<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, 1999
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 13, 1999, the number of shares outstanding of each class of
common stock was:
Common Stock, $.01 par value: 13,938,326 shares
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets,
December 31, 1998 and March 31, 1999....................................................... 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1998 and 1999......................................... 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1999......................................... 5
Notes to Condensed Consolidated Financial Statements - March 31, 1999......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................. 8
PART II. OTHER INFORMATION
Item 2. Sale of Unregistered Securities...............................................................14
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,
1998 1999
---------- ----------
(NOTE 1) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 4,247 $ 8,248
Accounts receivable - trade, net of allowance of $657 in
1998 and $627 in 1999 .................................................. 9,270 9,985
Accounts receivable - other .............................................. 731 791
Inventories .............................................................. 22,320 26,325
Income and value added taxes receivable .................................. 1,560 1,957
Prepaid expenses ......................................................... 1,315 979
---------- ----------
Total current assets ............................................... 39,443 48,285
Property, plant and equipment, net of accumulated depreciation of
$8,000 in 1998 and $8,740 in 1999 ........................................ 41,347 41,535
Deferred income taxes ....................................................... 1,365 1,365
Goodwill, net ............................................................... 6,425 6,379
Identifiable intangible assets .............................................. 1,535 1,421
Due from related parties .................................................... 1,651 1,659
Other assets ................................................................ 1,747 1,814
---------- ----------
Total assets ....................................................... $ 93,513 $ 102,458
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings .................................................... $ 21,654 $ 25,861
Current portion of long-term debt ........................................ 763 756
Accounts payable - trade ................................................. 5,156 4,610
Accrued liabilities ...................................................... 3,484 4,058
Income taxes payable ..................................................... 38 --
Deferred income taxes .................................................... 5,873 6,921
---------- ----------
Total current liabilities .......................................... 36,968 42,206
Long-term debt, less current portion ........................................ 7,833 7,771
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 11,938,326 in
1998 and 13,938,326 in 1999 .......................................... 119 139
Additional paid-in capital ............................................... 58,811 63,791
Accumulated deficit ...................................................... (10,218) (11,449)
---------- ----------
Total shareholders' equity ......................................... 48,712 52,481
---------- ----------
Total liabilities and shareholders' equity ......................... $ 93,513 $ 102,458
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 4
THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1999
---------- ----------
(IN THOUSANDS, EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales ....................................... $ 24,532 $ 21,030
Cost of products sold ........................... 16,623 14,261
---------- ----------
7,909 6,769
Selling, general and administrative expenses .... 5,891 6,004
---------- ----------
Income from operations .......................... 2,018 765
Other income (expense):
Interest expense ............................. (1,145) (860)
Interest income .............................. 52 23
Foreign currency transaction gain (loss) ..... 248 (305)
Other ........................................ 49 20
---------- ----------
(796) (1,122)
---------- ----------
Income (loss) before income taxes ............... 1,222 (357)
Income tax expense .............................. 637 874
---------- ----------
Net income (loss) ............................... $ 585 $ (1,231)
========== ==========
Basic and diluted earnings (loss) per share ..... $ 0.07 $ (0.10)
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 5
THE UNIMARK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .................................................. $ 585 $ (1,231)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization ................................. 905 900
Deferred income taxes ......................................... 565 1,048
Changes in operating assets and liabilities:
Receivables ................................................ (3,408) (1,172)
Inventories ................................................ (777) (4,005)
Prepaid expenses ........................................... 235 336
Payables and accrued expenses .............................. 2,156 (10)
-------- --------
Net cash provided by (used in) operating activities ................ 261 (4,134)
INVESTING ACTIVITIES
Purchases of property, plant and equipment ......................... (898) (928)
Increase in identifiable intangible assets ......................... (120) --
Increase in amounts due from related parties ....................... (25) (8)
Increase in other assets ........................................... (153) (67)
-------- --------
Net cash used in investing activities .............................. (1,196) (1,003)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock ......................... -- 5,000
Net increase in short-term borrowings .............................. 3,626 4,207
Proceeds from long-term debt ....................................... 240 55
Payments of long-term debt ......................................... (738) (124)
-------- --------
Net cash provided by financing activities .......................... 3,128 9,138
-------- --------
Net increase in cash and cash equivalents .......................... 2,193 4,001
Cash and cash equivalents at beginning of period ................... 1,237 4,247
-------- --------
Cash and cash equivalents at end of period ......................... $ 3,430 $ 8,248
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
THE UNIMARK GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The UniMark Group, Inc. ("UniMark" or the
"Company") conducts substantially all of its operations through its wholly-owned
operating subsidiaries: UniMark Foods, Inc. ("UniMark Foods"), UniMark
International, Inc. ("UniMark International"), Industrias Citricolas de
Montemorelos, S.A. de C.V. ("ICMOSA"), AgroMark, S.A. de C.V. ("AgroMark"),
UniMark Foods Europe, Ltd. ("UniMark Europe"), Les Produits Deli-Bon Inc.
("Deli-Bon"), Grupo Industrial Santa Engracia, S.A. de C.V. ("GISE") and Simply
Fresh Fruit, Inc. ("Simply Fresh").
At March 31, 1999, 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, in recent years, relied upon bank financing
to finance its working capital and certain of its capital expenditure needs.
Although the Company's revolving credit facilities are being extended until
January 3, 2000, no assurances can be given that the lender will continue to
renew such loan facilities. The Company's cash requirements for the remainder of
1999 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 further 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 could have
a material adverse affect on the Company. For additional information see Note 2.
Interim Financial Statements: The condensed consolidated financial
statements at March 31, 1999, 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 for
the year ended December 31, 1998 filed with the Securities and Exchange
Commission. The results of operations for the three months ended March 31, 1999
are not necessarily indicative of future financial results.
Year End Balance Sheet: The condensed consolidated balance sheet at December
31, 1998 has been derived from the audited consolidated 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.
6
<PAGE> 7
NOTE 2 - CAPITAL STOCK
On March 29, 1999, the Company sold 2,000,000 newly issued shares of common
stock at a purchase price of $2.50 per share, for an aggregate purchase price of
$5,000,000 to M & M Nominee L.L.C. ("M & M"). In connection with the
transaction, M & M surrendered options to acquire an additional 2,000,000 shares
of common stock at a purchase price of $4.5375 per share issued to them in July
1998.
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
MARCH 31,
-----------------------
1998 1999
--------- ---------
(IN THOUSANDS, EXCEPT
FOR PER SHARE AMOUNTS)
<S> <C> <C>
NUMERATOR
- ---------
Net income (loss) ........................................ $ 585 $ (1,231)
DENOMINATOR
- -----------
Denominator for basic earnings per share - weighted
average shares outstanding ............................. 8,599 12,005
Effect of dilutive securities:
Employee and director stock options .................... 44 --
Warrants ............................................... -- --
--------- ---------
Dilutive potential common shares ......................... 44 --
--------- ---------
Denominator for diluted earnings per share - weighted
average shares outstanding adjusted for assumed
conversions ............................................ 8,643 12,005
========= =========
Basic and diluted earnings (loss) per share .............. $ 0.07 $ (0.10)
========= =========
</TABLE>
At March 31, 1998 and 1999 the Company had options and warrants outstanding
of 378,000 and 447,000 , respectively, that were not included in their
respective years per share calculations because their effect would have been
anti-dilutive.
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished goods:
Cut fruits ................ $ 12,212 $ 12,467
Juice and oils ............ 1,663 5,253
-------- --------
13,875 17,720
Pineapple orchards ............ 2,964 3,259
Raw materials and supplies .... 4,376 4,394
Advances to suppliers ......... 1,105 952
-------- --------
Total .............. $ 22,320 $ 26,325
======== ========
</TABLE>
7
<PAGE> 8
NOTE 5 - SEGMENT INFORMATION
The Company has two reportable segments: packaged fruit and juice and oil.
<TABLE>
<CAPTION>
PACKAGED JUICE
FRUIT & OIL TOTAL
-------- -------- --------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999
- ---------------------------------
Revenues from external customers ..... $ 18,914 $ 2,116 $ 21,030
Inter-segment revenues ............... 145 -- 145
Segment profit (loss) ................ 279 (170) 109
THREE MONTHS ENDED MARCH 31, 1998
- ---------------------------------
Revenues from external customers ..... $ 17,224 $ 7,308 $ 24,532
Inter-segment revenues ............... 12 -- 12
Segment profit ....................... 338 1,341 1,679
</TABLE>
The following are reconciliations of reportable segment profit or loss to
the Company's consolidated totals.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1999
-------- --------
<S> <C> <C>
Total profit for reportable segments ................ $ 1,679 $ 109
Amortization of subsidiary acquisition costs
recognized in consolidation ....................... (93) (93)
Unallocated corporate general and administrative
expenses .......................................... (364) (373)
-------- --------
Income (loss) before income taxes ................. $ 1,222 $ (357)
======== ========
</TABLE>
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 1999 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.
8
<PAGE> 9
CONVERSION TO U.S. GAAP
The Company conducts substantially all of its operations through its wholly
owned operating subsidiaries. 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. ICMOSA and GISE 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 and GISE'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. UniMark Europe maintains its accounting records in
British pounds sterling and in accordance with United Kingdom generally accepted
accounting principles and is subject to United Kingdom 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.
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,
-------------------
1998 1999
------ ------
<S> <C> <C>
Net sales ....................................... 100.0% 100.0%
Cost of products sold ........................... 67.8 67.8
------ ------
Gross profit .................................... 32.2 32.2
Selling, general and administrative expenses .... 24.0 28.5
------ ------
Income from operations .......................... 8.2 3.6
Other income (expense):
Interest expense ............................ (4.7) (4.1)
Interest income ............................. .2 .1
Other ....................................... 1.3 (1.3)
------ ------
Income (loss) before income taxes ............... 5.0 (1.7)
Income tax expense .............................. 2.6 4.2
------ ------
Net income (loss) ............................... 2.4% (5.9)%
====== ======
</TABLE>
Three Months Ended March 31, 1999 and 1998
Net sales consist of sales of packaged fruit and citrus juice and oils.
Packaged fruit sales increased 9.8% from $17.2 million in 1998 to $18.9 million
in 1999. This increase was primarily due to a 77% increase in sales to Japan
from $1.6 million in 1998 to $2.8 million in 1999, and a 14% increase in retail
sales from $8.1 million in 1998 to $9.2 million in 1999. The increase in retail
sales was primarily due to greater distribution and positive market acceptance
of the Company's newly introduced canned and fresh cut product lines.
Citrus juice and oil sales decreased 71% from $7.3 million in 1998 to $2.1
million in 1999. This decrease in juice and oil sales was largely the result of
lower juice processing volume due to unfavorable raw material costs and a
general decline in the market price of frozen concentrate orange juice.
9
<PAGE> 10
As a result of the foregoing, net sales decreased 14% from $24.5 million in
1998 to $21.0 million in 1999 and was caused by the decline in citrus juice and
oil sales.
Gross profit on packaged fruit sales decreased from 34.3% in 1998 to 32.8%
in 1999. This decrease was primarily the result of unfavorable raw material
costs in 1999 caused by the prior freeze damage sustained in the California
citrus groves and increased melon costs incurred by the Company's California
processing operations.
Citrus juice and oil gross profit decreased from 27.5% in 1998 to 26.5% in
1999. This decrease was caused by unfavorable raw material costs as a result of
a smaller orange crop in Mexico this growing season and a decline in market
prices for frozen concentrate orange juice.
Overall, gross profit as a percentage of net sales remained constant at
32.2% in both 1998 and 1999. Although gross profit percentages for both packaged
fruit and juice and oil decreased in the current period over the prior year, a
change in the 1999 product mix caused this years percentage to equal the prior
year.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales increased from 24.0% in 1998 to 28.5% in 1999. This increase is primarily
the result of the relative decrease in juice and oil sales that do not require
significant sales and marketing expenditures.
Interest expense decreased from 4.7% in 1998 to 4.1% in 1999. Actual
interest expense decreased from $1.1 million in 1998 to $860,000 in 1999. This
decrease was primarily the result of decreased levels of debt.
A foreign currency transaction net gain of $248,000 in 1998 and a net loss
of $305,000 in 1999 resulted primarily from the conversion of Company's foreign
subsidiaries' financial statements to U.S. GAAP.
Income tax expense of $874,000 was recorded in 1999 on a loss before income
taxes of $357,000 due primarily to permanent differences between book income,
or loss, reported in Mexico (as stated in U.S. dollars and U.S. generally
accepted accounting principles) and Mexican taxable income, or loss, calculated
in Mexican pesos according to Mexican income tax laws. In addition, the Company
has provided a valuation allowance so that any possible future tax benefits of
net operating losses generated in the United States are not currently
recognized in calculating income tax expense.
As a result of the foregoing, the Company reported net income of $585,000 in
1998 and a net loss of $1.2 million in 1999.
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's consolidated results of operations are affected by changes in
the valuation of the Mexican peso to the extent that ICMOSA or GISE have 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
10
<PAGE> 11
to the extent there are net deferred tax assets or a transaction gain to the
extent there are net deferred tax liabilities.
MARKET RISK FACTORS
A significant portion of the Company's operations consists of processing and
sales activities in foreign jurisdictions. The Company processes its products in
the United States, Mexico and Canada and sells the products in those markets as
well as European markets and Japan. As a result, the Company's financial results
could be significantly affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which the
Company distributes its products. The Company's operating results are exposed to
changes in exchange rates between the U.S. dollar and the Mexican peso, Canadian
dollar and the British pound.
When the U.S. dollar strengthens against these foreign currencies, the value
of nonfunctional currency sales decreases. When the U.S. dollar weakens, the
functional currency amount of sales increases. Overall, the Company is a net
payer of currencies other than the U.S. dollar and, as such, benefits from a
stronger dollar.
The Company procures and processes substantially all of its products in
Mexico for export to the United States, Canada, Europe and Japan. The cost of
citrus procured in Mexico generally reflects the spot market price for citrus in
the United States and all of UniMark's export sales from Mexico 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
Mexican peso. Labor and certain other processing costs are Mexican peso
denominated and, consequently, these costs are impacted by fluctuations in the
value of the Mexican peso relative to the U.S. dollar.
The Company's juice and oil segment primarily produces and sells frozen
concentrate orange juice. The price the Company is able to sell this product for
is generally determined by reference to the commodity futures market price, over
which the Company has no control.
The Company's interest expense is most sensitive to changes in the general
level of U.S. interest rates and London interbank offered rates ("LIBOR"). In
this regard, changes in these interest rates affect the interest paid on the
Company's debt.
DEPENDENCE UPON AVAILABILITY AND PRICE OF FRESH FRUIT
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 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 sale in
supermarkets in North America. In addition, a substantial portion of UniMark's
exports to Japan are processed and shipped during the first and fourth quarter
each year. Management believes UniMark's quarterly net sales will continue to be
impacted by this pattern of seasonality.
11
<PAGE> 12
YEAR 2000 ISSUES
As a result of certain computer programs and certain embedded computer chip
technology utilizing two digits rather than four to define the applicable year,
any of the Company's computer programs or systems that have date sensitive
software or computer chip technology may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, generate invoices, or
engage in similar normal business activities. Failure by the Company and/or any
third parties that the Company materially relies on, such as power utility
providers, financial institutions, other critical suppliers and major customers,
to complete Year 2000 readiness activities in a timely manner could have a
material adverse effect on the Company's business and results of operations.
The Company has engaged in a company-wide effort to achieve Year 2000
readiness for both information technology ("IT") and non-information technology
("non-IT") systems. The Company expects to achieve company-wide Year 2000
readiness by the end of 1999. The Company has formed a team consisting of senior
management, information technology staff and consultants to assess, remediate,
test and implement processes to meet Year 2000 readiness.
In late 1997, the Company completed its assessment of all IT systems which
indicated that most of the Company's significant accounting systems could be
affected, particularly the general ledgers, billing, inventory and payment
systems. The Company has now completed implementation of Year 2000 compliant
accounting systems in all of its operations. The Company does not believe that
non-IT systems are material to its operations; however, the Company has
completed its review and testing of such systems which has not revealed any
significant problems.
The Company has inquired of its significant suppliers, contractors and other
third-party support services and customers to assess their Year 2000 readiness
efforts. Letters of compliance have been requested from such third parties. To
date, the Company is not aware of any external agent with a Year 2000 issue that
would materially impact the Company's results of operations, liquidity or
capital resources. However, the Company has no means of ensuring that external
agents will be Year 2000 ready. Contingency plans to choose alternative
third-party agents, if necessary, will be formalized in the fourth quarter of
1999.
The Company is primarily utilizing internal resources to assess, remediate,
test and implement Year 2000 modifications while utilizing outside consultants
when necessary. The total cost of the Year 2000 project is not expected to
exceed $100,000 for the entire effort. Because the Company's readiness program
is not yet fully implemented and is subject to certain risks and uncertainties,
including readiness efforts of material third parties, there can be no assurance
that the Company will not incur material costs beyond the anticipated costs
described above. The cost of the Year 2000 project and the dates by which the
Company believes it will be Year 2000 ready are based on management's current
best estimates, which were dependent on numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. There can be no assurance, however, that
these estimates will be achieved and actual results could differ materially from
those anticipated.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, cash and cash equivalents totaled $8.2 million, an
increase of $4.0 million from year-end 1998. During 1999, operating activities
utilized cash of $4.1 million primarily due to a seasonal increase in juice and
oil inventories of $3.6 million.
During 1999, UniMark utilized cash of $1.0 million in investing activities.
Of this amount, $928,000 was expended on property, plant and equipment primarily
related to the Company's lemon orchard project in Mexico.
The Company's financing activities provided net cash of $5.0 million from
the sale of common stock and $4.2 million from additional short-term borrowings
under its existing lines of credit. On March 29,
12
<PAGE> 13
1999, the Company sold 2,000,000 newly issued shares of common stock at a
purchase price of $2.50 per share, for an aggregate purchase price of $5,000,000
to M & M. In connection with the transaction, M & M surrendered options to
acquire an additional 2,000,000 shares of common stock at a purchase price of
$4.5375 per share issued to them in July 1998.
The Company has existing loan agreements with Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") to provide short-term
dollar denominated debt of up to $24.5 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
and (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.
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,
and total debt. 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, 1999 the Company had outstanding loan balances under the
revolving credit agreements of $19.4 million. These agreements were scheduled to
mature on May 17, 1999 but, in a commitment letter dated April 13, 1999, the
lender agreed to extend the maturity to January 3, 2000.
In recent years, the Company has relied upon bank financing, principally
short term, to finance its working capital and certain of its capital
expenditure needs. Although these revolving credit facilities with Rabobank
Nederland are being extended until January 3, 2000, 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 further 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 could 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 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 $18.5 million of which $6.2 million has been
expended as of March 31, 1999 and $7.6 million is estimated to be required over
the remainder of 1999. 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 the remainder of 1999 and beyond will
depend primarily upon the level of sales, expenditures for capital equipment and
improvements, investments in agricultural projects, the level of inventories,
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 further 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 could have a material adverse affect
on the Company. UniMark
13
<PAGE> 14
believes that anticipated cash flow from operations and existing and future debt
facilities will be adequate for its working capital requirements for at least
the next twelve months.
SALE OF UNREGISTERED SECURITIES
On March 29, 1999, the Company sold 2,000,000 newly issued shares of Common
Stock, par value $.01 per share, for a purchase price of U.S. $2.50 per share,
or an aggregate purchase price of U.S. $5,000,000.00 in cash, to M & M Nominee
L.L.C. ("M & M"). The sale of securities was made in reliance upon Section 4(2)
of the Securities Act of 1933, as amended, and Regulation D, promulgated
thereunder, as an offering only to an accredited investor. In connection with
the transaction, M & M surrendered options to acquire 2,000,000 shares of Common
Stock granted to them in July 1998.
EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K
On April 1, 1999, the Company filed a Current Report on Form 8-K
announcing that (i) on March 29, 1999 the Company had sold 2,000,000
newly issued shares of common stock to M & M Nominee L.L.C., (ii) the
Company had named a new Chief Financial Officer and (iii) the Company
had filed for an extension for the filing of the Annual Report on Form
10-K.
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, 1999 /s/ Soren Bjorn
--------------- -----------------------------------------
Soren Bjorn, President
(Principal Executive Officer)
Date: May 13, 1999 /s/ Charles A. Horne
--------------- -----------------------------------------
Charles A. Horne, Chief Financial Officer
(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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,248
<SECURITIES> 0
<RECEIVABLES> 10,612
<ALLOWANCES> 627
<INVENTORY> 26,325
<CURRENT-ASSETS> 48,285
<PP&E> 50,275
<DEPRECIATION> 8,740
<TOTAL-ASSETS> 102,458
<CURRENT-LIABILITIES> 42,206
<BONDS> 7,771
0
0
<COMMON> 139
<OTHER-SE> 52,342
<TOTAL-LIABILITY-AND-EQUITY> 102,458
<SALES> 21,030
<TOTAL-REVENUES> 21,030
<CGS> 14,261
<TOTAL-COSTS> 14,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 860
<INCOME-PRETAX> (357)
<INCOME-TAX> 874
<INCOME-CONTINUING> (1,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,231)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
