CONFORMED ============================================================================== 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 ---------------- 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) 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5304 ----------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (414) 271-6755 -------------- 433 East Michigan Street, Milwaukee, Wisconsin 53202 - ------------------------------------------------------------------------------ (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 April 30, 2000 - --------------------------------------- ----------------------------- Common Stock, par value $0.10 per share 49,656,470 shares ==============================================================================
UNIVERSAL FOODS CORPORATION INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> 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 </TABLE>
PART I FINANCIAL INFORMATION
UNIVERSAL FOODS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) <TABLE> <CAPTION> March 31, September 30, 2000 1999 ---------- ---------- <S> <C> <C> 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 ---------- ---------- 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 ---------- ---------- 693,265 681,763 Less accumulated depreciation 307,486 291,455 ---------- ---------- 385,779 390,308 ---------- ---------- TOTAL ASSETS $1,174,437 $1,142,708 ========== ========== 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 ---------- ---------- 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 ---------- ---------- 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 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 436,518 431,582 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,174,437 $1,142,708 ========== ========== </TABLE> See accompanying notes to consolidated condensed financial statements. -1-
UNIVERSAL FOODS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (In thousands except per share amounts) <TABLE> <CAPTION> Three Months Six Months Ended March 31 Ended March 31 -------------- -------------- 2000 1999 2000 1999 ----- ----- ----- ----- <S> <C> <C> <C> <C> 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 ====== ====== ====== ====== Diluted 49,777 51,278 50,121 51,507 ====== ====== ====== ====== Earnings per common share: Basic $ .41 $ .38 $ .78 $ .71 ====== ====== ====== ====== Diluted $ .41 $ .37 $ .78 $ .70 ====== ====== ====== ====== Dividends per common share $.1325 $.1325 $ .265 $ .265 ====== ====== ====== ====== </TABLE> See accompanying notes to Consolidated Condensed Financial Statements. -2-
UNIVERSAL FOODS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Six Months Ended March 31 ----------------- 2000 1999 ---- ---- <S> <C> <C> 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) -------- -------- 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 -------- -------- Net cash provided by financing activities 43,819 21,888 Effect of exchange rate changes on cash and cash equivalents 95 (11) -------- -------- Net (decrease) increase in cash and cash equivalents (2,326) 7,216 Cash and cash equivalents at beginning of period 4,645 1,632 -------- -------- Cash and cash equivalents at end of period $ 2,319 $ 8,848 ======== ======== 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 $ - </TABLE> See accompanying notes to consolidated condensed financial statements. -3-
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): <TABLE> <CAPTION> Three Months Six Months Ended March 31 Ended March 31 -------------- -------------- 2000 1999 2000 1999 ---- ---- ---- ---- <S> <C> <C> <C> <C> 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 ======== ======== ======== ======== </TABLE> There are no reclassification adjustments to be reported. -4-
8. Operating results by segment for the periods presented are as follows (in thousands): <TABLE> <CAPTION> Performance Natural Corporate Products Products and Other Consolidated -------- -------- --------- ------------ Quarter ended March 31, 2000 ---------------------------- <S> <C> <C> <C> <C> Revenues from external customers $157,125 $65,039 $12,826 $234,990 Intersegment revenues 11,296 3,071 -- 14,367 -------- ------- --------- -------- Total revenue $168,421 $68,110 $12,826 $249,357 ======== ======= ========= ======== Operating profit $ 29,047 $10,402 $(5,941) $33,508 Interest expense -- -- 8,067 8,067 -------- ------- --------- -------- Earning before income taxes $ 29,047 $10,402 $(14,008) $ 25,441 ======== ======= ========= ======== Quarter ended March 31, 1999 ---------------------------- 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 ------------------------------- 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 ------------------------------- 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 ======== ======= ========= ======== </TABLE> 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. -5-
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. -6-
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. -7-
PART II OTHER INFORMATION -----------------
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. -8-
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. -9-
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 -------------------------------- John L. Hammond, Vice President, Secretary and General Counsel Date: May 12, 2000 By: /s/ Michael L. Hennen --------------------------------- Michael L. Hennen, Vice President and Controller -10-
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 - ------- ----------- -------- --------------- - - 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 -11-