<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 March 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 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 May 11, 1998, the number of shares outstanding of each class of common
stock was:
Common Stock, $.01 par value: 8,632,826 shares
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets,
December 31, 1997 and March 31, 1998....................................................... 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1997 and 1998......................................... 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1998......................................... 5
Notes to Condensed Consolidated Financial Statements - March 31, 1998......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................. 14
SIGNATURES............................................................................................ 14
</TABLE>
2
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THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------- ----------
(NOTE 1) (UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 1,237 $ 3,430
Accounts receivable -- trade, net of allowance of $685 in
1997 and $749 in 1998....................................... 11,599 15,411
Accounts receivable -- other.................................. 716 697
Inventories................................................... 25,726 26,503
Income and value added taxes receivable....................... 2,312 1,927
Prepaid expenses.............................................. 1,605 1,370
--------- ----------
Total current assets 43,195 49,338
Property, plant and equipment, net of accumulated depreciation
of $5,227 in 1997 and $5,861 in 1998............................ 38,130 38,269
Deferred income taxes............................................. 1,847 1,847
Goodwill.......................................................... 6,606 6,561
Identifiable intangible assets.................................... 1,823 1,842
Due from related parties.......................................... 1,678 1,703
Other assets...................................................... 1,337 1,490
--------- ----------
Total assets............................................. $ 94,616 $ 101,050
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings......................................... $ 31,452 $ 35,078
Current portion of long-term debt............................. 1,655 1,161
Accounts payable ............................................. 3,983 7,048
Payable to related parties.................................... 104 104
Accrued expenses.............................................. 4,439 3,570
Income taxes payable.......................................... 40 --
Deferred income taxes......................................... 6,050 6,615
--------- ----------
Total current liabilities................................ 47,723 53,576
Long-term debt, less current portion.............................. 8,626 8,622
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 1998............................................ 86 86
Additional paid-in capital.................................... 45,419 45,419
Retained earnings (deficit)................................... (7,253) (6,668)
--------- ----------
Total shareholders' equity............................... 38,252 38,837
--------- ----------
Total liabilities and shareholders' equity............... $ 94,616 $ 101,050
========= ==========
</TABLE>
See accompanying notes.
3
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THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1998
-------- --------
(IN THOUSANDS, EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales......................................................... $ 17,275 $ 24,532
Cost of products sold............................................. 11,855 16,623
-------- --------
5,420 7,909
Selling, general and administrative expenses...................... 5,822 5,891
-------- --------
Income (loss) from operations..................................... (402) 2,018
Other income (expense):
Interest expense.............................................. (543) (1,145)
Interest income............................................... 102 52
Foreign currency transaction gain (loss)...................... 209 248
Other......................................................... 4 49
-------- --------
(228) (796)
-------- --------
Income (loss) before income taxes................................. (630) 1,222
Income tax expense ............................................... 11 637
-------- --------
Net income (loss) ................................................ $ (641) $ 585
======== ========
Net income (loss) per share:
Basic......................................................... $ (0.07) $ 0.07
======== ========
Diluted....................................................... $ (0.07) $ 0.07
======== ========
</TABLE>
See accompanying notes.
4
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THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ................................................ $ (641) $ 585
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization................................ 778 905
Deferred income taxes........................................ 317 565
Changes in operating assets and liabilities:
Receivables............................................... (2,427) (3,408)
Inventories............................................... (6,197) (777)
Prepaid expenses.......................................... (28) 235
Payables and accrued expenses............................. 1,961 2,156
------- -------
Net cash provided by (used in) operating activities............... (6,237) 261
INVESTING ACTIVITIES
Purchases of property, plant and equipment........................ (1,659) (898)
Increase in identifiable intangible assets........................ (22) (120)
Increase in amounts due from related parties...................... (48) (25)
Increase in other assets.......................................... (837) (153)
------- -------
Net cash used in investing activities............................. (2,566) (1,196)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock........................ 79 --
Net increase in short-term borrowings............................. 7,817 3,626
Proceeds from long-term debt...................................... 1,291 240
Payments of long-term debt........................................ (857) (738)
------- -------
Net cash provided by financing activities......................... 8,330 3,128
------- -------
Net increase (decrease) in cash and cash equivalents.............. (473) 2,193
Cash and cash equivalents at beginning of period.................. 4,268 1,237
------- -------
Cash and cash equivalents at end of period........................ $ 3,795 $ 3,430
======= =======
</TABLE>
See accompanying notes.
5
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THE UNIMARK GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Description of Business: 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.
Interim Financial Statements: The condensed consolidated financial
statements at March 31, 1998, and for the three month period 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 three months
ended March 31, 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.
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NOTE 2 - 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
MARCH 31,
--------------------
1997 1998
------- -------
(IN THOUSANDS, EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C>
NUMERATOR
Net income (loss)...................................... $ (641) $ 585
DENOMINATOR
Denominator for basic earnings per share - weighted
average shares....................................... 8,577 8,599
Effect of dilutive securities:
Employee and director stock options.................. -- 44
Warrants............................................. -- --
------- -------
Dilutive potential common shares....................... 8,577 8,643
------- -------
Denominator for diluted earnings per share - weighted
average shares adjusted for assumed conversions...... 8,577 8,643
======= =======
Basic earnings (loss) per share........................ $ (0.07) $ 0.07
======= =======
Diluted earnings (loss) per share...................... $ (0.07) $ 0.07
======= =======
</TABLE>
NOTE 3 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished goods:
Cut fruits ............................... $ 12,983 $ 13,260
Juice and oils ........................... 2,592 3,419
-------- --------
15,575 16,679
Advances to suppliers and orchards............ 5,718 5,982
Raw materials and supplies.................... 4,433 3,842
-------- --------
$ 25,726 $ 26,503
======== ========
</TABLE>
NOTE 4 - SUBSEQUENT EVENTS
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
7
<PAGE> 8
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.
Effective May 1, 1998, the Company issued an additional 23,993 common shares
to the former owner of Les Produits Deli-Bon Inc. pursuant to the price
protection provisions of the January 3, 1996 acquisition agreement.
8
<PAGE> 9
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.
9
<PAGE> 10
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 ENDED
MARCH 31,
-------------------
1997 1998
----- -----
<S> <C> <C>
Net sales........................................... 100.0% 100.0%
Cost of products sold............................... 68.6 67.8
----- -----
Gross profit........................................ 31.4 32.2
Selling, general and administrative expenses........ 33.7 24.0
----- -----
Income (loss) from operations....................... (2.3) 8.2
Other income (expense):
Interest expense................................ (3.1) (4.7)
Interest income................................. 0.6 .2
Other .......................................... 1.2 1.3
----- -----
Income (loss) before income taxes................... (3.6) 5.0
Income tax expense ................................. 0.1 2.6
----- -----
Net income (loss) .................................. (3.7)% 2.4%
===== =====
</TABLE>
Three Months Ended March 31, 1997 and 1998
Net sales increased 42% from $17.3 million in 1997 to $24.5 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 $1.3
million in 1997 to $7.3 million in 1998. Favorable raw material costs and
increased production volume reduced the average unit cost of citrus juice
inventories in excess of the decline in the average market sales price. With the
reduced inventory cost, the Company is once again able to sell its frozen
concentrate orange juice competitively in the European market as well as the US
market. Retail sales increased 22% from $6.6 million in 1997 to $8.1 million in
1998 as the result of increased distribution and demand and the success of the
new canned product lines. Sales to Japan increased from $0.9 million in 1997 to
$1.6 million in 1998 as the Company has expanded its product line to include
canned, frozen and industrial products and broadened its customer base in Japan.
Foodservice sales decreased 21% from $5.7 million in 1997 to $4.5 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"). After closing this facility, it no longer was
practical to supply many of the small foodservice accounts previously serviced
out of Lawrence, Massachusetts. In addition, existing customers had to adjust
their ordering schedules to provide additional lead-time for delivery of their
orders through the McAllen, Texas warehouse facility. Club sales decreased 16%
from $2.5 million in 1997 to $2.1 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. While the
Company has halted all production of avocado products due to quality control
issues it has recently achieved new distribution on the West coast for its
mango, rio red grapefruit and mixed fruit products.
Gross profit as a percentage of net sales increased from 31.4% in 1997 to
32.2% in 1998. Gross profit on cut fruit sales increased from 31.8% in 1997 to
34.3% in 1998. This increase is primarily the result of lower costs of
inventories due to increased production volume and efficiencies (see
"Restructuring Initiatives"), a price increase implemented in the first quarter
of 1998 and the relative increase in higher profit margin retail sales. Gross
profit on citrus juice and oil sales increased from 26.1% in 1997 to 27.5% in
1998 primarily as the result of reduced costs of inventories due to increased
production volume and favorable raw material costs.
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Selling, general and administrative expenses ("SG&A") as a percentage of net
sales decreased from 33.7% in 1997 to 24.0% 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 and cost savings realized from the
Company's reorganization of its cut fruit operations. See "Restructuring
Initiatives".
Interest expense increased from 3.1% of net sales in 1997 to 4.7% in 1998.
Actual interest expense increased from $0.5 million in 1997 to $1.1 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.
Interest income of $102,000 was earned in 1997 and $52,000 in 1998 primarily
from the temporary cash investment of excess cash balances.
A foreign currency transaction net gain of $209,000 in 1997 and $248,000 in
1998 resulted primarily from the conversion of Company's foreign subsidiaries'
financial statements to U.S. GAAP.
As a result of the foregoing, the Company reported a net loss of $641,000 in
1997 while reporting net income of $585,000 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 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.
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<PAGE> 12
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.
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 March 31, 1998, cash and cash equivalents totaled $3.4 million, an
increase of $2.2 million from year end 1997. During 1998, operating activities
provided net cash of $261,000. Cash was utilized to finance a $3.4 million
increase in trade receivables resulting from the increased sales volume in 1998.
During 1998, UniMark utilized cash of $1.2 million in investing activities.
Of this amount, $0.9 million was expended on property, plant and equipment.
The Company's financing activities provided net cash of $3.6 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 $738,000 in 1998. In March, 1998 the Company entered into a new $2.5
million short-term loan agreement with Banamex in Mexico guaranteed by
individual shareholders. In addition, the Company drew an additional $1.9
million on its line of credit with Banorte while reducing its other short-term
borrowings.
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 and agricultural operations in Mexico.
This bridge loan is 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 March 31, 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
March 31, 1998, the Company had outstanding loan balances under the revolving
credit agreements and
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<PAGE> 13
bridge loan agreement of $18.6 and $10.0 million, respectively, with $1.0
million available under the US revolving line. These agreements are scheduled to
mature on January 1, 1999.
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 to replace the bridge loan. 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 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. UniMark believes that 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.
13
<PAGE> 14
EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K
On February 19, 1998 the Company filed a current report on Form 8-K
announcing the resignation of the Company's then President, Chief Executive
Officer and Chairman and the concurrent acquisition of his shares of common
stock by a private group led by Rafael Vaquero, the Company's Chief Operating
Officer.
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: May 13, 1998 /s/ Rafael Vaquero
--------------------------
Rafael Vaquero, President
(Principal Executive Officer)
Date: May 13, 1998 /s/ Keith Ford
--------------------------
Keith Ford, Vice President
(Principal Accounting Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- -------------------------------------------------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,430
<SECURITIES> 0
<RECEIVABLES> 16,160
<ALLOWANCES> 749
<INVENTORY> 26,503
<CURRENT-ASSETS> 49,338
<PP&E> 44,130
<DEPRECIATION> 5,861
<TOTAL-ASSETS> 101,050
<CURRENT-LIABILITIES> 53,576
<BONDS> 8,622
0
0
<COMMON> 86
<OTHER-SE> 38,751
<TOTAL-LIABILITY-AND-EQUITY> 101,050
<SALES> 24,532
<TOTAL-REVENUES> 24,532
<CGS> 16,623
<TOTAL-COSTS> 16,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 1,145
<INCOME-PRETAX> 1,222
<INCOME-TAX> 637
<INCOME-CONTINUING> 585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 585
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
