Exhibit 13
[Start Page 16]
Operations Review
Flavor
Continued strong performance internationally and growth in our U.S. food
and beverage flavors offset softness in the U.S. dairy flavors market.
Operating margins increased while revenue for the year was up 4%.
U.S. food flavor and ingredients revenue was up as a result of increasing
penetration of the segment. Formulations for juices, teas, and sports
beverages boosted beverage flavor revenues in the U.S. Dairy flavor
revenue declined due to weaknesses with major customer brands and further
industry consolidation.
U.S. operations were reorganized in the fourth quarter by food, beverage
and dairy industries to capitalize on technical expertise in those markets
and to improve responsiveness to target customers. European operations
were restructured geographically and product lines consolidated.
Strong results in the Pacific Rim and Canada offset a decline in Mexico
due to economic conditions in that country. Development of new fragrance
components for household and personal care items boosted results from our
European aroma chemical business.
We significantly strengthened our research, development and applications
expertise and enhanced processing technology for natural flavors. An
integrated information system was launched which will improve
responsiveness.
Color
Continued improvement in product mix and good international demand drove
profit growth for the year. Revenue was up 5% despite the impact of
economic conditions in Mexico which represents 11% of division sales.
Domestic food and beverage color revenue was up. Sales of value-added
color dispersions rose as we created specialized solutions to meet
customer needs. Fruit and other new-age beverages propelled a significant
increase in revenue from natural colors.
Presence in the U.S. cosmetic and pharmaceutical markets was strengthened
through a restructuring of sales and marketing efforts and the addition of
other ingredients to the product line. Semi-permanent hair dyes boosted
cosmetic color sales in Europe.
The ongoing transformation of the St. Louis, Missouri, manufacturing
complex into the most modern color production facility in the world
continued. A state-of-the-art facility to produce water-insoluble pigments
went into full production and construction of a new warehouse began.
Process technology improvements resulted in more efficient manufacturing,
production of additional raw and intermediate materials as well as fine
chemicals, and more sophisticated extraction of natural colors.
Dehydrated Products
Revenue was up 38% bolstered by European acquisitions; operating profit
improved. Revenue from the existing business was up 11% reflecting strong
U.S. onion and garlic volumes.
Acquisitions in France and The Netherlands, combined with a 1994 purchase
in Ireland, gave us market leadership in the European dehydrated vegetable
business with a broad line of specialty products and opportunities to
enhance exports.
Our product line now includes carrots, peas, beans, celeriac and a variety
of other vegetables in addition to our onion, garlic and chili products.
We also expanded our dehydration technology to include freeze and vacuum
drying to produce premium products with short reconstitution times.
Integration of the European acquisitions began. Sales and marketing have
been centralized. U.S. processing technology and agricultural growing
expertise is being transferred to the region. Vegetables will be grown and
dehydrated in those locations best suited for each product.
Certification to international quality standards (ISO 9002) was achieved
by the U.S. production facility in Turlock, California; laboratories in
Livingston and Greenfield, California; and by our acquired facility in
France. Other European facilities were certified previously.
Red Star Bioproducts
Acquisitions made in the fourth quarter of 1994 significantly boosted 1995
revenue and operating profit in the division. Over half of revenue was
derived from outside of the United States.
The acquisition of Champlain Industries and the Biolux Group significantly
expanded our product lines and international reach. We integrated and
strengthened sales and marketing efforts of the combined group.
With a broadened product line for food processors that includes flavor
enhancers derived from yeast and vegetable proteins, we strengthened our
market position in North America and built upon our new presence in
Europe.
To produce food- and pharmaceutical-grade extracts from spent brewer's
yeast in Europe, we undertook the transfer of proprietary U.S. technology
to our acquired operations. Investment in additional equipment and
capacity is slated to begin in 1996 to meet anticipated demand.
Marketing of yeast extracts as bionutrients was strengthened.
High-performance extracts serve as a source of nutrition for the
production of enzymes, natural flavors and pharmaceuticals, as well as in
biotechnology and environmental clean-up.
Red Star yeast & Products
With solid improvements in operating profit, we widened our advantage as
the leading, low-cost yeast supplier in North America. The boost in
operating margin was the result of recovering prices and successful cost
reduction efforts.
We captured the benefits of restructuring our sales and marketing group
and developed partnerships with distributors to provide reliable service
at lower costs. Capital investments continued to improve the efficiency of
operations.
Significant changes also occurred in the infrastructure of the industry in
1995, with the exit of two yeast producers from the North American market
and a subsequent reduction in capacity.
We are capitalizing on the trend towards automated handling of ingredients
in the wholesale baking industry by taking a leadership position in the
conversion of key customers to bulk yeast delivery systems.
Retail yeast sales continued to get a boost from the bread machine boom.
Promotional activities included joint marketing and couponing with bread
machine and packaged bread mix makers, and the introduction of a line of
Red Star bread machines.
[End Page 16]
[Start Text of Pages 18-21]
Management's Analysis of Operations and Financial Condition
Years ended September 30, 1995, 1994 and 1993
Results of Operations
During 1995, Universal Foods Corporation focused on strengthening its
existing businesses to position the Company for future growth. The
businesses were strengthened through acquisitions, international expansion
and a continued emphasis on its strategy to use process and applications
expertise to move into more advanced and sophisticated product categories.
With the sale of the Frozen Foods business in the 1994 fourth quarter,
1995 was the Company's first full year of operations as a developer and
marketer of high-performance ingredients for foods and other uses. Revenue
from the Company's continuing businesses was $793 million in 1995 compared
to $691 million in 1994.
Net earnings in 1995 were $66.1 million or $2.54 per share compared with
$50.9 million or $1.95 per share in 1994. The 1995 earnings include a net
pretax gain from unusual items of $26.8 million or $.36 per share. The
1994 results include a pretax restructuring charge of $12.1 million or
$.29 per share.
Unusual items in 1995 include a pretax gain from the sale of the Frozen
Foods business of $49.6 million offset by the cost of discontinuing a
product line of $14.1 million and other items totaling $8.7 million.
Approximately 70% of the unusual charges relate to the write-down of
assets to net realizable value.
In the fourth quarter of 1994, the Company recorded a pretax restructuring
charge of $12.1 million. The restructuring includes product line
consolidation in the Company's Flavor Division and the reorganization of
sales, marketing and distribution functions in the Red Star Yeast &
Products Division. The charge included $6 million of severance and
termination benefits and $6.1 million of asset write-offs and other items.
Approximately 50% of the charge was non-cash. Operating cash flows were
used to fund severance and other cash items. The restructuring program was
substantially completed in 1995 and will reduce operating costs in 1996.
Revenue in 1995 was $793 million compared with $930 million in 1994 and
$892 million in 1993. The decrease in revenue in 1995 was caused by the
sale of the Frozen Foods business. In 1995 the Company's ongoing
operations increased revenue by $102 million compared with an increase of
$67 million in 1994. Of the 1995 revenue growth from ongoing operations,
60% was generated by the BioProducts Division due to volume gains from
acquisitions and growth from their existing business. The Dehydrated
Products Division contributed 32% of the gains through growth in the onion
and garlic business bolstered by the European acquisitions. The Flavor and
Color Divisions showed modest revenue increases while Red Star Yeast &
Products was down slightly.
In 1994, the Company was able to continue growth in revenue through
acquisitions, volume increases and market share growth, both domestically
and internationally. Of the 1994 sales growth from ongoing operations, 33%
was generated from the Flavor Division by volume gains through
acquisitions, growth in U.S. food and beverage flavors and strong sales in
the Pacific Rim. The Color Division generated 29% of the revenue growth
through volume gains and a concentration of sales in higher dollar-value
products. The BioProducts Division contributed 22% of the gains through
growth in higher-value products and the benefit of two acquisitions in the
fourth quarter. Modest revenue gains were also achieved by the Dehydrated
Products and Red Star Yeast & Products Divisions.
Sales generated outside the United States is a significant portion of the
Company's revenue. In 1995 foreign sales revenue was $313 million, or
approximately 40% of total revenue. This compares with $232 million or 25%
of total revenue in 1994. In 1993 revenue generated outside the United
States was $184 million, or 21% of total Company revenue. Approximately
58% of the 1995 international sales were in Europe. The Company also
generates revenue in Canada, Mexico and the Pacific Rim. Historically,
changes in foreign currency rates have not been material to revenue and
expenses and management currently expects no significant impact from
foreign currency rate changes in 1996.
The cost of products sold represented 65.3% of revenue in 1995, 66.3% in
1994 and 66.1% in 1993. The 1% decrease in 1995 resulted from improved
product mix and operating efficiencies. In 1994, the cost of products sold
as a percentage of revenue did not change significantly from 1993 as
higher raw material costs in the Frozen Foods Division were offset by
volume efficiencies in the Flavor and BioProducts Divisions.
Despite a decrease in 1995 revenue, selling and administrative expenses
decreased to 21.7% of revenue as compared to 22.0% in 1994 and 1993. The
Company's continued focus on cost reduction resulted in a decrease in
total expenses in 1995.
Operating income, excluding unusual items, decreased $6.3 million in 1995
compared with an increase of $3.4 million in 1994. The 1995 decrease is
primarily attributable to the sale of the Frozen Foods business reduced by
increases in operating income for all other divisions.
The 1994 increase in operating income is attributable to increases in the
Flavor, Color and BioProducts Divisions which offset weak operating
earnings in the Frozen Foods Division due to increased selling costs and
production costs associated with raw material quality.
The effective income tax rate was 42.3% in 1995 compared with 37.3% in
1994 and 37.5% in 1993. The effective tax rate in 1995 was increased by a
higher than normal tax rate on the gain on the sale of the Frozen Foods
business offset by increased tax credits.
The Company uses financial instruments in its management of foreign
currency and interest rate exposures. The Company has procedures in place
to monitor and control financial instruments, and they are not held or
issued for trading purposes. The Company's credit risk related to
financial instruments is considered low.
During 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions," SFAS No. 112 "Employer's Accounting for
Postemployment Benefits," and SFAS No. 109 "Accounting for Income Taxes."
Standards 106 and 112 require the accrual of certain benefit costs during
the years an employee provides service rather than when they are paid. The
combined impact of these accounting changes resulted in a cumulative,
non-cash charge to net earnings in 1993 of $23.6 million or $0.90 per
share.
Liquidity and Financial Position
Cash provided by operating activities was $23.1 million in 1995 and $61.6
million in 1994. The decrease in 1995 versus 1994 was primarily the result
of higher taxes paid resulting from the sale of the Frozen Foods business.
The decrease in cash provided by operating activities of $21.1 million in
1994 versus 1993 was the result of higher working capital requirements
principally related to increased international sales levels.
Cash used for investing activities was $16.3 million in 1995 versus $36
million provided by investing activities in 1994. The 1995 and 1994
amounts include $39 million and $163 million, respectively, of cash
received from the sale of the Frozen Foods business.
Acquisitions of $12.4 million in 1995 included two European dehydrated
vegetable businesses. During 1994, the Company used $65.9 of cash to
acquire four businesses. The acquisitions included Destillaciones Garcia
de la Fuente, S.A., a Spanish flavor and fragrance business; Mallow Foods,
a dehydrator of vegetable products based in Ireland; Champlain Industries
Limited, a Canadian producer of flavor enhancers and savory flavorings;
and the Biolux Group, a European producer of ingredients from brewer's
yeast. In 1994, the Company also entered an agreement with Minn-Dak Yeast
Company, Inc. for contract manufacturing under the Red Star label and to
supply molasses, a major raw material in yeast production. In keeping with
the Company's overall business strategy, these acquisitions are expected
to enhance current manufacturing and distribution capabilities, as well as
expand its abilities in new product development.
Capital expenditures totaled $42.6 million in 1995, compared to $55.1
million in 1994. Both years reflect expenditures for productivity
improvements and plant expansions, principally in the Flavor and Color
Divisions. In 1996, capital expenditures are estimated to be between $50
and $60 million; depreciation should approximate $32 million.
Financing activities used $41.6 million in 1995 compared to $65.6 million
in 1994. In 1995 and 1994, the Company used proceeds from the sale of the
Frozen Foods business to pay down debt and fund acquisitions. In 1995, the
Company refinanced its $55 million revolving loan agreement with a $70
million multicurrency revolving loan agreement. The revolving loan
agreement supports the Company's commercial paper program. The Company has
an agreement in place to issue $40 million of 6.99% senior notes on
December 28, 1995. Proceeds will be used to refinance $20 million of
senior notes coming due in December 1995 and for general corporate
purposes.
The Company has paid uninterrupted quarterly dividends since commencing
public trading in its stock over twenty years ago. In 1995, dividends paid
per share were $0.96 up 4% over $.92 in 1994, which was an increase of 5%
over 1993. As evidence of the Company's continued effort to provide
shareholders with immediate and tangible participation in current
earnings, the dividends paid in 1995 represented 44% of net earnings
before unusual items, exceeding the Company's goal of paying annual cash
dividends between 35% and 40% of earnings. Subsequent to year-end, the
dividend on common shares was increased to an annualized rate of $1.00 per
share, a 4% increase.
The impact of inflation on both the Company's financial position and
results of operations has been minimal and is not expected to adversely
affect 1996 results.
The Company's financial position continues to remain strong, enabling it
to meet cash requirements for operations, capital expansion programs and
dividends to shareholders.
Outlook
Universal Foods Corporation's primary market is the food industry. Despite
a slow-growth environment in the industry, the Company expects to increase
revenue and profits by targeting faster growing niches and successful
customers within each of its businesses, leveraging its process and
applications expertise to move into more advanced and sophisticated
product categories, and capitalizing on geographic expansion.
The Company views consolidations within the food industry as an
opportunity to be among the select number of companies participating in
long-term supplier relationships with its customers. The Company also
expects to continue to increase total revenue provided by exports and
manufacturing operations outside the United States to enhance its position
as a supplier to international customers.
Certain of the Company's businesses and products provide slower, stable
growth while others can be expected to achieve higher levels of
performance. As a supplier of value-added ingredients, the Company can
benefit from new trends in the food and beverage industry. It has the
technology and flexibility to meet changing customer needs as well as to
supply both brand name and private label manufacturers.
Additional opportunities exist in leveraging its expertise into non-food
areas. Currently, about 10% of revenue comes from non-food applications.
These include such diverse, but technically related applications as
cosmetics, personal care, pharmaceuticals and specialty chemicals.
Universal Foods expects to achieve further synergies from its recent
acquisitions in the Red Star BioProducts and Dehydrated Products Divisions
as manufacturing operations and sourcing of materials are rationalized and
enhanced. The transfer of U.S. technology to acquired European operations
will provide for improved processing efficiencies and upgraded product
quality, both of which should improve operating margins in those
operations. In addition, the Company expects to continue to benefit from
the integration of acquired Flavor and Color operations which have been
restructured over the past few years.
To further penetrate the growing market for flavors, flavor enhancers and
colors in Asia/Pacific Rim, the Company will strengthen its regional
presence. Resources and personnel will be devoted to building an
infrastructure for expanded technical and marketing support from a central
location. These activities are considered an investment in long-term
growth and should significantly boost the company's share of revenue from
the region, now 4%.
Other Issues
Environmental Issues: Universal Foods has a proactive environmental
program, taking the initiative rather than waiting for legal mandates to
prod action. The Company provides employee training and encourages active
employee involvement with respect to environmental concerns.
The Company has strengthened its environmental policy, placing emphasis on
process changes to reduce or eliminate environmental discharges, rather
than relying on costly emission control investments to treat waste after
it is produced. For example, the Red Star Yeast & Product Division has
re-engineered its manufacturing process to be more efficient and control
emissions through the same state-of-the-art system. The system, installed
in two facilities, is the culmination of six years of cooperative efforts
with federal and state regulatory agencies.
Equal Opportunity Policy: Universal Foods is an Equal Opportunity
Employer. The Company strives to create a working environment free of
discrimination and harassment with respect to race, sex, color, national
origin, religion, age, disability or being a veteran of the Vietnam era,
as well as to make reasonable accommodations in the employment of
qualified individuals with disabilities.
Corporate Governance: Universal Foods believes it is managed in a way that
is fair to all its shareholders and which allows its shareholders to
maximize the value of their investment by participating in the present and
future growth of the Company.
Independent Board of Directors: The Company's Board of Directors is
composed primarily of independent members. Nominees for board members are
selected to provide a diversity of expertise, experience and achievements
in general business and food-related fields which allow the Board to most
effectively represent the interests of all the Company's shareholders.
Independent Committees: The audit, nominating and compensation and
development committees of the Board are composed of directors who are not
employees of the Company. These committees, as well as the entire Board,
consult with and are advised by outside consultants and experts in
connection with their deliberations as needed.
Executive Compensation: A significant portion of executive compensation is
tied to the Company's success in meeting specific performance goals. The
overall objectives of this policy are to attract and retain the best
possible executive talent, to motivate these executives to achieve the
Company's business strategy goals, to link executive and shareholder
interests through equity-based plans and to provide a program that
recognizes individual contributions.
Scientific Advisory Committee: As an advisory committee to the Board, this
group reviews research and development programs with respect to the
quality and scope of work undertaken, advises the Company on maintaining
product leadership through technological innovation, reports on new
technological trends and suggests new emphasis for research.
Confidential Voting: The Company provides for confidential shareholder
voting by employing an independent tabulation service. Proxy cards which
identify the particular vote of a shareholder are not seen by the Company
unless it is necessary to meet legal requirements or in the event a
shareholder has made a written comment on the card.
Corporate Responsibility: The Company is committed to the health and
well-being of the communities in which it does business. Universal Foods
supports an initiative to return 2% of pretax domestic earnings to its
communities through contributions and in-kind donations of products and
services. The Universal Foods Foundation is a not-for-profit organization
formed by the Company to manage its charitable contributions. Areas that
receive support are education, health and human services, culture and the
arts, and civic and community projects.
[End Pages 18-21]
[Start Page 22]
Consolidated Financial Data
(Dollars in thousands
except per share amounts)
Earnings
Revenue Gross Profit Earnings Per Share
1995
First Quarter $187,724 $65,353 $35,582 $1.37
Second Quarter 191,824 67,171 13,648 .52
Third Quarter 207,542 68,546 14,557 .56
Fourth Quarter 205,881 73,707 2,316 .09
1994
First Quarter $220,791 $76,632 $14,460 $ .55
Second Quarter 237,082 79,437 14,574 .56
Third Quarter 249,467 81,199 15,310 .59
Fourth Quarter 222,523 75,843 6,567 .25
Fourth quarter of 1995 includes unusual charges of $22,713,000.
First quarter of 1995 includes a gain on the sale of the Frozen Foods
business of $49,560,000.
Fourth quarter of 1994 includes a restructuring charge of $12,125,000.
Common Stock Prices and Dividends
Market Price Dividends
High Low Per Share
1995
First Quarter $31.13 $26.13 $.24
Second Quarter 34.25 27.25 .24
Third Quarter 34.00 31.38 .24
Fourth Quarter 34.88 31.00 .24
1994
First Quarter $35.00 $30.38 $.23
Second Quarter 34.38 30.00 .23
Third Quarter 34.25 29.50 .23
Fourth Quarter 33.38 28.88 .23
[End Page 22]
[Start Pages 23-33]
Consolidated Earnings
(In thousands except
per share amounts)
Years ended September 30, 1995 1994 1993
Earnings
Revenue $792,971 $929,863 $891,566
Operating costs and expenses:
Cost of products sold 518,194 616,752 589,735
Selling and administrative
expenses 171,914 203,965 196,102
Unusual items (26,847) 12,125 -
------- -------- --------
663,261 832,842 785,837
------- -------- --------
Operating income 129,710 97,021 105,729
Interest expense 15,107 15,888 15,172
------- -------- --------
Earnings before income taxes and
cumulative effect of accounting
changes 114,603 81,133 90,557
Income taxes 48,500 30,222 33,959
------- -------- --------
Earnings before cumulative
effect of accounting changes 66,103 50,911 56,598
Cumulative effect of accounting
changes (net of income taxes
of $14,137) - - 23,563
------- -------- --------
Net earnings $ 66,103 $ 50,911 $ 33,035
------- -------- --------
Earnings per Common Share
Earnings before cumulative effect
of accounting changes $2.54 $1.95 $2.15
Accounting changes - - (.90)
------- -------- --------
Net earnings $2.54 $1.95 $1.25
------- -------- --------
Weighted average shares 26,061 26,131 26,350
------- -------- --------
See notes to consolidated financial statements.
Consolidated Balance Sheets
(Dollars in thousands)
September 30, 1995 1994
Assets
Current assets:
Cash and cash equivalents $ 8,717 $ 43,430
Trade accounts receivable less
allowance for losses of $3,768
and $3,527 105,847 95,336
Inventories 179,020 156,121
Prepaid expenses and other
current assets 15,230 19,145
Prepaid income taxes 17,550 13,796
-------- --------
Total current assets 326,364 327,828
Investments 18,081 13,944
Other assets 24,083 18,384
Intangibles-at cost, less accumulated
amortization of $27,165 and $26,042 148,654 147,789
Property, Plant and Equipment:
Cost:
Land 15,438 14,396
Buildings 123,739 104,142
Machinery and equipment 308,204 309,847
-------- --------
447,381 428,385
Less accumulated depreciation 187,693 172,666
-------- --------
259,688 255,719
Total assets $776,870 $763,664
-------- --------
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ 7,108 $ 4,527
Accounts payable and accrued
expenses 121,922 127,823
Salaries, wages and withholdings
from employees 11,715 10,330
Income taxes 20,755 28,697
Current maturities on long-term
debt 21,100 20,775
-------- --------
Total current liabilities 182,600 192,152
Deferred income taxes 14,514 17,300
Other deferred liabilities 19,198 19,414
Accrued employee and retiree
benefits 38,100 35,173
Long-term debt 160,678 172,235
Shareholders' Equity:
Common stock par value $.10 a share
authorized 100,000,000 shares;
issued 26,977,437 shares 2,698 2,698
Additional paid-in capital 78,955 80,066
Earnings reinvested in the business 314,883 273,800
-------- --------
396,536 356,564
Less: Treasury stock, 877,961 and
916,615 shares, respectively, at cost 24,770 25,521
Other 9,986 3,653
-------- --------
361,780 327,390
-------- --------
Total liabilities and
shareholders' equity $776,870 $763,664
-------- --------
See notes to consolidated financial statements.
Consolidated Shareholders' Equity
Other
--------------------------------------
Earnings Unearned Foreign
Additional reinvested Treasury Stock Unallocated portion of currency
Common paid-in in the ---------------- ESOP restricted translation
(Dollars in thousands) stock capital business Shares Amount stock stock adjustments
Balances at
September 30, 1992 $ 2,698 $ 80,511 $ 237,095 666,035 $ (16,228) $(3,700) $ (1,088) $ 3,886
Net earnings for the
year 33,035
Cash dividends paid-
$.88 a share (23,191)
Stock options exercised,
net of 11,029 shares
exchanged (883) (72,013) 1,761
Other (16) 21,916 (764)
Restricted stock issued 214 (23,200) 569 (783)
Restricted stock
cancelled 1,162 (31) 13
Amortization of
restricted stock 460
Translation adjustment
for year (9,992)
Reduction of ESOP
loan guarantee 1,500
Balances at
September 30, 1993 2,698 79,826 246,939 593,900 (14,693) (2,200) (1,398) (6,106)
Net earnings for
the year 50,911
Cash dividends paid-
$.92 a share (24,050)
Stock options exercised,
net of 8,940 shares
exchanged (524) (40,811) 1,157
ESOP contribution 690 (80,000) 1,980
Other 16 8,226 (263)
Restricted stock issued 58 (19,400) 541 (599)
Restricted stock
cancelled 4,000 (125) 56
Amortization of
restricted stock 452
Translation adjustment
for year 3,942
Purchase of treasury
stock 450,700 (14,118)
Reduction of ESOP
loan guarantee 2,200
Balances at
September 30, 1994 2,698 80,066 273,800 916,615 (25,521) - (1,489) (2,164)
Net earnings for
the year 66,103
Cash dividends paid-
$.96 a share (25,020)
Stock options exercised,
net of 81,593 shares
exchanged (1,180) (107,661) 2,744
Other 3 11,607 (412)
Restricted stock issued 66 (13,400) 376 (442)
Restricted stock
cancelled 5,800 (198) 81
Amortization of
restricted stock 515
Translation adjustment
for year (6,487)
Purchase of treasury
stock 65,000 (1,759)
Balances at
September 30, 1995 $2,698 $78,955 $314,883 877,961 $(24,770) - $(1,335) $(8,651)
See notes to consolidated financial statements.
Consolidated Cash Flows
(Dollars in thousands)
Years ended September 30, 1995 1994 1993
Cash Flows from Operating
Activities
Net earnings $66,103 $50,911 $33,035
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Cumulative effect of
accounting changes - - 23,563
Depreciation 28,206 31,012 29,644
Amortization 6,435 5,366 5,409
Provision for losses on
accounts receivable 1,356 971 988
Gain on sale of property,
plant and equipment and
other productive assets (41,423) (185) (167)
Changes in operating assets
and liabilities (net of
effects from acquisition
and disposition of businesses):
Accounts receivable (6,543) (10,588) (4,299)
Inventories (11,109) (5,082) 1,498
Prepaid expenses, income
taxes and other assets (3,935) (3,366) (9,886)
Accounts payable and accrued
expenses (4,719) (3,312) (4,073)
Salaries, wages and
withholdings from employees 828 (3,158) 845
Income taxes (8,194) 16,488 2,285
Deferred income taxes (5,881) (4,889) 2,976
Other liabilities 2,009 (12,526) 933
------- -------- -------
Net cash provided by operating
activities 23,133 61,642 82,751
------- -------- -------
Cash Flows from Investing
Activities
Acquisition of property,
plant and equipment (42,562) (55,071) (36,363)
Acquisition of new businesses-
net of cash acquired (12,431) (65,909) (9,614)
Proceeds from disposition of
business and sale of
property, plant and equipment
and other productive assets 43,317 163,807 589
Increase in investments (4,574) (6,827) (2,225)
------- ------- -------
Net cash (used in) provided
by investing activities (16,250) 36,000 (47,613)
------- ------- -------
Cash Flows from Financing
Activities
Proceeds from additional
borrowings 11,948 42,629 27,521
Reduction in debt (27,920) (70,415) (39,240)
Purchase of treasury stock (1,759) (14,118) -
Dividends (25,020) (24,050) (23,191)
Proceeds from options exercised
and other equity transactions 1,155 386 98
------- ------- -------
Net cash used in financing
activities (41,596) (65,568) (34,812)
------- ------- -------
Net (decrease) increase in cash
and cash equivalents (34,713) 32,074 326
Cash and cash equivalents at
beginning of year 43,430 11,356 11,030
------- ------- -------
Cash and cash equivalents at end
of year $ 8,717 $43,430 $11,356
------- ------- -------
Cash paid during the year for:
Interest $15,352 $14,829 $16,234
Income taxes 53,500 33,500 29,080
See notes to consolidated financial statements.
[Start page 27]
Notes to Consolidated Financial Statements
(tabular dollars in thousands except per share amounts)
note a
Summary of Significant Accounting Policies:
Nature of Business The Company manufactures and distributes flavors,
colors, flavor enhancers and other bioproducts, dehydrated products and
yeast for foods and other applications.
Consolidated Subsidiaries and Investments in Other Companies Substantially
all of the Company's subsidiaries are wholly-owned and their accounts are
consolidated into the Company's financial statements. The Company also has
minority interests in certain foreign companies for which it reports
earnings when cash is received for technical assistance fees and
dividends.
Cash and Cash Equivalents The Company considers all highly liquid
investments with maturities of three months or less when acquired to be
cash equivalents. The effect of the Company's foreign operations on cash
flows is not material.
Inventories Inventories are stated at the lower of cost or market. Cost is
determined using primarily the first-in, first-out (FIFO) method.
Depreciation Depreciation is provided over the estimated useful lives of
plant and equipment using the straight-line method for financial
reporting. Accelerated methods are used for income tax purposes.
Intangibles The excess cost over net assets of businesses acquired and
other intangibles, principally formulae and supply contracts, are being
amortized using the straight-line method over periods ranging up to 40
years. The Company continually evaluates whether events or circumstances
have occurred which would indicate the carrying value may not be
recoverable or the useful life warrants revision. When factors indicate
that goodwill and other intangible assets should be evaluated for possible
impairment, the Company analyzes the future recoverability of the asset
using an estimate of the related undiscounted future cash flows of the
business, and recognizes any adjustment to its carrying value on a current
basis.
Financial Instruments The Company uses financial instruments in its
management of foreign currency and interest rate exposures. Financial
instruments are not held or issued for trading purposes. Non-U.S. dollar
financing transactions may be used as hedges of long-term investments or
intercompany loans in the corresponding currency. Foreign currency gains
and losses on the hedges of long-term investments are recorded as foreign
currency translation adjustments included in stockholders' equity. Gains
and losses related to hedges of intercompany loans offset the gains and
losses on intercompany loans and are recorded in net income. Interest rate
exchange agreements are effective at modifying the Company's interest rate
exposures. Net interest is accrued as either interest receivable or
payable with the offset recorded in interest expense. The Company also
uses short-term forward exchange contracts for hedging purposes. Realized
and unrealized gains and losses on these instruments are deferred and
recorded in the carrying amount of the related hedged asset, liability or
firm commitment.
Translation of Foreign Currencies Assets and liabilities of foreign
operations are translated into United States dollars at current exchange
rates. Income and expense accounts are translated into United States
dollars at average rates of exchange prevailing during the year.
Adjustments resulting from the translation of financial statements of
international units are included as foreign currency translation
adjustments in the equity section of the balance sheets. Net transaction
(gains) losses of $140,000 in 1995, ($697,000) in 1994 and $162,000 in
1993, are included in earnings before income taxes.
note b
Acquisitions, Divestiture and Unusual Items:
In 1995, the Company recorded unusual items resulting in a net pretax gain
of $26,847,000 ($9,247,000 after tax, or $.36 per share). Unusual items
include the gain on the sale of the Frozen Foods business of $49,560,000,
offset by the costs of discontinuing a product line of $14,047,000 and
other items which include the cost of a patent infringement judgment and
the write-down of intangible assets totaling $8,666,000.
In 1995, the Company finalized the sale of its Frozen Foods business and
amended the Stock Purchase Agreement ("Agreement") with ConAgra, Inc. The
business was effectively transferred to ConAgra on August 1, 1994. Under
the amended Agreement, ConAgra agreed to acquire 100% of the stock of
Universal Frozen Foods Company for $202,000,000 cash. The sale of the
Frozen Foods business resulted in a pretax gain of $49,560,000.
In 1995, the Company reviewed its options relating to the BioVentures
product line. Based on the Company's comprehensive review, during the
fourth quarter of 1995, the Company decided to sell or discontinue this
product line. Accordingly, the Company evaluated the ongoing value of the
plant and equipment and other assets associated with this product line.
Based on the evaluation, the Company recorded a charge of $14,047,000 to
adjust the assets to estimated fair value less costs of disposal.
In August 1995, the Court of Appeals for the Federal Circuit Court
affirmed a judgment against the Company for patent infringement. The
Company has accrued $4,500,000 for the judgment. The Company is in the
process of petitioning the Supreme Court to review the finding of the
Court of Appeals for the Federal Circuit Court.
In 1995, the Company acquired the common stock of two foreign dehydrated
vegetable processors for $12,798,000 cash. On an unaudited pro-forma
basis, the effects of the acquisitions were not significant to the
Company's 1995 results of operations.
In July 1994, the Company acquired all of the outstanding stock of
Champlain Industries Limited, a manufacturer of savory flavorings and
flavor enhancers, for $61,744,000 of which $37,258,000 was paid in cash
and the remaining purchase price is payable in equal installments of
$12,243,000 on June 30, 1995 and June 30, 1996. Also during 1994, the
Company purchased several other businesses for an aggregate purchase price
of $33,302,000. The excess of the total aggregate cost of all the 1994
acquisitions over the fair value of net assets acquired of approximately
$61,413,000 is being amortized by the straight-line method over 40 years.
On an unaudited pro forma basis, the effects of the acquisitions were not
significant to the Company's 1994 results of operations.
The above acquisitions have been accounted for as purchases and,
accordingly, their results of operations have been included in the
financial statements since their respective dates of acquisition.
In the fourth quarter of 1994, the Company recorded a pretax restructuring
charge of $12,125,000 ($7,600,000 after tax, or $.29 per share). The
restructuring includes product line consolidation in the Company's Flavor
Division and the reorganization of sales, marketing and distribution
functions in the Red Star Yeast & Products Division.
The charge included $6,000,000 of severance and termination benefits and
$6,125,000 of asset write-offs and other items. Approximately 50% of the
charge was non-cash. Operating cash flows were used to fund severance and
other cash items. The restructuring program was substantially completed in
1995.
note c
Inventories:
Inventories include finished and in-process products totaling $119,885,000
and $101,046,000 at September 30, 1995 and 1994, respectively, and raw
materials and supplies of $59,135,000 and $55,075,000 at September 30,
1995 and 1994, respectively.
note d
Debt:
Long-term debt consists of the following obligations:
1995 1994
Payable in U.S. Dollars:
9.06% senior notes due
through July 2004 $ 46,000 $ 50,000
8.60% senior notes due
through November 2001 12,600 14,800
7.59% senior notes due
through December 2008 30,000 30,000
6.70% senior notes due
through December 2009 20,000 20,000
6.38% senior notes due
through December 2003 20,000 20,000
6.21% senior notes due
December 1995 20,000 20,000
Commercial paper supported by
long-term loan commitments 8,215 1,031
Various mortgage notes, capital
lease obligations and other notes 6,536 2,311
Notes and credit facilities payable in
foreign currencies 18,427 34,868
------- -------
181,778 193,010
Current maturities 21,100 20,775
------- -------
Total long-term debt $160,678 $172,235
======== ========
In June 1995, the Company refinanced the $55,000,000 revolving loan
agreement, replacing the facility with a $70,000,000 multicurrency
revolving loan agreement entered into with a group of five banks. Under
the agreement, the Company has the option to elect to have interest rates
determined based upon the LIBOR rate plus margin or the certificate of
deposit rate plus margin. A commitment fee is payable on the unused amount
of credit. The facility matures in June 2000. Uncommitted lines of credit
totalling $144,000,000 are also available to the Company from several
banks, some of which participate in the revolver.
In June 1995, the Company entered into an agreement to issue on December
28, 1995, 6.99% senior notes totalling $40,000,000. The notes fully mature
in December 2007 with mandatory principal prepayments of $10,000,000 in
December 2005, $10,000,000 in December 2006 and the remaining $20,000,000
due in December 2007. Proceeds will be used for general corporate purposes
and to refinance the $20,000,000 of 6.21% senior notes due in December
1995 which have been reclassified to long-term debt.
The Company issues short-term commercial paper obligations supported by
committed lines of credit included in the Revolving Loan Agreement. The
Company intends to exercise its option to borrow under the commitment
prior to its expiration date. Consequently, at September 30, 1995 and
September 30, 1994, $8,215,000 and $1,031,000 have been reclassified to
long-term debt, respectively.
The aggregate amounts of maturities on long-term debt each year for the
five years subsequent to September 30, 1995 are as follows: 1996,
$21,100,000; 1997, $7,943,000; 1998, $7,521,000; 1999, $9,537,000 and
2000, $18,173,000.
Substantially all of the loan agreements contain restrictions concerning
working capital, borrowings, investments and dividends. Earnings
reinvested of $29,737,000 at September 30, 1995 were unrestricted.
Short-term borrowings consist of loans to foreign subsidiaries denominated
in local currencies which are borrowed under various foreign uncommitted
lines of credit.
note e
Financial Instruments and Risk Management:
Interest Rate Swaps To reduce interest rate risk and lower its cost of
borrowing, the Company has entered into interest rate swaps. As of
September 30, 1995 and 1994 the notional amount of interest rate swaps
outstanding was $20,000,000 and $40,000,000, respectively. The interest
rate swaps require the Company to pay variable and receive fixed interest
rates and the swaps outstanding at September 30, 1995 mature in 1996.
Currency Swaps To manage foreign exchange risk, the Company has entered
into currency swaps. The currency swaps of $22,358,000 and $17,055,000 at
September 30, 1995 and 1994, respectively, effectively hedge long-term
Canadian dollar-denominated investments and mature in 1997 and 1998.
Forward Exchange Contracts The Company uses forward exchange contracts to
reduce the effect of fluctuating foreign currencies on short-term foreign
currency-denominated intercompany transactions and other known foreign
currency exposures. At September 30, 1995 and 1994, the Company had
foreign exchange contracts, generally with maturities of one year or less,
of $43,175,000 and $11,607,000, respectively.
Concentrations of Credit Risk Counterparties to currency exchange and
interest rate swaps consist of large major international financial
institutions. The Company continually monitors its positions and the
credit ratings of the counterparties involved and limits the amount of
credit exposure to any one party. While the Company may be exposed to
potential losses due to the credit risk of non-performance by these
counterparties, losses are not anticipated. Concentrations of credit risk
with respect to accounts receivable are limited due to the large number of
customers, generally short payment terms, and their dispersion across
geographic areas.
Fair Values The carrying amounts of cash and equivalents, trade
receivables, investments, accounts payable, and short-term borrowings
approximated fair value as of September 30, 1995 and 1994.
The fair value of the Company's long-term debt, including
current maturities, is estimated using discounted cash flows based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements. The fair value at September 30, 1995 and 1994 was
approximately $190,000,000.
note f
Shareholders' Equity:
In 1988, the Board of Directors adopted a common stock shareholder rights
plan ("Right") which entitles each shareholder of record to receive a
dividend distribution of common stock upon the occurrence of certain
events. The Right becomes exercisable and tradeable ten days after a
person or group acquires 20% or more, or makes an offer to acquire 20% or
more, of the Company's outstanding common stock. When exercisable, each
Right entitles the holder to purchase $100 worth of Company common stock
for $50. Further, upon the occurrence of a merger or transfer of more than
50% of the Company's assets, the Right entitles the holder to purchase
common stock of the Company or common stock of an "acquiring company"
having a market value equivalent to two times the exercise price of the
Right. At no time does the Right have any voting power. The Right is
subject to redemption by the Company's Board of Directors for $.01 per
Right at any time prior to the date which a person or group acquires
beneficial ownership of 20% or more of the Company's common stock or
subsequent thereto at the option of the Board of Directors. The Rights
expire on September 8, 1998.
In January 1994, the shareholders approved the 1994 Employee Stock Plan
(the "1994 Plan") under which the Company may issue up to 1,200,000 shares
of common stock pursuant to the exercise of stock options or the grant of
restricted stock. Of the total number, up to 250,000 shares may be awarded
as restricted stock. The 1994 Plan also authorizes the grant of up to
400,000 stock appreciation rights (SARs) in connection with stock options.
The Company also has shares available under the previously approved 1991
Stock Plan for Executive employees (the "1990 Plan").
The Plans have awarded shares of restricted stock which become freely
transferable at the end of the period of restriction-five years. During
the period of restriction, the employee has voting rights and is entitled
to receive all dividends and other distributions paid with respect to the
stock.
Shares
-------------------------------------
Outstanding
Reserved Options Available
Balances at September 30, 1992
($10.591 to $36.125) 1,765,553 1,202,803 562,750
Granted ($33.75 to $34.75) - 311,600 (311,600)
Restricted stock awarded (23,200) - (23,200)
Exercised ($10.591 to $34.125) (83,042) (83,042) -
Cancelled - (16,950) 16,950
Balances at September 30, 1993
($11.833 to $36.125) 1,659,311 1,414,411 244,900
Authorized under the 1994 Plan 1,200,000 - 1,200,000
Granted ($30.875 to $32.25) - 339,900 (339,900)
Restricted stock awarded (19,400) - (19,400)
Exercised ($11.833 to $29.625) (49,751) (49,751) -
Cancelled - (104,250) 104,250
Balances at September 30, 1994
($11.833 to $36.125) 2,790,160 1,600,310 1,189,850
Granted ($28.25 to $33.00) - 372,350 (372,350)
Restricted stock awarded (13,400) - (13,400)
Exercised ($11.833 to $33.75) (189,254) (189,254) -
Cancelled - (167,516) 167,516
Balances at September 30, 1995
($11.833 to $36.125) 2,587,506 1,615,890 971,616
At September 30, 1995, 964,865 shares were exercisable at prices ranging
from $11.833 to $36.125.
The Company is authorized to issue 250,000 shares of cumulative preferred
stock.
note g
Retirement Plans:
The Company primarily provides benefits under defined contribution plans
including a savings plan and ESOP. The savings plan covers substantially
all domestic salaried and certain non-union hourly employees and provides
for matching contributions up to 4% of each employee's salary. The ESOP
covers substantially all domestic employees not covered by a defined
benefit plan and provides for contributions of 6% to 10% of each
employees' salary. Total expense for the Company's defined contribution
plans was $5,205,000, $8,112,000 and $7,364,000 in 1995, 1994 and 1993,
respectively.
note h
Postretirement and Postemployment Benefits:
The Company provides certain health insurance benefits to eligible
domestic retirees and their dependents. Effective October 1, 1992, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 106 (SFAS No. 106) "Employers' Accounting for Postretirement
Benefits Other Than Pensions," whereby the cost of postretirement benefits
is accrued during an employee's active service period. Prior to October 1,
1992, benefits were charged to operations in the period the claims were
paid. The Company elected to immediately recognize the transition
obligation for future benefits to be paid relating to past employee
services in fiscal 1993.
The postretirement benefit expense includes the following components:
1995 1994 1993
Service cost $1,139 $1,586 $1,784
Interest cost on accumulated
benefit obligation 1,733 1,977 2,118
Amortization of prior
service cost (278) (352) -
Other (15) - 160
------ ------ ------
Postretirement benefit expense $2,579 $3,211 $4,062
The Company continues to fund benefit costs on a pay-as-you-go basis, with
retirees paying a portion of the costs.
The status of the Company's postretirement benefit obligation at September
30, 1995 and 1994 was:
1995 1994
Actuarial present value of accumulated
benefit obligation:
Retirees $ 7,935 $ 8,287
Fully eligible active plan
participants 2,343 2,253
Other active plan participants 12,702 11,506
------- -------
Accumulated benefit obligation 22,980 22,046
Unrecognized prior service cost 4,999 5,277
Unrecognized gain 3,949 2,662
------- -------
Postretirement benefits accrued $31,928 $29,985
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation at September 30, 1995 and 1994 were 7.0%
and 8.0%, respectively. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 13% in
1995, 14% in 1994, gradually declining to 7% by the year 2001 and
remaining at that level thereafter. A one percentage point increase in the
assumed cost trend rate would increase the accumulated postretirement
benefit obligation as of September 30, 1995 by approximately $4,697,000
and the aggregate of the service and interest cost components of the 1995
postretirement benefit expense by $591,000.
During 1994, the Company had a curtailment of accumulated postretirement
benefits relating to employees of the Frozen Foods business which was sold
effective July 31, 1994. The gain resulting from the curtailment has been
included with the gain on the sale of Frozen Foods (see Note b).
In addition, effective October 1, 1992, the Company adopted Financial
Accounting Standards No. 112 (SFAS No. 112), "Employers' Accounting For
Postemployment Benefits." This standard requires employers to accrue the
cost of benefits to former or inactive employees after employment but
before retirement. The adoption of SFAS Nos. 106 and 112, resulted in a
non-cash pretax charge of $37,700,000 as of October 1, 1992 and has been
reflected as a cumulative effect of accounting changes.
note i
Income Taxes:
Effective October 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109).
The cumulative and fiscal 1993 effect of the accounting change was not
material. SFAS No. 109 requires the Company to compute deferred income
taxes based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized.
The provision for income taxes, including the income tax effect of
accounting changes, is as follows:
1995 1994 1993
Currently payable:
Federal $33,181 $36,759 $23,394
State 5,636 6,684 4,082
Foreign 8,305 5,754 3,954
Deferred (benefit):
Federal 1,021 (16,592) (10,057)
State 210 (2,862) (1,521)
Foreign 147 479 (30)
------- ------- -------
$48,500 $30,222 $19,822
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following:
1995 1994
Deferred tax assets:
Inventory valuation $ (5,728) $ (5,690)
Employee and retiree benefits (18,345) (16,432)
Sale of assets, plant closings
and asset write-downs (3,985) (6,874)
Other (18,862) (13,910)
-------- --------
Gross deferred tax assets (46,920) (42,906)
Valuation allowance 5,587 6,112
-------- --------
Total deferred tax assets $(41,333) $(36,794)
======== ========
Deferred tax liabilities:
Property, plant and equipment $ 24,772 $ 21,234
Other 13,525 19,064
-------- --------
Total deferred tax liabilities $ 38,297 $ 40,298
-------- --------
Net deferred tax (assets) liabilities $ (3,036) $ 3,504
======== ========
The effective tax rate differs from the statutory Federal income tax rate
of 35% as described below:
1995 1994 1993
Taxes at statutory rate $40,114 $28,397 $18,500
State income taxes, net of
Federal income tax benefit 3,800 2,484 1,665
Tax credits (3,100) (1,980) (531)
Sale of business 5,900 - -
Other, net 1,786 1,321 188
------- ------- -------
Provision for income taxes $48,500 $30,222 $19,822
------- ------- -------
Effective tax rate 42.3% 37.3% 37.5%
Earnings before income taxes and cumulative effect of accounting changes
are summarized as follows:
1995 1994 1993
United States $ 92,043 $63,079 $80,483
Foreign 22,560 18,054 10,074
-------- ------- -------
$114,603 $81,133 $90,557
Domestic income taxes have not been provided on undistributed earnings of
foreign subsidiaries which are considered to be permanently invested. If
undistributed foreign earnings were to be remitted, foreign tax credits
would substantially offset any resulting domestic tax liability.
note j
Contingencies:
The Company is involved in various claims and litigation arising in the
normal course of business. In the opinion of management and Company
counsel, the ultimate resolution of these actions will not materially
affect the consolidated financial position, results of operations, or cash
flows of the Company.
note k
Foreign Operations:
Summarized information relating to the Company's domestic and foreign
operations are as follows:
1995 1994 1993
Revenue:
United States $516,683 $745,487 $752,335
Europe 174,931 104,375 74,646
Other foreign 101,357 80,001 64,585
-------- -------- --------
$792,971 $929,863 $891,566
======== ======== ========
Operating Income:
United States $ 98,816 $ 76,315 $ 91,477
Europe 14,912 8,060 4,315
Other foreign 15,982 12,646 9,937
-------- -------- --------
$129,710 $ 97,021 $105,729
======== ======== ========
Identifiable Assets:
United States $439,634 $482,934 $569,840
Europe 238,497 175,539 102,603
Other foreign 98,739 105,191 57,550
-------- -------- --------
$776,870 $763,664 $729,993
======== ======== ========
Transfers of product between geographic areas are not significant.
Operating income is total revenue less operating expenses. Identifiable
assets include all assets identified with the operations in each
geographic area, and an allocable portion of intangible assets recorded by
the parent.
Management's Responsibility for Financial Statements
The management of Universal Foods Corporation is responsible for
preparation of the financial statements and other financial information
included in this annual report. The financial statements have been
prepared in accordance with generally accepted accounting principles.
It is management's policy to maintain a control-conscious environment
through an effective system of internal accounting controls. These
controls are supported by the careful selection of competent and
knowledgeable personnel and by the communication of standard accounting
and reporting policies and procedures throughout the Company. These
controls are adequate to provide reasonable assurance that assets are
safeguarded against material loss or unauthorized use and to produce the
records necessary for the preparation of reliable financial information.
There are limits inherent in all systems of internal control based on the
recognition that the costs of such systems should be related to the
benefits to be derived. Management believes that its systems provide this
appropriate balance.
The control environment is complemented by the Company's internal audit
function, which evaluates the adequacy of the controls, policies and
procedures in place, as well as adherence to them, and recommends
improvements for implementation when applicable. In addition, the
Company's independent auditors, Deloitte & Touche LLP, have developed an
understanding of the Company's accounting and financial controls and have
conducted such tests as they considered necessary to render an opinion on
the Company's financial statements.
The Board of Directors pursues its oversight role with respect to the
Company's financial statements through the Audit Committee, which is
composed solely of outside directors. The Audit Committee recommends
selection of the Company's auditors and meets with them and the internal
auditors to review the overall scope and specific plans for their
respective audits and results from those audits. The Committee also meets
with management to review overall accounting policies relating to the
reporting of financial results. Both the independent auditors and internal
auditors have unrestricted access to the Audit Committee.
Guy A. Osborn
Chairman and
Chief Executive Officer
Michael Fung
Vice President and
Chief Financial Officer
Independent Auditors' Report
To the Shareholders and Board of Directors of Universal Foods Corporation:
We have audited the accompanying consolidated balance sheets of Universal
Foods Corporation and subsidiaries as of September 30, 1995 and 1994, and
the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the three years in the period ended September 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies as of
September 30, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended September 30,
1995, in conformity with generally accepted accounting principles.
As discussed in Note h to the consolidated financial statements, effective
October 1, 1992, the companies changed their methods of accounting for
postretirement benefits other than pensions and postemployment benefits to
conform with Statements of Financial Accounting Standards No. 106 and
No. 112, respectively.
Deloitte & Touche LLP
Milwaukee, Wisconsin
November 9, 1995
[End Pages 23-33]
[Start Page 34]
Five Year Review
(Dollars in thousands
except per share data) 1995 1994 1993 1992 1991
Summary of Operations
Revenue $792,971 100.0% $929,863 100.0% $891,566 100.0% $883,438 100.0% $834,329 100.0%
Operating costs and
expenses:
Cost of products sold 518,194 65.3 616,752 66.3 589,735 66.1 593,006 67.1 557,917 66.9
Selling and administra-
tive expenses 171,914 21.7 203,965 22.0 196,102 22.0 187,727 21.3 170,137 20.4
Unusual items (26,847) (3.4) 12,125 1.3 - - 19,300 2.2 - -
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
663,261 83.6 832,842 89.6 785,837 88.1 800,033 90.6 728,054 87.3
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Operating income 129,710 16.4 97,021 10.4 105,729 11.9 83,405 9.4 106,275 12.7
Interest expense 15,107 1.9 15,888 1.7 15,172 1.7 16,423 1.9 13,975 1.7
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Earnings before income taxes
and cumulative effect of
accounting changes 114,603 14.5 81,133 8.7 90,557 10.2 66,982 7.5 92,300 11.0
Income taxes 48,500 6.2 30,222 3.2 33,959 3.9 25,286 2.8 34,520 4.1
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Earnings before cumulative
effect of accounting
changes 66,103 8.3 50,911 5.5 56,598 6.3 41,696 4.7 57,780 6.9
Cumulative effect of
accounting changes net
of tax - - - - 23,563 2.6 - - - -
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Net earnings $ 66,103 8.3% $ 50,911 5.5% $ 33,035 3.7% $ 41,696 4.7% $ 57,780 6.9%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Earnings per common share
before cumulative effect
of accounting changes 2.54 1.95 2.15 1.57 2.18
Net earnings per common
share 2.54 1.95 1.25 1.57 2.18
---- ----- ---- ---- ----
Other Related Data
Earnings per common share
excluding unusual items
and cumulative effect of
accounting changes 2.18 2.24 2.15 2.02 2.18
Dividend per common
share 0.96 0.92 0.88 0.84 0.76
Average shares
outstanding 26,061,269 26,130,783 26,350,346 26,608,350 26,537,996
Book value per common
share 13.89 12.60 11.60 11.57 10.99
Price range per common
share 26.13-34.88 28.88-35 30.25-37.25 26.75-39.88 28.63-40.38
Share price at
September 30 34.88 29.63 33.88 31.38 38.25
Research and development
expenditures 28,558 32,217 28,460 26,597 25,211
Capital expenditures 42,562 55,071 36,363 44,982 54,750
Depreciation 28,206 31,012 29,644 28,144 24,153
Amortization 6,435 5,366 5,409 4,894 5,252
Total assets 776,870 763,664 729,993 702,130 653,176
Long-term debt 160,678 172,235 171,907 167,746 152,213
Shareholders' equity 361,780 327,390 305,066 303,174 292,002
Return on average
shareholders' equity
before cumulative
effect of accounting
change 18.5% 16.1% 18.7% 13.8% 21.2%
Total debt to total capital 34.3% 37.6% 38.7% 40.4% 36.9%
Employees 4,104 4,063 5,450 5,400 5,924
The 1995 results include a pretax gain of $49.6 million relating to the
sale of the Frozen Foods business and the cost of discontinuing a product
line and other unusual items totaling $22.8 million. The 1994 results
include a pretax restructuring charge of $12.1 million. The 1992 results
include a pretax restructuring charge of $19.3 million relating to the
Frozen Foods business.
[End Page 34]