CONFORMED
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-7626
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UNIVERSAL FOODS CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0561070
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5304
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(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 271-6755
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433 East Michigan Street, Milwaukee, Wisconsin 53202
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(Former name, former address and former fiscal year, if changed since last
report.)
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 such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for at least the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock as of the latest practicable date.
Class Outstanding at April 30, 2000
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Common Stock, par value $0.10 per share 49,656,470 shares
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UNIVERSAL FOODS CORPORATION
INDEX
Page No.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
- March 31, 2000 and September 30, 1999. 1
Consolidated Condensed Statements of Earnings
- Three and Six Months Ended March 31, 2000 and 1999. 2
Consolidated Condensed Statements of Cash Flows
- Six Months Ended March 31, 2000 and 1999. 3
Notes to Consolidated Condensed Financial Statements. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk. 7
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders. 8
Item 6. Exhibits and Reports on Form 8-K. 9
SIGNATURES. 10
EXHIBIT INDEX. 11
PART I
FINANCIAL INFORMATION
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March 31, September 30,
2000 1999
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,319 $ 4,645
Trade accounts receivable 141,256 143,435
Inventories 222,049 217,217
Prepaid expenses and other current
assets 36,508 39,273
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TOTAL CURRENT ASSETS 402,132 404,570
INVESTMENTS AND OTHER ASSETS 72,432 69,521
INTANGIBLES 314,094 278,309
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land and buildings 173,478 172,656
Machinery and equipment 519,787 509,107
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693,265 681,763
Less accumulated depreciation 307,486 291,455
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385,779 390,308
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TOTAL ASSETS $1,174,437 $1,142,708
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $164,111 $51,464
Accounts payable and accrued expenses 108,961 140,119
Salaries, wages and withholdings from
employees 13,982 16,777
Income taxes 21,317 23,849
Current maturities of long-term debt 9,491 9,484
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TOTAL CURRENT LIABILITIES 317,862 241,693
DEFERRED INCOME TAXES 27,654 28,446
OTHER DEFERRED LIABILITIES 20,499 20,912
ACCRUED EMPLOYEE AND RETIREE BENEFITS 34,453 34,678
LONG-TERM DEBT 337,451 385,397
SHAREHOLDERS' EQUITY:
Common stock 5,396 5,396
Additional paid-in capital 73,452 74,524
Earnings reinvested in the business 495,843 470,253
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574,691 550,173
Less: Treasury stock, at cost 85,470 71,309
Accumulated other comprehensive
income 50,964 45,278
Other 1,739 2,004
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TOTAL SHAREHOLDERS' EQUITY 436,518 431,582
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,174,437 $1,142,708
========== ==========
See accompanying notes to consolidated condensed financial statements.
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UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In thousands except per share amounts)
Three Months Six Months
Ended March 31 Ended March 31
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2000 1999 2000 1999
----- ----- ----- -----
Revenue $234,990 $219,914 $469,874 $437,449
Cost of products sold 153,347 143,777 305,398 285,624
Selling and administrative
expenses 48,135 41,152 96,007 85,631
-------- -------- -------- --------
Operating income 33,508 34,985 68,469 66,194
Interest expense 8,067 6,149 15,216 11,906
-------- -------- -------- --------
Earnings before income taxes 25,441 28,836 53,253 54,288
Income taxes 5,092 9,804 14,407 18,381
-------- -------- -------- --------
Net earnings $ 20,349 $ 19,032 $ 38,846 $ 35,907
======== ======== ======== ========
Average number of common
shares outstanding:
Basic 49,530 50,678 49,812 50,858
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Diluted 49,777 51,278 50,121 51,507
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Earnings per common share:
Basic $ .41 $ .38 $ .78 $ .71
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Diluted $ .41 $ .37 $ .78 $ .70
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Dividends per common share $.1325 $.1325 $ .265 $ .265
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See accompanying notes to Consolidated Condensed Financial Statements.
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UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
March 31
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2000 1999
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Net cash provided by operating activities $22,685 $31,959
Cash flows from investing activities:
Acquisition of property, plant and equipment (23,947) (21,266)
Acquisition of new businesses (net of cash
acquired) (44,206) (23,381)
Other items, net (772) (1,973)
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Net cash used in investing activities (68,925) (46,620)
Cash flows from financing activities:
Proceeds from additional borrowings 118,859 155,715
Reduction in debt (46,549) (100,549)
Purchase of treasury stock (22,154) (22,242)
Dividends (13,256) (13,513)
Proceeds from options exercised and other 6,919 2,477
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Net cash provided by financing activities 43,819 21,888
Effect of exchange rate changes on cash and
cash equivalents 95 (11)
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Net (decrease) increase in cash and cash
equivalents (2,326) 7,216
Cash and cash equivalents at beginning of
period 4,645 1,632
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Cash and cash equivalents at end of period $ 2,319 $ 8,848
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $17,570 $11,488
Income taxes 14,581 11,392
Liabilities assumed in acquisitions $ 1,841 $ -
See accompanying notes to consolidated condensed financial statements.
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UNIVERSAL FOODS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position of the Company as of March 31, 2000 and September
30, 1999 and the results of operations for the three and six month
periods ended March 31, 2000 and 1999 and cash flows for the six month
periods ended March 31, 2000 and 1999. The results of operations for
any interim period are not necessarily indicative of the results to be
expected for the full fiscal year.
2. Refer to the footnotes in the Company's annual financial statements
for the year ended September 30, 1999, for a description of the
accounting policies, which have been continued without change, and
additional details of the Company's financial condition. The details
in those notes have not changed except as a result of normal
transactions in the interim.
3. Expenses are charged to operations in the year incurred. However, for
interim reporting purposes, certain of these expenses are charged to
operations based on an estimate rather than as expenses are actually
incurred.
4. At March 31, 2000 and September 30, 1999, inventories included
finished and in-process products totaling $149,332,000 and
$159,117,000, respectively, and raw materials and supplies of
$72,717,000 and $58,100,000, respectively.
5. During the six months ended March 31, 2000 and 1999, the Company
repurchased 1,125,000 and 1,084,000 shares of common stock for an
aggregate price of $22,154,000 and $24,345,000, respectively.
6. For the six months ended March 31, 2000, depreciation and amortization
were $23,529,000 and $4,640,000, respectively. For the six months
ended March 31, 1999, depreciation and amortization were $21,469,000
and $3,431,000, respectively.
7. The components of comprehensive income for the periods presented are
as follows (in thousands):
Three Months Six Months
Ended March 31 Ended March 31
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2000 1999 2000 1999
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Net earnings $20,349 $19,032 $38,846 $35,907
Other comprehensive
income (loss):
Foreign currency translation
adjustment (2,998) (2,523) (5,686) (1,805)
-------- -------- -------- --------
Comprehensive income $17,351 $16,509 $33,160 $34,102
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There are no reclassification adjustments to be reported.
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8. Operating results by segment for the periods presented are as follows
(in thousands):
Performance Natural Corporate
Products Products and Other Consolidated
-------- -------- --------- ------------
Quarter ended March 31, 2000
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Revenues from external customers $157,125 $65,039 $12,826 $234,990
Intersegment revenues 11,296 3,071 -- 14,367
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Total revenue $168,421 $68,110 $12,826 $249,357
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Operating profit $ 29,047 $10,402 $(5,941) $33,508
Interest expense -- -- 8,067 8,067
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Earning before income taxes $ 29,047 $10,402 $(14,008) $ 25,441
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Quarter ended March 31, 1999
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Revenues from external customers $135,068 $74,201 $ 10,645 $219,914
Intersegment revenues 8,934 2,350 -- 11,284
-------- ------- --------- --------
Total revenue $144,002 $76,551 $ 10,645 $231,198
======== ======= ========= ========
Operating profit $ 24,275 $15,307 $ (4,597) $ 34,985
Interest expense -- -- 6,149 6,149
-------- ------- --------- --------
Earning before income taxes $ 24,275 $15,307 $(10,746) $ 28,836
======== ======= ========= ========
Six months ended March 31, 2000
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Revenues from external customers $306,176 $137,398 $ 26,300 $469,874
Intersegment revenues 21,410 5,689 -- 27,099
-------- ------- --------- --------
Total revenue $327,586 $143,087 $ 26,300 $496,973
======== ======= ========= ========
Operating profit $ 53,962 $ 25,376 $(10,869) $ 68,469
Interest expense -- -- 15,216 15,216
-------- ------- --------- --------
Earning before income taxes $ 53,962 $ 25,376 $(26,085) $ 53,253
======== ======= ========= ========
Six months ended March 31, 1999
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Revenues from external customers $258,737 $157,524 $ 21,188 $437,449
Intersegment revenues 16,320 5,215 -- 21,535
-------- ------- --------- --------
Total revenue $275,057 $162,739 $ 21,188 $458,984
======== ======= ========= ========
Operating profit $ 43,226 $ 32,208 $ (9,240) $ 66,194
Interest expense -- -- 11,906 11,906
-------- ------- --------- --------
Earning before income taxes $ 43,226 $ 32,208 $(21,146) $ 54,288
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9. Effective January 1, 2000, the Company acquired for cash the stock of
Dr. Marcus GmbH, a leading manufacturer of natural colors, located in
Hamburg, Germany. Annual revenue is approximately $14,000,000.
10.On January 27, 2000, the Company acquired for cash the remaining
interest in Monarch Food Colors, L.P., located in High Ridge,
Missouri. The Company previously held a 24% ownership interest in
Monarch as a result of the Company's April 1999 purchase of Pointing
Holdings Ltd. Annual revenues for 1999 were just under $10,000,000.
Monarch manufactures colors for the food, pharmaceutical and cosmetic
industries.
11.On February 29, 2000, the Company refinanced $40,000,000 of senior notes
that were due through December 2009 using proceeds from additional short-
term borrowings.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the three months ended March 31, 2000 was $234,990,000
compared with $219,914,000 in 1999, a 6.9% increase. Revenue for
the six months ended March 31, 2000 was $469,874,000, an increase of
7.4% over the same period in the prior year. The Performance
Products segment reported increased revenue of 17.0% for the second
quarter and 19.1% year-to-date, offsetting lower revenue in the
Natural Products segment. Gross profit margin was up slightly for
both the quarter and year-to-date. Selling and administrative
expenses increased $6,983,000 and $10,376,000 for the quarter and
six months ended March 31, 2000 compared to the same periods in
1999. Most of the increase in selling and administrative expense is
the result of acquisitions and normal inflationary increases.
Selling and administrative expenses were 20.5% of revenue for the
quarter ended March 31, 2000 compared with 18.7% for the same period
in 1999. Year-to-date selling and administrative expenses were
20.4% of revenue compared to 19.6% in 1999. This increase as a
percentage of sales is primarily due to lower revenue in the Yeast
and Dehydrated Products divisions. For the second quarter of fiscal
2000 operating income decreased 4.2% to $33,508,000. For the six
months ended March 31, 2000, operating income increased to
$68,469,000, or 3.4%, from the prior year. The decrease in
operating income for the second quarter is attributable to lower
revenue in the Natural Products segment.
Interest expense for the second quarter increased to $8,067,000
from $6,149,000 for the same period last year. For the six months
ended March 31, 2000 interest expense increased $3,310,000 to
$15,216,000. The increase in interest expense is a result of
higher average borrowings that were used primarily to fund
acquisitions and working capital requirements.
The effective income tax rate was 20.0% and 27.1%, respectively, for
the three and six months ended March 31, 2000. In the second
quarter of fiscal 2000 the Company recorded a tax benefit resulting
from its decision to close its remaining dehydrated operations in
Ireland. The effective tax rate excluding this benefit would have
been approximately 33.5%.
SEGMENT INFORMATION
Performance Products - The Performance Products segment reported
revenue of $168,421,000 for the second quarter of fiscal 2000, a
17.0% increase. Year-to-date revenues increased 19.1% to
$327,586,000. Color division revenue for the six months was up
36.2% from the prior year reflecting contributions from recent
acquisitions and significant volume increases in several major
product categories, including ink-jets and value-added food colors,
as well as cosmetic and natural colors. Revenue for the Flavor
division was up 9.5% over prior year revenue due to higher worldwide
demand for products. Revenue for all Flavor product categories
increased, with outstanding growth in the dairy product category.
The higher revenue resulted in operating income for the Performance
Products segment increasing 19.7% for the second quarter and 24.8%
year-to-date.
Natural Products - Revenue for the Natural Products segment was
$68,110,000 for the second quarter of fiscal 2000, an 11% decrease
from $76,551,000 for the second quarter of last year. Year-to-date
revenue decreased 12.1% to $143,087,000. An 8.6% decrease in
revenue at the Yeast division was due to competitive price
conditions throughout the yeast industry. Revenue for Dehydrated
Products fell due to lower average selling prices and lower revenue
in Europe resulting from the fiscal 1999 closing of the division's
frozen operation in Ireland. Lower revenue and a 70 basis point
decrease in gross margins resulted in segment operating income
declining 21.1% for the six months ended March 31, 2000, compared to
the prior year. Operating income for the second quarter was down
32.0%.
FINANCIAL CONDITION
The current ratio was 1.3 at March 31, 2000 compared with 1.7 at
September 30, 1999. The decrease is primarily the result of
increased short-term borrowings used to fund acquisitions and the
refinancing of $40,000,000 in senior notes.
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Net cash provided by operating activities was $22,685,000 for the
six months ended March 31, 2000, compared to $31,959,000 provided
by operating activities for the six months ended March 31, 1999.
The decrease in cash provided by operating activities in fiscal
2000 was primarily due to increased inventories of dehydrated
products and the timing of benefit plan contributions, interest and
taxes as compared to the prior year.
Net cash used in investing activities was $68,925,000 for the six
months ended March 31, 2000 and $46,620,000 for the six months
ended March 31, 1999. Cash used to acquire new businesses was
$44,206,000 for the six months ended March 31, 2000 compared to
$23,381,000 for the same period in 1999. Also included in
investing activities were capital additions of $23,947,000 and
$21,266,000 during fiscal 2000 and 1999, respectively. The capital
expenditure program reflects the Company's continuing commitment to
maintain and enhance product quality, further automate and upgrade
manufacturing processes, and expand the business through internal
growth.
Net cash provided by financing activities was $43,819,000 for the
six months ended March 31, 2000, compared with $21,888,000 in the
comparable period last year. Proceeds from net borrowings of
$72,310,000 during the first six months of fiscal 2000 were used to
fund acquisitions and purchase treasury stock. Dividends of
$13,256,000 and $13,513,000 were paid during fiscal 2000 and 1999,
respectively.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk
during the second quarter ended March 31, 2000. For additional
information on market risk, refer to page 15 of the Company's 1999
Annual Report.
FORWARD-LOOKING INFORMATION
This document contains forward-looking statements that reflect
management's current assumptions and estimates of future economic
circumstances, industry conditions, Company performance and
financial results. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for such forward-looking statements.
Such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and
other factors that could cause actual events to differ materially
from those expressed in those statements. A variety of factors
could cause the Company's actual results and experience to differ
materially from the anticipated results. These factors and
assumptions include the pace and nature of new product
introductions by the Company's customers; execution of the
Company's acquisition program; industry and economic factors
related to the Company's domestic and international business; and
the outcome of various productivity-improvement and cost-reduction
efforts. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future
changes make it clear that any projected results expressed or
implied therein will not be realized.
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PART II
OTHER INFORMATION
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ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information responsive to this item was provided in, and
incorporated by reference from the Company's quarterly report on
Form 10-Q for the quarter ended December 31, 1999, filed on
February 11, 2000.
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ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. (See Exhibit Index following this report.)
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 2000.
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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.
UNIVERSAL FOODS CORPORATION
Date: May 12, 2000 By: /s/ John L. Hammond
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John L. Hammond, Vice President,
Secretary and General Counsel
Date: May 12, 2000 By: /s/ Michael L. Hennen
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Michael L. Hennen, Vice President
and Controller
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UNIVERSAL FOODS CORPORATION
EXHIBIT INDEX TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
Filed Incorporated by
Exhibit Description Herewith Reference From
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3.1 Universal Foods Corporation Exhibit A to the Registrant's
Amended and Restated Articles Definitive Proxy Statement
of Incorporation adopted filed on Schedule 14A on
January 21, 1999 December 15, 1998
(Commission File No. 1-7626)
3.2 Universal Foods Corporation
Amended and Restated Bylaws,
adopted April 6, 2000 X
27 Financial Data Schedule. X
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