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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: June 30, 1994
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
UNIVERSAL FOODS CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-0561070
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
433 East Michigan Street, Milwaukee, Wisconsin 53202
(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 271-6755
NONE
(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
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 June 30, 1994
Common Stock, par value $0.10 per share 26,044,040 shares
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UNIVERSAL FOODS CORPORATION
INDEX
Page No.
PART I, FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets
- June 30, 1994 and September 30, 1993. 1
Consolidated Condensed Statements of Earnings
- Three and Nine Months Ended
June 30, 1994 and 1993. 2
Consolidated Condensed Statements of Cash Flows
- Nine Months Ended June 30, 1994 and 1993. 3
Notes to Consolidated Condensed
Financial Statements. 4
Management's Discussion and Analysis of
Results of Operations, Financial Condition
and Forward Looking Information 6
PART II, OTHER INFORMATION
Item 5, Other Information 8
Item 6, Exhibits and Reports on Form 8-K. 13
Signatures. 14
PART I
FINANCIAL INFORMATION
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($000's Omitted)
June 30
1994 September 30
ASSETS (Unaudited) 1993
CURRENT ASSETS:
Cash and cash equivalents $ 46,369 $ 11,356
Trade accounts receivable 115,708 94,339
Inventory:
Finished and in-process products 131,855 114,178
Raw materials and supplies 47,857 60,404
Prepaid expenses and other current assets 40,025 31,841
------- -------
TOTAL CURRENT ASSETS 381,814 312,118
INVESTMENTS AND OTHER ASSETS 36,070 28,502
INTANGIBLES 109,862 107,381
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land and buildings 136,681 131,709
Machinery and equipment 382,305 340,446
-------- --------
518,986 472,155
Less accumulated depreciation 219,005 190,163
------- --------
299,981 281,992
-------- --------
TOTAL ASSETS $827,727 $729,993
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 73,288 $ 14,945
Accounts payable, accrued expenses
and other liabilities 137,424 142,980
Federal and state income taxes 15,719 11,035
Current maturities on long-term debt 4,827 5,663
-------- -------
TOTAL CURRENT LIABILITIES 231,258 174,623
DEFERRED INCOME TAXES 20,127 20,557
OTHER DEFERRED LIABILITIES 19,722 20,571
ACCRUED EMPLOYEE AND RETIREE BENEFITS 40,139 37,269
LONG-TERM DEBT 194,132 171,907
SHAREHOLDERS' EQUITY:
Common stock 2,698 2,698
Additional paid-in capital 80,179 79,826
Earnings reinvested in the business 273,224 246,939
-------- --------
356,101 329,463
Less: Treasury stock, at cost 25,992 14,693
Other 7,760 9,704
-------- --------
322,349 305,066
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $827,727 $729,993
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($000's Omitted Except Per Share Amounts)
(Unaudited)
Three Months Nine Months
Ended June 30 Ended June 30
1994 1993 1994 1993
Total Revenue $249,467 $228,036 $707,340 $654,073
Cost of Products Sold 168,268 151,751 470,072 433,112
------- ------- ------- -------
Gross Profit 81,199 76,285 237,268 220,961
Selling and Administrative
Expenses 52,816 49,815 154,899 143,428
-------- -------- -------- --------
Operating Income 28,383 26,470 82,369 77,533
Interest Expense 4,170 3,699 11,702 11,506
-------- -------- -------- --------
Earnings Before Income Taxes 24,213 22,771 70,667 66,027
Income Taxes 8,903 8,431 26,323 24,760
-------- -------- -------- --------
Earnings Before Accounting Changes 15,310 14,340 44,344 41,267
Accounting Changes --- --- --- 23,563
-------- -------- -------- --------
Net Earnings $ 15,310 $ 14,340 $ 44,344 $ 17,704
======== ======== ======== ========
Weighted Average Number of
Common Shares Outstanding 26,040,000 26,357,000 26,159,000 26,344,000
========== ========== ========== ==========
Earnings Per Common Share:
Earnings Before Accounting
Changes $ .59 $ .55 $1.70 $1.57
Accounting Changes .-- .-- .-- (.90)
----- ----- ----- ----
Net Earnings $ .59 $ .55 $1.70 $ .67
----- ----- ----- -----
Dividends Per Common Share $ .23 $ .22 $ .69 $ .66
----- ----- ----- -----
See accompanying Notes to Consolidated Condensed Financial Statements.
UNIVERSAL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($000's Omitted)
(Unaudited)
Nine Months Ended
June 30,
1994 1993
Cash flows from operating activities:
Net earnings $ 44,344 $ 17,704
Adjustments to reconcile net earnings to cash
provided by (used in) operating activities:
Cumulative effect of accounting changes --- 23,563
Depreciation and amortization 29,913 27,112
Changes in operating assets and liabilities
and other adjustments (24,406) (30,055)
------- -------
Net cash provided by operating activities 49,851 38,324
Cash flows from investing activities:
Acquisition of property, plant and equipment (40,645) (26,113)
Acquisition of new businesses (15,043) (9,637)
Proceeds from sale of property, plant and equipment
and other productive assets 480 344
Increase in investments (6,867) (2,044)
------- -------
Net cash used in investing activities (62,075) (37,450)
Cash flows from financing activities:
Proceeds from additional borrowings 135,373 33,544
Reductions in long-term debt (56,460) (19,499)
Proceeds from options exercised and dividend
reinvestment 502 299
Purchase of treasury stock (14,118) ---
Dividends paid (18,060) (17,390)
------- --------
Net cash provided by (used in) financing
activities 47,237 (3,046)
Net increase (decrease) in cash and cash equivalents 35,013 (2,172)
Cash and cash equivalents at beginning of period 11,356 11,030
------- -------
Cash and cash equivalents at end of period $ 46,369 $ 8,858
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 10,703 $ 10,735
Income taxes 22,284 23,252
See accompanying Notes to Consolidated Condensed Financial Statements.
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 as of June 30,
1994 and September 30, 1993, and the results of operations and
cash flows for the three and nine month periods ended June 30,
1994 and 1993. 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, 1993, 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 annual estimate rather than as
expenses are actually incurred.
4. On December 15, 1993, the Company issued $20,000,000 of 6.38%
senior notes, due in four annual principal payments of $5,000,000
beginning December 15, 2000, and $20,000,000 of 6.70% senior
notes, due in nine annual principal payments of $2,222,000
beginning December 15, 2001.
5. During the nine months ended June 30, 1994, the Company
repurchased 450,700 shares of common stock for an aggregate price
of $14,118,000.
6. For the nine months ended June 30, 1994, depreciation and
amortization were $25,532,000 and $4,381,000, respectively. For
the nine months ended June 30, 1993, depreciation and amortization
were $23,084,000 and $4,028,000 respectively.
7. The Company acquired Destillaciones Garcia de la Fuente, S.A.
(DGF), a specialty flavor and fragrance company, effective January
1, 1994. The acquisition has been accounted for as a purchase
and, accordingly, the results of operations and financial position
of DGF are reflected in the Consolidated Condensed Financial
Statements from the effective date of the acquisition. The impact
of the acquisition on the financial statements of the Company is
not material.
8. The Company acquired Campbell Foods PLC, a processor of air and
freeze-dried vegetables, effective June 8, 1994. The acquisition
has been accounted for as a purchase and, accordingly, the results
of operation and financial position of this business are reflected
in the Consolidated Condensed Financial Statements from the
effective date of the acquisition. The impact of the acquisition
on the financial statements of the Company is not material.
9. The Company acquired Champlain Industries Limited (Champlain), a
manufacturer of savory flavorings and flavor enhancers, effective
July 7, 1994. The acquisition will be accounted for as a purchase
and the results of operations and financial position of Champlain
will be reflected in the Consolidated Condensed Financial
Statements from the effective date of the acquisition. The impact
of the acquisition on the financial statements of the Company is
not material.
10. Effective August 1, 1994, the Company sold for cash its Frozen
Foods Division to ConAgra, Inc. The agreement provides for a
purchase price which reflects a premium over book value. See Item
5 of this Report for a discussion of and pro forma financial
statements relating to this transaction.
11. Cash and cash equivalents at June 30, 1994 includes funds
available to finance our on-going acquisition program including
the purchase of Champlain Industries Limited, as discussed in Note
9.
12. Effective October 1, 1992, the Company adopted the provisions of
Statement of Accounting Standards No. 106 (SFAS No. 106),
"Employer's Accounting for Postretirement Benefits Other Than
Pensions" and Statement of Accounting Standards No. 112 (SFAS No.
112), "Employer's Accounting for Postemployment Benefits", whereby
the cost of postretirement and postemployment benefits is accrued
during an employee's active service period rather than expensed as
incurred. The after-tax transition effect of adopting SFAS No.
106 and 112 on an immediate recognition basis, as of October 1,
1992, reduced fiscal 1993 first quarter earnings by $23,563,000,
or $.90 per share. In addition, application of SFAS No. 106 and
112 decreased the nine months ended June 30, 1993 Earnings Before
Accounting Changes by $1,957,000, net of tax, or $.07 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS, FINANCIAL CONDITION
AND FORWARD LOOKING INFORMATION
RESULTS OF OPERATIONS:
Third quarter revenue from operations of $249,467,000 represents a
9.4% increase from the same quarter in 1993. Revenue for the
first nine months of 1994 was $707,340,000, a 8.1% increase from
$654,073,000 for 1993.
The gross profit margin for the third quarter was 32.5% compared
with 33.5% for the same quarter last year. For the first nine
months, the gross margin decreased slightly to 33.5% from 33.8%.
Selling and administrative expenses decreased to 21.2% of revenue
during the third quarter compared with 21.8% during the same
period last year. For the first nine months of fiscal 1994,
selling and administrative expenses remained unchanged at 21.9%.
Interest expense increased in the third quarter to $4,170,000 from
$3,699,000 for the third quarter of 1993. Interest expense for
nine months has slightly increased to $11,702,000 in 1994 from
$11,506,000 for 1993. The increase in interest expense is
primarily attributed to higher average outstanding debt, partially
offset by lower interest rates compared with the same periods last
year.
The income tax provision for the third quarter and the first nine
months of fiscal 1994 exceeded the 34% statutory rate primarily as
a result of the state income tax provision and the non-tax
deductibility of certain expenses such as the amortization of
intangibles.
FINANCIAL CONDITION:
At June 30, 1994, the current ratio was 1.7:1, a decrease from
1.8:1 at September 30, 1994. The net working capital at June 30,
1994 was $150,556,000. This is an increase of $13,061,000 from
the net working capital of $137,495,000 at September 30, 1993.
For the nine months ended June 30, 1994, the net cash used in
investing activities was $62,075,000. Capital expenditures, the
most sizeable investing activity, were $40,645,000 for this
period. 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. Major projects currently
underway include an expansion of the confection room at the Flavor
Divisions Amboy Plant and an upgrade of the software used by the
North American operations of the Flavor Division. Also included
in investing activities is the acquisition of new businesses of
$15,043,000. Further details of these acquisitions can be found
in Notes 7 - 9 on pages 4 and 5.
Net cash provided by financing activities was $47,237,000 for the
nine months ended June 30, 1994. Included in financing activities
are proceeds from additional borrowings of $135,373,000 and
reductions of debt of $56,460,000 for the nine month period. The
net increase in debt was used primarily to fund capital
expenditures, purchase of treasury stock and the acquisition of
new businesses noted above.
FORWARD LOOKING INFORMATION:
Management is pleased with the operating and financial results of
the Company despite the slow growth in the food industry. The
Company is focused on improving unit sales, product mix and
productivity and anticipates continued growth in operating
earnings in the fourth quarter.
PART II
OTHER INFORMATION
Item 5. OTHER INFORMATION
a. Sale of Stock
On August 1, 1994, the company consummated the sale of its frozen
foods business (the Division ) to ConAgra, Inc., a Delaware
corporation ( ConAgra ). The transaction took the form of the
sale of the stock of Universal Frozen Foods Co., a subsidiary of
the Company (the Subsidiary ), pursuant to the Stock Purchase
Agreement, dated as of April 15, 1994, among ConAgra, the Company
and Universal Holding, Inc. (the Stock Purchase Agreement ).
There is no material relationship between ConAgra and the Company
or any of its affiliates, directors or officers or any of their
associates.
The Division produced frozen potato products for U.S. and
international markets. It was headquartered in Boise, Idaho and
operated processing facilities in Idaho, Oregon and Washington,
employing approximately 2,000 people.
The cash purchase price for the Division consisted of base
consideration that was paid at the closing and earnout
consideration that is payable over a five year period. The base
consideration was $163 million, subject to certain adjustments
based upon the net equity of the Division as of the closing date.
The earnout consideration of approximately $57 million is an
annual amount payable for each of the five years following the
closing. The amount of the earnout consideration is 50% of the
sales margin for the business (based upon net sales of the
business less direct manufacturing costs) subject to the following
maximum amounts applicable to each such year: (a) $16 million
for the first year; (b) $14 million for the second year; (c) $12
million for the third year; (d) $10 million for the fourth year;
and (e) $5 million for the fifth year. The earnout consideration
is payable in quarterly installments during each year. In
connection with the transaction, the Company also agreed to make
an election under Section 338(h) (10) of the Internal Revenue Code
of 1986 to treat the sale of stock of the Subsidiary as a sale of
all of the assets of the Subsidiary for federal income tax
purposes and state income tax purposes.
The foregoing summary description of the terms of the transaction
is qualified in its entirety by reference to the Stock Purchase
Agreement, attached as Exhibit 2 hereto, which exhibit is
incorporated by reference herein.
The foregoing description is included herein in lieu of reporting
the transaction on a Form 8-K current Report.
b. Financial Statements and Pro Forma Information
The following unaudited Pro Forma Condensed Consolidated Balance
Sheet as of June 30, 1994 and the Pro Forma Condensed Consolidated
Statements of Income for the 9 month period then ended and the
year ended September 30, 1993 give effect to the sale of the
Company s frozen foods business. The adjustments related to the
Pro Forma Condensed Consolidated Balance Sheet assume the
transaction was consummated at June 30, 1994, while the
adjustments to the Pro Forma Condensed consolidated Income
Statements assume the transaction was consummated at the beginning
of the period presented. The actual sale occurred on August 1,
1994. The pro forma information is based on the historical
financial statements for the Company which have been adjusted to
reflect the discontinued operations. These unaudited Pro Forma
Condensed Consolidated Financial Statements are not necessarily
indicative of the results that actually would have occurred if the
sale had been in effect as of and for the periods presented, or
what may be achieve by the Company's continuing operations in the
future. The unaudited Pro Forma Condensed Consolidated Financial
Statements should be reviewed in conjunction with the company s
historical financial statements and notes thereto, contained in
the company s annual report on form 10-K for the year ended
September 30, 1993.
UNIVERSAL FOODS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1994
(000'S OMITTED)
(UNAUDITED)
(a)
Consolidated Pro Forma Pro Forma
6-30-94 Adjustments Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 46,369 $ 73,000 (b) $119,369
Trade accounts receivable 115,708 (21,867) 93,841
Inventory:
Finished and in-process products 131,855 (37,270) 94,585
Raw materials and supplies 47,857 (6,300) 41,557
Prepaid expenses and other current assets 40,025 (9,186) 30,839
--------- --------- --------
TOTAL CURRENT ASSETS 381,814 (1,623) 380,191
INVESTMENTS AND OTHER ASSETS 36,070 (514) 35,556
INTANGIBLES 109,862 (16,952) 92,910
PROPERTY PLANT AND EQUIPMENT:
Cost:
Land and buildings 136,681 (29,104) 107,577
Machinery and equipment 382,305 (103,755) 278,550
------- --------- --------
518,986 (132,859) 386,127
Less accumulated depreciation 219,005 (47,604) 171,401
------- --------- --------
299,981 (85,255) 214,726
-------- --------- --------
TOTAL ASSETS
$827,727 $(104,344) $723,383
======== ========= ========
CURRENT LIABILITIES:
Short-term borrowings $ 73,288 $ (68,000)(b) $5,288
Accounts payable, accrued expenses and
other liabilities 137,424 (16,529) 120,895
Federal and state income taxes 15,719 14,490 (c) 30,209
Current maturities on long-term debt 4,827 4,827
-------- --------- -------
TOTAL CURRENT LIABILITIES 231,258 (70,039) 161,219
DEFERRED INCOME TAXES 20,127 20,127
OTHER DEFERRED LIABILITIES 19,722 19,722
ACCRUED EMPLOYEE AND RETIREE BENEFITS 40,139 (2,305) 37,834
LONG-TERM DEBT 194,132 (34,000)(b) 160,132
SHAREHOLDERS' EQUITY
Common Stock 2,698 2,698
Additional paid-in capital 80,179 80,179
Earnings reinvested in the business 273,224 2,000 275,224
-------- --------- ---------
356,101 2,000 358,101
Less: Treasury stock, at cost 25,992 25,992
Other 7,760 7,760
-------- --------- ---------
322,349 2,000 324,349
-------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $827,727 $(104,344) $723,383
======== ========= =========
<FN>
(a) - Universal Foods consolidated is adjusted by Universal Frozen Foods balances as of
June 30, 1994 on a line by line basis.
(b) - As of the date of this balance sheet, the estimated proceeds would have been
approximately $175 million and is used to reduce short term and long term debt with
the balance reflected as an increase in cash.
(c) - Estimated income tax liability resulting from the sale transaction.
UNIVERSAL FOODS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1994
(000's omitted, except Per Share Data)
(UNAUDITED)
(a)
Consolidated Pro Forma Pro Forma
6-30-94 Adjustments Consolidated
Total Revenue $707,340 $(214,085) $493,255
Cost of Goods Sold 470,072 (159,814) 310,258
-------- -------- --------
Gross Profit 237,268 (54,271) 182,997
Selling and Administrative
Expenses 154,899 (40,132) 114,767
-------- -------- --------
Operating Income 82,369 (14,139) 68,230
Interest Expense 11,702 (2,231)(b) 9,471
-------- --------- --------
Earnings Before Income Taxes 70,667 (11,908) 58,759
Income Taxes 26,323 (4,436) 21,887
-------- --------- --------
Earnings Before Accounting
Changes $ 44,344 $ (7,472) $ 36,872
======== ========= ========
Weighted Average Number of
Common Shares Shares
Outstanding 26,159 26,159
======== ========
Earnings Per Common Share:
Earnings Before Accounting
Changes $1.70 $1.41
===== =====
(a) - Universal Foods consolidated is adjusted by Universal Frozen Foods
for the period ending June 30, 1994 on a line by line basis.
(b) - Reflects the interest expense impact related to Universal Foods
reduction of average short term debt of approximately
$67 million for the period ending June 30, 1994.
UNIVERSAL FOODS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1993
(000's omitted, except Per Share Data)
(UNAUDITED)
(a)
Consolidated Pro Forma Pro Forma
9-30-93 Adjustments Consolidated
Total Revenue $891,566 $(266,572) $624,994
Cost of Goods Sold 589,735 (192,866) 396,869
-------- --------- --------
Gross Profit 301,831 (73,706) 228,125
Selling and Administrative
Expenses 196,102 (49,951) 146,151
-------- --------- --------
Operating Income 105,729 (23,755) 81,974
Interest Expense 15,172 (2,328)(b) 12,844
-------- -------- --------
Earnings Before Income Taxes 90,557 (21,427) 69,130
Income Taxes 33,959 (8,035) 25,924
-------- -------- --------
Earnings Before Accounting
Changes $ 56,598 $ (13,392) $ 43,206
======== ======== ========
Weighted Average Number of
Common Shares Shares
Outstanding 26,350 26,350
===== =======
Earnings Per Common Share:
Earnings Before Accounting
Changes $2.15 $1.64
===== =====
(a) - Universal Foods consolidated is adjusted by Universal Frozen Foods
for the period ending September 30, 1993.
(b) - Reflects the interest expense impact related to Universal Foods
reduction of average short term debt of approximately
$66 million for the period ending September 30, 1993.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 2 - Stock Purchase Agreement, dated as of April 15,
1994, among ConAgra, Inc., Universal Foods
Corporation and Universal Holding, Inc.
(b) No reports on Form 8-K were required to be filed during the
quarter ended June 30, 1994.
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: August 12, 1994 By: /s/ Terrence M. O'Reilly
Terrence M. O'Reilly, Vice President,
Secretary and General Counsel
Date: August 12, 1994 By: /s/ John E. Heinrich
John E. Heinrich, Vice President and Chief
Financial Officer
EXHIBIT INDEX
Exhibit No. Description
2 Stock Purchase Agreement, dated as of April 15, 1994, among
ConAgra, Inc., Universal Foods Corporation and Universal
Holding, Inc.