
THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ---------
(NOTE 1) (UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ 1,237 $ 2,939
Accounts receivable -- trade, net of allowance of $685 in
1997 and $803 in 1998 .......................................... 11,599 15,529
Accounts receivable -- other ..................................... 716 838
Inventories ...................................................... 25,726 27,111
Income and value added taxes receivable .......................... 2,312 2,272
Prepaid expenses ................................................. 1,605 918
--------- ---------
Total current assets ........................................ 43,195 49,607
Property, plant and equipment, net of accumulated depreciation
of $5,227 in 1997 and $6,552 in 1998 ............................... 38,130 38,673
Deferred income taxes ................................................ 1,847 1,847
Goodwill ............................................................. 6,606 6,515
Identifiable intangible assets ....................................... 1,823 1,744
Due from related parties ............................................. 1,678 1,692
Other assets ......................................................... 1,337 1,545
--------- ---------
Total assets $ 94,616 $ 101,623
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ............................................ $ 31,452 $ 34,779
Current portion of long-term debt ................................ 1,655 815
Accounts payable ................................................. 4,087 6,807
Accrued expenses ................................................. 4,439 5,533
Income taxes payable ............................................. 40 --
Deferred income taxes ............................................ 6,050 6,551
--------- ---------
Total current liabilities ................................... 47,723 54,485
Long-term debt, less current portion ................................. 8,626 8,361
Deferred income taxes ................................................ 15 15
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 8,598,833 in
1997 and 8,632,826 in 1998 .................................. 86 86
Additional paid-in capital ....................................... 45,419 44,448
Retained earnings (deficit) ...................................... (7,253) (5,772)
--------- ---------
Total shareholders' equity .................................. 38,252 38,762
--------- ---------
Total liabilities and shareholders' equity .................. $ 94,616 $ 101,623
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
1997 1998 1997 1998
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales.................................... $ 19,784 $ 25,509 $ 37,059 $ 50,041
Cost of products sold........................ 12,691 16,904 24,546 33,527
-------- -------- -------- --------
7,093 8,605 12,513 16,514
Selling, general and administrative
expenses................................... 6,589 5,999 12,411 11,890
-------- -------- -------- --------
Income from operations....................... 504 2,606 102 4,624
Other income (expense):
Interest expense......................... (749) (1,234) (1,292) (2,379)
Interest income.......................... 52 42 154 94
Foreign currency transaction loss........ (286) (256) (77) (8)
Other.................................... 8 11 12 60
-------- -------- -------- --------
(975) (1,437) (1,203) (2,233)
-------- -------- -------- --------
Income (loss) before income taxes............ (471) 1,169 (1,101) 2,391
Income tax expense (benefit)................. (82) 273 (71) 910
-------- -------- -------- --------
Income (loss) before extraordinary gain...... (389) 896 (1,030) 1,481
Extraordinary gain on forgiveness of debt,
net of applicable income taxes of $109..... 139 -- 139 --
-------- -------- -------- --------
Net income (loss)............................ $ (250) $ 896 $ (891) $ 1,481
======== ======== ======== ========
Earnings (loss) per share:
Income (loss) before extraordinary item:
Basic................................ $ (0.05) $ 0.10 $ (0.12) $ 0.17
======== ======== ======== ========
Diluted.............................. $ (0.05) $ 0.10 $ (0.12) $ 0.17
======== ======== ======== ========
Net income (loss):
Basic................................ $ (0.03) $ 0.10 $ (0.10) $ 0.17
======== ======== ======== ========
Diluted.............................. $ (0.03) $ 0.10 $ (0.10) $ 0.17
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................................... $ (891) $ 1,481
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization .............................. 1,599 1,805
Deferred income taxes ...................................... 283 501
Changes in operating assets and liabilities:
Receivables ............................................. (1,400) (4,012)
Inventories ............................................. (13,209) (1,385)
Prepaid expenses ........................................ (281) 687
Payables and accrued expenses ........................... 677 2,768
-------- --------
Net cash provided by (used in) operating activities ............. (13,222) 1,845
INVESTING ACTIVITIES
Purchases of property, plant and equipment ...................... (6,220) (2,056)
Increase in identifiable intangible assets ...................... (24) (122)
Increase in amounts due from related parties .................... (915) (14)
Increase in other assets ........................................ (345) (208)
-------- --------
Net cash used in investing activities ........................... (7,504) (2,400)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock ...................... 79 35
Net increase in short-term borrowings ........................... 17,482 3,327
Proceeds from long-term debt .................................... 1,798 240
Payments of long-term debt ...................................... (1,609) (1,345)
-------- --------
Net cash provided by financing activities ....................... 17,750 2,257
-------- --------
Net increase (decrease) in cash and cash equivalents ............ (2,976) 1,702
Cash and cash equivalents at beginning of period ................ 4,268 1,237
-------- --------
Cash and cash equivalents at end of period ...................... $ 1,292 $ 2,939
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
THE UNIMARK GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Description of Business: At June 30, 1998, the Company has several projects
and commitments requiring substantial capital. Although the Company is exploring
various financing options and believes sufficient capital will ultimately be
available, there can be no assurances that adequate financing or capital can be
obtained on acceptable terms or at all. The inability to obtain sufficient debt
or equity capital for these projects and commitments could have a material
adverse effect on the Company and its projects including the realization of the
amounts capitalized and costs deferred related to these projects and
commitments.
Additionally, the Company has recently relied upon bank financing to finance
its working capital and certain of its capital expenditure needs. Although the
principal loan facilities have been extended until January 1, 1999, no
assurances can be given that the lender will continue to renew such loan
facilities. The Company's cash requirements for 1998 and beyond will depend
primarily upon the level of sales, expenditures for capital equipment and
improvements, investments in agricultural projects, the timing of inventory
purchases, the success of newly introduced products and necessary reductions of
debt. Presently, the Company is in discussions with its primary lender and other
financial institutions regarding extending or replacing its existing debt
facilities. Although no assurances can be given, the Company believes it will be
able to obtain such debt facilities on terms acceptable to the Company. The
failure to obtain such debt facilities would have a material adverse affect on
the Company. For additional information see Note 5.
Interim Financial Statements: The condensed consolidated financial
statements at June 30, 1998, and for the three month and six month periods then
ended are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim period. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations, contained in the Company's Annual Report on Form 10-K
incorporated herein by reference. The results of operations for the six months
ended June 30, 1998 and for the year ended December 31, 1997 are not necessarily
indicative of future financial results.
Year End Financial Statement: The condensed consolidated balance sheet at
December 31, 1997 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Reclassifications: Certain prior year items have been reclassified to
conform to the current year presentation in the accompanying financial
statements.
NOTE 2 - ARBITRATION AWARD
On June 29, 1998 an arbitration award was issued against the Company in its
proceedings with the former shareholders of Simply Fresh Fruit, Inc. ("Simply
Fresh") regarding the price protection provisions of the May 9, 1996 acquisition
agreement and related issues. Pursuant to the award, on August 5, 1998 the
Company paid in cash the former Simply Fresh shareholders (i) $1,005,036 in
settlement of the common stock price protection issues, (ii) $67,391 in interest
on the price protection settlement amount and (iii) $110,000 in settlement of
related employment contract issues. The effect of this award has been reflected
in the accompanying financial statements.
6
<PAGE> 7
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share for income (loss) from continuing operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1997 1998 1997 1998
------ ------- ------- -------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NUMERATOR
Net income (loss) before extraordinary gain..... $ (389) $ 896 $(1,030) $ 1,481
DENOMINATOR
Denominator for basic earnings per share -
weighted average shares outstanding........... 8,584 8,623 8,581 8,611
Effect of dilutive securities:
Employee and director stock options........... -- 76 -- 60
Warrants...................................... -- 2 -- 1
------ ------- ------- -------
Dilutive potential common shares................ -- 78 -- 61
====== ======= ======= =======
Denominator for diluted earnings per share -
Weighted average shares outstanding adjusted
for assumed conversions....................... 8,584 8,701 8,581 8,672
====== ======= ======= =======
Basic earnings (loss) per share................. $(0.05) $ 0.10 $ (0.12) $ 0.17
====== ======= ======= =======
Diluted earnings (loss) per share............... $(0.05) $ 0.10 $ (0.12) $ 0.17
====== ======= ======= =======
</TABLE>
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods:
Cut fruits ......................... $12,983 $12,662
Juice and oils ..................... 2,592 4,065
------- -------
15,575 16,727
Advances to suppliers and orchards ..... 5,718 6,328
Raw materials and supplies ............. 4,433 4,056
------- -------
$25,726 $27,111
======= =======
</TABLE>
NOTE 5 - SUBSEQUENT EVENTS
On July 20, 1998, the Company sold 3,305,500 newly issued shares of common
stock at a purchase price of $4.5375 per share, for an aggregate purchase price
of $14,998,706 to M&M Nominee L.L.C., an affiliate of the Mexico Strategic
Investment Fund, Ltd. In connection with the transaction, the Company granted
the Fund options to acquire an additional 2,000,000 shares of common stock at a
purchase price of $4.5375 per share, representation on the Company's Board of
Directors and certain veto rights regarding financial and corporate matters. The
Company subsequently retired $10 million in short-term debt and intends to
utilize the remaining net proceeds to help finance its lemon project and for
working capital purposes.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties. Actual
consolidated results of the UniMark Group, Inc. ("UniMark" or the "Company")
could differ significantly from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations". Statements contained in this report that are not
historical facts are forward-looking statements that are subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. A number
of important factors could cause the Company's actual results for 1998 and
beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These factors include, without
limitation: growth and integration of new businesses; uncertainty of new product
development and market acceptance of new products; dependence upon availability
and price of fresh fruit; competition; dependence upon significant customers;
seasonality and quarterly fluctuations; risk related to product liability and
recall; limited intellectual property protection; government regulation;
dependence on key management; economic, political and social conditions in
Mexico; exchange rate fluctuations and inflation; and labor relations and costs.
These factors are listed under "Risk Factors" in the Company's prospectus dated
June 14, 1996.
CONVERSION TO U.S. GAAP
The Company conducts substantially all of its operations through its wholly
owned operating subsidiaries: UniMark Foods, Inc., UniMark International, Inc.,
Industrias Citricolas de Montemorelos, S.A. de C.V. ("ICMOSA"), Grupo Industrial
Santa Engracia, S.A. de C.V. ("GISE"), Agromark, S.A. de C.V. ("Agromark"),
Simply Fresh Fruit, Inc. ("Simply Fresh") and Les Produits Deli-Bon, Inc.
("Deli-Bon"). ICMOSA is a Mexican corporation with its headquarters located in
Montemorelos, Nuevo Leon, Mexico, whose principal activities consist of
operating five citrus processing plants and various citrus groves throughout
Mexico. GISE is a Mexican corporation with its headquarters located in Victoria,
Tamaulipas, Mexico, whose principal activities consist of operating three citrus
juice and oil processing plants. Agromark is a Mexican corporate entity under
which the Company's agricultural projects are reported. ICMOSA, GISE and
Agromark maintain their accounting records in Mexican pesos and in accordance
with Mexican generally accepted accounting principles and are subject to Mexican
income tax laws. ICMOSA's, GISE's and Agromark's financial statements have been
converted to United States generally accepted accounting principles ("U.S.
GAAP") and U.S. dollars. Deli-Bon maintains its accounting records in Canadian
dollars and in accordance with Canadian generally accepted accounting principles
and is subject to Canadian income tax laws.
Unless otherwise indicated, all dollar amounts included herein are set forth
in U.S. dollars in accordance with U.S. GAAP. The functional currency of UniMark
and its subsidiaries is the U.S. dollar.
RECENT DEVELOPMENTS
On July 20, 1998, the Company sold 3,305,500 newly issued shares of common
stock at a purchase price of $4.5375 per share, for an aggregate purchase price
of $14,998,706 to M&M Nominee L.L.C., an affiliate of the Mexico Strategic
Investment Fund, Ltd. In connection with the transaction, the Company granted
the Fund options to acquire an additional 2,000,000 shares of common stock at a
purchase price of $4.5375 per share, representation on the Company's Board of
Directors and certain veto rights regarding financial and corporate matters. The
Company subsequently retired $10 million in short-term debt and intends to
utilize the remaining net proceeds to help finance its lemon project and for
working capital purposes.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data expressed
as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0%
Cost of products sold........................... 64.2 66.3 66.2 67.0
-------- -------- -------- --------
Gross profit.................................... 35.8 33.7 33.8 33.0
Selling, general and administrative expenses.... 33.3 23.5 33.5 23.8
-------- -------- -------- --------
Income from operations.......................... 2.5 10.2 0.3 9.2
Other income (expense):
Interest expense............................ (3.8) (4.8) (3.5) (4.8)
Interest income............................. 0.3 0.2 0.4 0.2
Foreign currency transaction gain (loss).... (1.4) (1.0) (0.2) --
Other....................................... -- -- -- 0.2
-------- -------- -------- --------
................................................ (4.9) (5.6) (3.3) (4.4)
-------- -------- -------- --------
Income (loss) before income taxes............... (2.4) 4.6 (3.0) 4.8
Income tax expense (benefit).................... (0.4) 1.1 0.2 1.8
-------- -------- -------- --------
Income (loss) before extraordinary gain......... (2.0) 3.5 (2.8) 3.0
Extraordinary gain, net of income tax........... 0.7 -- 0.4 --
-------- -------- -------- --------
Net income (loss)............................... (1.3)% 3.5% (2.4)% 3.0%
======== ======== ======== ========
</TABLE>
Three Months Ended June 30, 1997 and 1998
Net sales increased 28.9% from $19.8 million in 1997 to $25.5 million in
1998. This increase was primarily due to increases in citrus juice and oil
sales, retail sales and sales to Japan. Citrus juice and oil sales increased
from $2.6 million in 1997 to $6.9 million in 1998. Due to a large Mexican orange
crop this season, the Company has experienced favorable raw material costs and
has significantly increased production volume. These factors have helped control
the average unit cost of citrus juice inventories and has allowed the Company to
sell its frozen concentrate orange juice competitively in the European market as
well as the US market. Retail sales increased 20.4% from $6.7 million in 1997 to
$8.1 million in 1998 primarily as the result of continued growth in the
Company's 26 oz. chilled product line, success of the new branded canned
products and increased distribution and demand. Sales to Japan increased from
$421,000 in 1997 to $1.0 million in 1998 as the Company has broadened its
customer base in Japan.
Foodservice sales decreased 9.8% from $6.3 million in 1997 to $5.7 million
in 1998 primarily as the result of increased competition and the Company's
decision to close its plant facility in the Northeast US in the fourth quarter
of 1997 (see "Restructuring Initiatives"). Club sales decreased 27.0% from $3.2
million in 1997 to $2.3 million in 1998 primarily as a result of discontinuing
production of the Company's avocado products in the first quarter of 1998 and
increased competition particularly on mixed fruit items.
Gross profit as a percentage of net sales decreased from 35.8% in 1997 to
33.7% in 1998. Gross profit on cut fruit sales increased from 36.4% in 1997 to
37.2% in 1998. This increase is primarily the result of lower costs of
inventories due to increased production volume and efficiencies (see
"Restructuring Initiatives") and a price increase implemented in the first
quarter of 1998. Gross profit on citrus juice and oil sales decreased from
32.4% in 1997 to 24.4% in 1998 primarily as the result of a relative increase
in sales to Europe which yield lower margins.
9
<PAGE> 10
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales decreased from 33.3% in 1997 to 23.5% in 1998. This decrease is primarily
the result of the relative increase in juice and oil sales that do not require
significant sales and marketing expenditures, cost savings realized from the
Company's reorganization of its cut fruit operations (See "Restructuring
Initiatives") and the increase in sales volume.
Interest expense increased from 3.8% of net sales in 1997 to 4.8% in 1998.
Actual interest expense increased from $749,000 in 1997 to $1.2 million in 1998.
This increase was primarily the result of increased levels of debt necessary to
support increased levels of inventory and trade receivables associated with the
increase in sales volume and to support the development of the lemon project.
Interest income of $52,000 was earned in 1997 and $42,000 in 1998 primarily
from the temporary cash investment of excess cash balances.
A foreign currency transaction net loss of $286,000 in 1997 and $256,000 in
1998 resulted primarily from the conversion of Company's foreign subsidiaries'
financial statements to U.S. GAAP.
Income taxes. A consolidated income tax benefit of $82,000 in 1997 resulted
from the recognition of future benefits from tax losses generated while a tax
expense of $273,000 was incurred in 1998.
Extraordinary gain. In 1997, the Company reported a gain from the
forgiveness of debt of $139,000 net of applicable taxes.
As a result of the foregoing, the Company reported a net loss of $250,000 in
1997 while reporting net income of $896,000 in 1998.
Six Months Ended June 30, 1997 and 1998
Net sales increased 35.0% from $37.1 million in 1997 to $50.0 million in
1998. This increase was primarily due to increases in citrus juice and oil
sales, retail sales and sales to Japan. Citrus juice and oil sales increased
259.5% from $3.9 million in 1997 to $14.2 million in 1998. Retail sales
increased 21.4% from $13.3 million in 1997 to $16.2 million in 1998 and sales to
Japan increased 97.4% from $1.3 million in 1997 to $2.6 million in 1998. Due to
favorable raw materials costs and improved market prices the Company has
increased its citrus juice and oil production and has expanded its sales to
Europe. Retail sales have increased as the result of continued growth in the
Company's 26 oz. chilled product line, success of the new branded canned
products and increased distribution and demand. Sales to Japan have increased as
the Company has broadened its customer base in Japan.
Gross profit as a percentage of net sales decreased from 33.8% in 1997 to
33.0% in 1998. Gross profit was negatively impacted by the relative increase in
citrus juice and oil sales as compared to cut fruit sales since citrus juice
and oil sales generally yield lower margins.
Gross profit on cut fruit sales increased from 34.2% in 1997 to 35.8% in
1998. This increase is primarily the result of lower costs of inventories due to
increased production volume and efficiencies (see "Restructuring Initiatives")
and a price increase implemented in the first quarter of 1998. Gross profit on
citrus juice and oil sales decreased from 32.4% in 1997 to 24.4% in 1998
primarily as the result of a relative increase in sales to Europe which yield
lower margins.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales decreased from 33.5% in 1997 to 23.8% in 1998. This decrease is primarily
the result of the relative increase in juice and oil sales that do not require
significant sales and marketing expenditures, cost savings realized from the
10
<PAGE> 11
Company's reorganization of its cut fruit operations (See "Restructuring
Initiatives") and the increase in sales volume.
Interest expense increased from 3.5% of net sales in 1997 to 4.8% in 1998.
Actual interest expense increased from $1.3 million in 1997 to $2.4 million in
1998. This increase was primarily the result of increased levels of debt
necessary to support increased levels of inventory and trade receivables
associated with the increase in sales volume and to support the development of
the lemon project.
Interest income of $154,000 in 1997 and $94,000 in 1998 resulted primarily
from the temporary cash investment of excess cash balances.
A foreign currency transaction net loss of $77,000 in 1997 and $8,000 in
1998 resulted primarily from the conversion of Company's foreign subsidiaries'
financial statements to U.S. GAAP.
Income taxes. The consolidated provision for income taxes was a benefit of
$71,000 in 1997 and an expense of $910,000 in 1998. The tax benefit resulted
from the recognition of future benefits from tax losses generated.
Extraordinary gain. In 1997, the Company reported a gain from the
forgiveness of debt of $139,000 net of applicable taxes.
As a result of the foregoing, the Company reported a net loss of $891,000 in
1997 while reporting net income of $1.5 million in 1998.
RESTRUCTURING INITIATIVES
During the second half of 1997, the Company began implementing an internal
operating reorganization plan that involved consolidating fruit processing
operations in Mexico and distribution functions in the United States. In this
regard, the Company ceased operations at the Lawrence, Massachusetts, San Rafael
and Zamora plants and moved this production to the main Montemorelos plants. In
addition, the Company began originating all US distribution from the McAllen,
Texas warehouse facility. Although no assurances can be given, this internal
reorganization is expected to result in a number of benefits including
increasing operating efficiencies at existing plants, streamlining
organizational structure and reducing overhead and administrative costs.
Implementation of the reorganization plan was substantially completed during the
first quarter of 1998.
STATUTORY EMPLOYEE PROFIT SHARING
All Mexican companies are required to pay their employees, in addition to
their agreed compensation benefits, profit sharing in an aggregate amount equal
to 10% of net income, calculated for employee profit sharing purposes, of the
individual corporation employing such employees. All of UniMark's Mexican
employees are employed by its subsidiaries, each of which pays profit sharing in
accordance with its respective net income for profit sharing purposes. Tax
losses do not affect employee profit sharing. Statutory employee profit sharing
expense is reflected in the Company's cost of goods sold and selling, general
and administrative expenses, depending upon the function of the employees to
whom profit sharing payments are made. The Company's net income on a
consolidated basis as shown in the Consolidated Financial Statements is not a
meaningful indication of net income of the Company's subsidiaries for profit
sharing purposes or of the amount of employee profit sharing.
EXCHANGE RATE FLUCTUATIONS
The Company procures and processes substantially all of its products in
Mexico, through its wholly owned subsidiaries ICMOSA and GISE, for export to the
United States, Canada, Europe and Japan. Generally, the cost of citrus procured
in Mexico reflects the spot market price for citrus in the United
11
<PAGE> 12
States. All of UniMark's sales are denominated in U.S. dollars. As such, UniMark
does not anticipate sales revenues and raw material expenses to be materially
affected by changes in the valuation of the peso. Labor and certain other
production costs are peso denominated. Consequently, these costs are impacted by
fluctuations in the value of the peso relative to the U.S. dollar.
The Company's consolidated results of operations are affected by changes in
the valuation of the Mexican peso to the extent that ICMOSA or GISE has peso
denominated net monetary assets or net monetary liabilities. In periods where
the peso has been devalued in relation to the U.S. dollar, a gain will be
recognized to the extent there are peso denominated net monetary liabilities
while a loss will be recognized to the extent there are peso denominated net
monetary assets. In periods where the peso has gained value, the converse would
be recognized.
The Company's consolidated results of operations are also subject to
fluctuations in the value of the peso as they affect the translation to U.S.
dollars of ICMOSA's net deferred tax assets or net deferred tax liabilities.
Since these assets and liabilities are peso denominated, a falling peso results
in a transaction loss to the extent there are net deferred tax assets or a
transaction gain to the extent there are net deferred tax liabilities.
DEPENDENCE UPON AVAILABILITY AND PRICE OF FRESH FRUIT
Certain regions of Mexico are currently experiencing drought conditions.
The Company obtains a substantial amount of its raw materials from third-party
suppliers throughout various growing regions in Mexico, Texas and California. A
crop reduction or failure in any of these fruit growing regions resulting from
factors such as weather, pestilence, disease or other natural disasters, could
increase the cost of the Company's raw materials or otherwise adversely affect
the Company's operations. Competitors may be affected differently depending
upon their ability to obtain adequate supplies from sources in other geographic
areas. If the Company is unable to pass along the increased raw materials cost,
the financial condition and results of operations of the Company could be
materially and adversely affected.
SEASONALITY
Demand for UniMark's citrus and tropical fruit products is strongest during
the fall, winter and spring when seasonal fresh products such as mangos,
peaches, plums, and nectarines are not readily available for sales in
supermarkets in North America. Management believes UniMark's quarterly net sales
will continue to be impacted by this pattern of seasonality.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, cash and cash equivalents totaled $2.9 million, an
increase of $1.7 million from year end 1997. During 1998, operating activities
provided net cash of $1.8 million. Cash was utilized to finance a $3.9 million
increase in trade receivables and a $1.4 million increase in inventories
resulting from the increased sales volume in 1998.
During 1998, UniMark utilized cash of $2.4 million in investing activities.
Of this amount, $2.1 million was expended on property, plant and equipment
primarily in Mexico.
The Company's financing activities provided net cash of $3.3 million from
additional short-term borrowings and $240,000 from additional long-term
borrowings, primarily equipment financing. Cash was utilized to reduce long-term
debt by $1.3 million in 1998.
On June 29, 1998 an arbitration award was issued against the Company in its
proceedings with the former shareholders of Simply Fresh Fruit, Inc. ("Simply
Fresh") regarding the price protection provisions of the May 9, 1996 acquisition
agreement and related issues. Pursuant to the award, on August 5, 1998 the
Company subsequently paid in cash the former Simply Fresh shareholders (i)
$1,005,036 in settlement of the common stock price protection issues, (ii)
$67,391 in interest on the price protection settlement amount and (iii) $110,000
in settlement of related employment contract issues. The effect of this award
has been reflected in the accompanying financial statements.
The Company has entered into loan agreements with Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") to provide short-term
dollar denominated debt of up to $34.5 million. These agreements are as follows:
(i) a revolving credit agreement to provide up to $9.5 million collateralized by
finished goods inventories in the US and accounts receivable from US customers,
(ii) revolving credit agreements to provide up to $15.0 million collateralized
by finished goods inventories in Mexico and accounts receivable from export
sales by the Company's Mexican subsidiaries and (iii) a loan agreement to
provide up to $10.0 million to partially finance investments in plants,
expansion and upgrading of facilities
12
<PAGE> 13
and agricultural operations in Mexico. This bridge loan was collateralized by
land and improvements and equipment in Mexico.
These agreements are cross-collateralized and guaranteed by the Company and
its subsidiaries and require the Company to maintain certain consolidated
financial performance levels relative to tangible net worth, working capital,
total debt and debt service. In addition, the agreements contain restrictions on
the issuance of additional shares of stock and the payment of dividends, among
other things, without the prior written consent of the bank. At June 30, 1998
the Company was in violation of certain financial covenants and restrictions
under these agreements, which Rabobank Nederland has waived as of that date. At
June 30, 1998, the Company had outstanding loan balances under the revolving
credit agreements and bridge loan agreement of $18.8 and $10.0 million,
respectively, with $1.2 million available under the US revolving line. These
agreements are scheduled to mature on January 1, 1999.
On July 20, 1998, the Company sold 3,305,500 newly issued shares of common
stock at a purchase price of $4.5375 per share, for an aggregate purchase price
of $14,998,706 to M&M Nominee L.L.C., an affiliate of the Mexico Strategic
Investment Fund, Ltd. In connection with the transaction, the Company granted
the Fund options to acquire an additional 2,000,000 shares of common stock at a
purchase price of $4.5375 per share, representation on the Company's Board of
Directors and certain veto rights regarding financial and corporate matters. The
Company subsequently retired its $10 million short-term bridge loan with
Rabobank Nederland and intends to utilize the remaining net proceeds to help
finance its lemon project and for working capital purposes.
During 1998, the Company has relied upon bank financing, principally short
term, to finance its working capital and certain of its capital expenditure
needs. Although these loan facilities with Rabobank Nederland have been extended
until January 1, 1999, no assurances can be given that Rabobank Nederland will
continue to renew such loan facilities. Presently, the Company is in discussions
with Rabobank Nederland and other financial institutions to extend or replace
existing working capital facilities and to establish a permanent long-term debt
facility. Although no assurances can be given, the Company believes it will be
able to obtain such working capital and long-term debt facilities on terms
acceptable to the Company. The failure to obtain such facilities would have a
material adverse affect on the Company and its ability to continue as a going
concern.
In April , 1998, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an
affiliate of The Coca-Cola Company, entered into a new twenty year Supply
Contract, with a ten year renewal option, for the production of Italian lemons.
Pursuant to the terms of the new Supply Contract which supersedes all previous
agreements, GISE will plant and grow 3,500 hectares (approximately 8,650 acres)
of Italian lemons within the next three years for sale to Coca-Cola at
pre-determined prices. The Supply Contract requires Coca-Cola to provide, free
of charge, up to 875,000 lemon trees, enough to plant approximately 2,800
hectares. In addition, the Supply Contract requires Coca-Cola to purchase all
the production from the project. The planting program began in November, 1996
and harvesting of the first crops is now projected to begin in late 2000 with
full production scheduled for 2013. Total capital requirements for the project
including land acquisition, seedlings, capital equipment and planting costs are
estimated to be approximately $17.5 million over the next four years of which
$5.3 million will be required in 1998. Presently, the Company is exploring
various financing alternatives for this project. There can be no assurances that
financing for this project can be obtained on acceptable terms, or at all. The
inability to obtain third party financing for the project could have a material
adverse effect on the Company.
The Company's cash requirements for 1998 and beyond will depend primarily
upon the level of sales, expenditures for capital equipment and improvements,
investments in agricultural projects, the timing of inventory purchases, the
success of newly introduced products and necessary reductions of debt.
Presently, the Company is in discussions with Rabobank Nederland and other
financial institutions regarding extending or replacing it's existing debt
facilities. Although no assurances can be given, the Company believes it will be
able to obtain such debt facilities on terms acceptable to the Company. The
failure to obtain such debt facilities would have a material adverse affect on
the Company. UniMark believes that
13
<PAGE> 14
anticipated revenue from operations and existing and future debt facilities will
be adequate for its working capital requirements for at least the next twelve
months.
EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.33 Supply Agreement between The Coca-Cola Export Corporation and
Grupo Industrial Santa Engracia, S.A. de C.V. dated April 2,
1998.
27 Financial Data Schedule
B. Reports on Form 8-K
On June 24, 1998 the Company filed a current report on Form 8-K
announcing that the Company had entered into a Letter of Intent dated
June 22, 1998 by and between The UniMark Group, Inc. and Mexico
Strategic Investment Fund, Ltd. ("MSIF") pursuant to which MSIF or an
affiliate would purchase 3,305,500 shares of common stock of the
Company.
On July 22, 1998 the Company filed Amendment No. 1 to Current
Report on Form 8-K/A announcing that on July 20, 1998 the Company had
sold 3,305,500 newly issued shares of common stock to M&M Nominee
L.L.C., an affiliate of the Mexico Strategic Investment Fund, Ltd.
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.
THE UNIMARK GROUP, INC.
-------------------------
Registrant
Date: August 12, 1998 /s/ Rafael Vaquero
-------------------------
Rafael Vaquero, President
(Principal Executive Officer)
Date: August 12, 1998 /s/ Keith Ford
-------------------------
Keith Ford, Vice President
(Principal Accounting Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------------- -----------------------------------------------------------
<S> <C>
10.33 Supply Agreement between The Coca-Cola Export Corporation
and Grupo Industrial Santa Engracia, S.A. de C.V. dated
April 2, 1998.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.33
[English Translation of Original Spanish Document]
Supply Agreement executed by and between The Coca-Cola Export Corporation,
Mexico Branch as the purchaser, herein represented by Arturo Salinas Chavez in
his capacity as Attorney-in-fact thereof, hereinafter, COEXPORT, and GRUPO
INDUSTRIAL SANTA ENGRACIA, S.A. de C.V. as the supplier, herein represented by
its General Attorney-in-fact, Jose Maria Martinez Brohez, hereinafter, THE FRUIT
GROWER, pursuant to the following recitals and clauses.
R E C I T A L S
I THE FRUIT GROWER states that:
A) It is a company organized and existing pursuant to the General Law of
Mercantile Companies and that for all legal purposes regarding this
Agreement, it states as its domicile that located at Ave. Carrera Torres
number 226 Pte., Ciudad Victoria, 87000, Tamaulipas.
B) It is registered in the Federal Taxpayers Registry under number
GIS-880802-GH6.
C) Among other activities, it is engaged in the cultivation of citric fruits,
for which purpose it rents and owns lands to be used in this agricultural
activity.
D) Mr. Jose Maria Martinez Brohez evidences his legal capacity as Attorney-
in-fact thereof with Public Instrument Number 2101 dated the thirty-first
day of June, 1994, issued by Notary Public Number 187 with jurisdiction in
Victoria, Tamaulipas.
II COEXPORT states that:
A) It is a branch office duly authorized to operate in the Mexican Republic
pursuant to the General Law of Mercantile Companies.
B) It is registered in the Federal Taxpayers Registry under number CCE-
520101-TC7.
- 1 -
<PAGE> 2
[English Translation of Original Spanish Document]
C) Among other activities, it is engaged in the production of soft- drink
concentrates of various flavors, for which reason it requires ITALIAN LEMON
FRUIT. This product has traditionally been imported from other countries by
COEXPORT and other consumers, since sufficient amounts for meeting the
domestic demand are not produced in Mexico. Consequently, COESPORT
established a promotion and technical assistance program for the production
of Italian Lemon among the citriculturists in the state of Tamaulipas and
other states of the Mexican Republic.
D) Mr. Arturo Salinas Chavez evidences his legal capacity as Attorney-in-fact
thereof under the terms of Public Instrument Number 80481 dated the
sixteenth day of January, 1995, issued by Notary Public Number 9 for the
Federal District, Mr. Jose Angel Villalobos Magana.
E) It states as its domicile for the purposes of this Agreement that located
at Ruben Dario 115, colonia Bosque de Chapultepec, 11580 Mexico City,
Federal District, Delegacion Miguel Hidalgo.
III. Both parties state that they are aware of the above recitals and that they
are all true, for which reason they wish to execute this Agreement pursuant
to the following:
C L A U S E S
ONE: THE FRUIT GROWER hereby binds itself to plant in a term of three years,
3500 ha (three thousand five hundred hectares) of Italian Lemon fruit trees,
whether directly or through affiliate companies or subsidiaries over which it
has control whether by contractual rights or as a majority shareholder, pursuant
to the planting program of Exhibit "A" hereto, which has been signed by the
parties and forms a part hereof.
THE FRUIT GROWER hereby binds itself to carry out all the necessary tasks in its
orchards in order to guarantee COEXPORT a minimum delivery in metric tons of
fresh fruit per year, pursuant to the following annual harvest schedule, which
may vary for causes beyond the control of THE FRUIT GROWER (frosts, prolonged
droughts, etc.).
- 2 -
<PAGE> 3
[English Translation of Original Spanish Document]
Annual Harvest Program
<TABLE>
<CAPTION>
Year M Tons of Fruit/Year Year M Tons of Fruit/Year
<S> <C> <C> <C>
1998 1,200 2004 91,100
1999 2,400 2005 113,900
2000 3,500 2006 136,000
2001 10,200 2007 159,000
2002 33,100 2008 177,000
2003 65,500 2009 182,300
</TABLE>
TWO: THE FRUIT GROWER hereby binds itself to provide directly or through
affiliate companies or subsidiaries over which it has control, whether by
contractual rights or as a majority shareholder, and COEXPORT hereby binds
itself to purchase the entire production of fresh fruit that THE FRUIT GROWER
obtains from the three thousand five hundred hectares set forth in Clause One
hereof and under the terms set forth in clauses Three to Fourteen hereof.
THREE: This Agreement shall have a term of twenty years as from the date of its
execution. The parties may extend the same for a period of the years with the
execution of a written agreement therefor, to be executed within the last 30
days of the term of existence hereof.
FOUR. THE FRUIT GROWER hereby agrees that COEXPORT only binds itself to purchase
the fresh fruit obtained during the natural harvest of the plantation that meets
the quality specifications established in Exhibit "B" hereto, which has been
signed by the parties and forms an integral part hereof. Likewise, COEXPORT
shall have a preferential right to acquire fresh fruit produced outside of the
natural harvest, under the same terms and conditions established for the
purchase of the natural harvest.
FIVE: THE FRUIT GROWER shall deliver the fresh Italian lemon fruit free-on-board
at the citric fruit processing plant designated by COEXPORT within a maximum
area of 500 km. from the location of the plantation, with a quality such that,
when processed, cold-pressed Lemon Oil is obtained which meets the
specifications for this product contained in the Foods chemical codes (FCC) and
has a minimum content of 2.3% aldehydes, known as Citral (c10H160). The price
per metric ton of fresh fruit that COEXPORT shall pay to THE FRUIT GROWER shall
be calculated based on the kilograms of Italian Lemon oil contained as the total
weighed average of the natural harvest and in the same manner for the harvest(s)
out of this season per metric ton of fresh fruit, applying for its payment, the
prices stipulated in Exhibit "C" hereto, which has been signed by the parties
and forms an integral part hereof.
- 3 -
<PAGE> 4
[English Translation of Original Spanish Document]
In order to determine the content of Italian Lemon oil for each ton of fresh
fruit that THE FRUIT GROWER delivers to COEXPORT, the analysis methods which are
established in Exhibit "D" hereto shall be applied, which has been signed by the
parties and forms an integral part hereof.
The content of Essential oil of the fruit must be determined by COEXPORT or
whomever it designates, by means of the analysis of representative samples of
each truckload of fruit that THE FRUIT GROWER or whomever it designates delivers
to COEXPORT at the processing plant. THE FRUIT GROWER or whomever it designates,
may observe the sampling of the fruit and the determination of the Oil content.
In the event that the annual average of aldehyde content in the cold-pressed
Italian lemon Oil without waxes is less than 2.3%, THE FRUIT GROWER hereby
agrees that COEXPORT shall reduce the price stipulated in Exhibit "C" by 1.0%
for each tenth of a point in which the aldehyde average is under the 2.3%
minimum. At its discretion, COEXPORT may or may not purchase the fruit whose
aldehyde content in the Oil is lees than 2.0%, in which case both parties agree
to negotiate the price at the time of purchase.
For calculating the deduction of the price due to a low aldehyde content, the
resulting annual actual average shall be subtracted from the 2.3% minimum and
the difference shall be divided by 10. The result shall be multiplied by the
price paid per metric ton of fruit during the calendar year in which a low
content of aldehydes was recorded (Exhibit "C"). The result shall be the total
in dollars that THE FRUIT GROWER must return to COEXPORT at the latest on March
31 of the year following the harvest year.
COEXPORT shall pay the final decision regarding the content of aldehydes in the
oil and shall share its analysis method for the determination with THE FRUIT
GROWER.
COEXPORT. shall make weekly installments after the first fruit delivery by THE
FRUIT GROWER, basing these payments on the fruit-oil content determined by
COEXPORT or whomever it may designate, in representative samplings of each
delivery that THE FRUIT GROWER makes at the Processing Plant. At the end of the
harvest and upon the last fruit delivery, both parties hereby agree to make the
necessary adjustments between the paid value and the actual value found as
content of fruit oil in the final payment, which shall be at the latest four
weeks after the last delivery of fresh fruit.
The same payment process shall be applied in the event that fruit is sent
outside of the natural harvest.
- 4 -
<PAGE> 5
[English Translation of Original Spanish Document]
SIX: The payments made by COEXPORT for the purchase of fresh fruit shall be in
U.S. dollars at the exchange rate in Mexican currency which Banco de Mexico
fixes for such purpose and which is published in the Official Gazette of the
Federation on the date on which the payment is made.
SEVEN: COEXPORT shall grant THE FRUIT GROWER, free of charge, the technical
assistance required pursuant to generally accepted Italian Lemon growing and
production practices for optimizing the production of citric fruits. The
technical assistance to be granted by COEXPORT shall be by means of technical
circular letters and visits to the orchard, the technical personnel designated
by COEXPORT preparing a written report with the required technical
recommendations. THE FRUIT GROWER shall be free to follow the suggestions or
reject them at any time without prejudice to the obligations that THE FRUIT
GROWER acquires as a result of the execution of this Agreement. In no event
shall COEXPORT be responsible for the resulting quantity or quality of the
obtained fresh fruit, which shall at all times be the responsibility of THE
FRUIT GROWER.
EIGHT: COEXPORT hereby binds itself to THE FRUIT GROWER to finance the harvest
and the transportation on the first supply of fresh fruit to the processing
plant designated by COEXPORT, discounting any advance payment from the first
installment made by COEXPORT.
NINE: COEXPORT shall, without charge, grant THE FRUIT GROWER up to 875,000
(eight hundred and seventy five thousand) Italian lemon saplings, sufficient for
planting the 3,500 ha (three thousand five hundred) subject matter on this
Agreement, pursuant to the schedule of Exhibit "A" hereto. Likewise, if THE
FRUIT GROWER decides to plant a density greater than 250 trees per hectare, the
remaining trees needed for the planting shall be on its account.
TEN: It is hereby expressly agreed that the provisions of Article 1639 of the
Civil code in force for the state of Tamaulipas and its correlating Article 2309
of the Civil code in force for the Federal District shall not apply to this
Agreement, since it is THE FRUIT GROWER who undertakes the risk that the harvest
may not exist. If THE FRUIT GROWER so desires, it may contract an insurance
policy at its expense which covers the risk that a harvest may not exist, as
well as the risk of its trees being damaged by natural phenomena, willful acts
or negligence.
THE FRUIT GROWER hereby binds itself to take any necessary action to repair any
damage that the trees of its plantation may suffer due to natural phenomena, or
caused by fire, sabotage or any other act of similar nature.
ELEVEN: COEXPORT shall not be responsible for any claim derived from the labor
relationships between THE FRUIT GROWER and its workers. THE FRUIT
- 5 -
<PAGE> 6
[English Translation of Original Spanish Document]
GROWER hereby binds itself to exclude and hold COEXPORT harmless from any
civil, labor or criminal claim, including work-related accidents.
TWELVE: The Civil Code of the Federal District shall govern all that not
provided for herein.
THIRTEEN: The parties hereby state that there are no flaws of consent in this
Agrement which may render it null and void.
FOURTEEN: Both parties hereby agree that this Agreement substitutes and
supersedes all previous Agreements as of this date.
FIFTEEN: For the construction and fulfillment of this Agreement, the parties
shall subject themselves to the jurisdiction and competence of the courts of
Mexico City, Federal District, hereby waiving any jurisdiction of their present
or future domiciles.
Once this Agreement was read in its entirety and the parties became aware of its
content and legal scope, the parties execute this Agreement in Ciudad Victoria,
Tamaulipas, on the second day of April, 1998.
By: COEXPORT By: THE FRUIT GROWER
- ------------------------- ---------------------------------
Arturo Salinas Chavez Jose Maria Martinez Brohez
Witness: Witness:
- ------------------------- ---------------------------------
Jeronimo Gutierrez Aja Edgar Elias Rodriguez R.
Witness: Witness:
- ------------------------- ---------------------------------
Eduardo Zago Berra Federico Martinez Zambrano
- 6 -
<PAGE> 7
English Translation of Original Spanish Document
EXHIBIT "A"
Planting Schedule 1997 - 1999
- -------------------------------------------------------------------------------
FIRST STAGE SCHEDULE
<TABLE>
<CAPTION>
Year No. of Ha.
<S> <C> <C>
1997 January - December 500
1998 January - December 2,300
1999 January - October 700
Total: 3,500
</TABLE>
- -------------------------------------------------------------------------------
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,939
<SECURITIES> 0
<RECEIVABLES> 16,332
<ALLOWANCES> 803
<INVENTORY> 27,111
<CURRENT-ASSETS> 49,607
<PP&E> 45,225
<DEPRECIATION> 6,552
<TOTAL-ASSETS> 101,623
<CURRENT-LIABILITIES> 54,485
<BONDS> 8,361
0
0
<COMMON> 86
<OTHER-SE> 38,676
<TOTAL-LIABILITY-AND-EQUITY> 101,623
<SALES> 50,041
<TOTAL-REVENUES> 50,041
<CGS> 33,527
<TOTAL-COSTS> 33,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 123
<INTEREST-EXPENSE> 2,379
<INCOME-PRETAX> 2,391
<INCOME-TAX> 910
<INCOME-CONTINUING> 1,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,481
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
