-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H0D9aaqcNeZqfjlO4nTNmMvfz+4XzP2v+KZTzm/3nj4BcdsJ9jld+L7Prtq5ew4Q bZSFmR1eTIpF2w/7wsCyxg== 0000950124-97-006655.txt : 19971230 0000950124-97-006655.hdr.sgml : 19971230 ACCESSION NUMBER: 0000950124-97-006655 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL FOODS CORP CENTRAL INDEX KEY: 0000310142 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 390561070 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07626 FILM NUMBER: 97745308 BUSINESS ADDRESS: STREET 1: 433 EAST MICHIGAN ST CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142716755 MAIL ADDRESS: STREET 1: PO BOX 737 CITY: MILWAUKEE STATE: WI ZIP: 53201 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1997 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 No.) incorporation or organization) 433 EAST MICHIGAN STREET MILWAUKEE, WISCONSIN 53202 - ---------------------------------------- -------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (414) 271-6755 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT Title of each class Name of each exchange on which registered - ---------------------------------------- ----------------------------------------------- Common Stock, $.10 par value New York Stock Exchange, Inc. Associated Common Share Purchase Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of December 5, 1997: 27,210,916 shares of Common Stock, $.10 par value, including 1,685,850 treasury shares. Aggregate market value of Universal Foods Corporation Common Stock, excluding treasury shares, held by non-affiliates as of December 5, 1997 was $1,039,585,000. In determining who are affiliates of the 2 Company for purposes of this computation, it is assumed that directors, officers, and any persons filing a Schedule 13D or Schedule 13G are "affiliates" of the Company. The characterization of such directors, officers, and other persons as affiliates is for purposes of this computation only and should not be construed as a determination or admission for any other purpose that any of such persons are, in fact, affiliates of the Company. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Universal Foods Corporation Annual Report to Shareholders for the fiscal year ended September 30, 1997 (Parts I, II and IV of Form 10-K) 2. Portions of Universal Foods Corporation Notice of Annual Meeting and Proxy Statement of the Company dated December 16, 1997 (Parts II and III of Form 10-K) 3 PART I ITEM 1. BUSINESS -- FOOD AND OTHER INDUSTRIES Universal Foods Corporation (the "Company") was incorporated in 1882 in Wisconsin. Its principal executive offices are located at 433 East Michigan Street, Milwaukee, Wisconsin 53202, telephone (414) 271-6755. The Company is a technology-driven industrial marketer of high-performance components that add functionality to foods, cosmetics, pharmaceuticals and other products. The Company's technical expertise and application know-how make it unique among suppliers that serve these industries. Using its core technology as a base, the Company is committed to moving into higher-growth businesses, both in food segments and non-food applications. Principal products of the Company include aroma chemicals and flavors for foods, beverages, dairy/ice cream products, personal care and household items; certified and natural colors for foods, cosmetics, specialty inks and pharmaceuticals; dehydrated vegetable products sold primarily to food processors; a diverse line of yeast products for commercial baking and other uses; and flavor enhancers and other bioproducts for foods, feed, pharmaceuticals and commercial use. The Company exited the frozen potato business during fiscal 1994. The following material from the Universal Foods Corporation 1997 Annual Report to Shareholders is incorporated by reference: "Management's Analysis of Operations and Financial Condition" on Pages 13 through 17. Note 1 - "Summary of Significant Accounting Policies" on Pages 23 and 24. Note 10 - "Foreign Operations" on Page 29. DESCRIPTION OF BUSINESS Flavor The Company conducts its food flavor business through its wholly-owned subsidiary Universal Flavor Corporation ("Universal Flavors"). Universal Flavors manufactures and supplies flavors, ingredient systems, and aroma chemicals to the dairy, food processor, beverage, personal care and household products industries worldwide. It operates plants located in New Jersey, Illinois, Indiana and Missouri. Universal Flavors has seven additional plants in Canada, Mexico, Belgium, the United Kingdom, Italy, and Spain. Products are sold primarily through a direct sales force with some assistance from food brokers. In September 1997, the Company announced plans to consolidate its flavor operations. During fiscal 1998, the Company will close its flavor facility in New Jersey and transfer production and technical laboratories to Indiana. As part of the consolidation, the Company also announced additional investments in its Flavor division, including two expanded product development and research facilities to provide increased customer support and product creation. 1 4 Strategic acquisitions have expanded Universal Flavors' product lines and processing capabilities. The January 1994 acquisition of Destillaciones Garcia de la Fuente, S.A. (DGF), based in Granada, Spain, provided a depth of expertise for expanding into aroma chemicals, which are used to create flavors as well as fragrances. In July 1994, Universal Flavors, through its international subsidiary, purchased its partner's 51% interest in Azteca en Ambesco de Mexico S.A. de C.V. This purchase brought beverages and dairy flavor product lines to the Company's existing Mexican flavor business. During 1998, the Company will be integrating its BioProducts and Flavor divisions, which have highly complementary product lines. The combined divisions will have a broad, distinctive and fully integrated product offering, ranging from savory flavor components to fully formulated flavor systems for dairy, beverage, and processed food applications. Color The Company, through its subsidiary Warner-Jenkinson Company, Inc.("W-J"), is the world's leading manufacturer of certified food colors. It also has a growing share of the international natural color market. Its products, sold under the Warner-Jenkinson name, are used by producers of beverages, bakery products, processed foods, confections, pet foods, cosmetics and pharmaceuticals. The Company became a supplier of ink-jet inks for the ink-jet printer market with the acquisition of Tricon Colors, Inc., during the second quarter of fiscal 1997. W-J's major manufacturing facilities are located in Missouri. Cosmetic and pharmaceutical colors, ink-jet inks and other high-purity organic dyes are produced in New Jersey. Other manufacturing facilities are located in Canada, Mexico, the United Kingdom, and the Netherlands. Domestically, the W-J product line is sold principally by the Company's own sales force. International sales are made through distributors and directly by the Company. During 1993, the Company acquired Spectrum S.A. de C.V., a Mexican food color distributor. In September 1997, the Company strengthened its presence in Latin America by acquiring certain assets of the food color business of Pyosa, S.A., which is located in Monterrey, Mexico. Dehydrated Products The Company's subsidiary, Rogers Foods, Inc. ("Rogers"), is the third largest producer of dehydrated onion and garlic products in the United States. These items are marketed under the trademark ROGERS FOODS and private labels. Rogers also produces and distributes chili powder, chili pepper, paprika, dehydrated vegetables such as parsley, celery and spinach, and oleoresin (a liquid chili pepper used as a highly concentrated coloring agent) under the brand name CHILI PRODUCTS. Rogers is one of the largest producers of these products. Domestically, Rogers sells dehydrated products directly and through brokers to food manufacturers for use as ingredients and also for repackaging under private labels for sale to the retail market and to the food service industry. Rogers' U.S. processing facilities are located in California. During 1994 and 1995, the Company acquired three European dehydrated vegetable processors. The acquisitions give the Company a base from which to expand its dehydrated products business internationally. These acquisitions also expanded the Company's dehydrated technology base to include freeze drying and frozen vegetables, puffed drying and vacuum drying. 2 5 Vegetables processed using these technologies are premium products because they have a short reconstitution time, a benefit in today's convenience foods such as soups, snacks and other dry foods. In Europe, the Dehydrated Products division operates as UNIVERSAL DEHYDRATES. Facilities are located in Ireland, the Netherlands, and France. The Company believes it is the leading dehydrator of specialty vegetables in Europe. Yeast The Company's Red Star Yeast & Products division specializes in the production of compressed, cream, active dry and nutritional yeast products for sale to commercial and retail customers under the RED STAR trademark. In addition, active dry yeast is sold to food processors for inclusion in bread, pizza and similar mixes. The compressed, active dry and fast-acting dry yeast products of the Company bearing the RED STAR and RED STAR QUICK RISE trademarks are sold in ready-to-use packages to retail stores and in two pound packages for food service use. The Company believes it is the largest North American supplier of yeast to the commercial bakery market and the second largest supplier to the retail market. The business also exports yeast and allied products throughout the world and has investments in companies operating yeast and allied product facilities in 9 offshore locations, two of which are wholly-owned subsidiaries. The Company receives revenues in the form of dividends and technical assistance fees from the non-wholly owned foreign affiliates. Company-owned domestic yeast plants are located in Wisconsin, Maryland, Texas and California. The Company distributes its products largely through its own sales force. In 1994, the Company purchased a 20% interest in and entered into an agreement with Minn-Dak Yeast Company, Inc., located in North Dakota, for contract manufacturing under the Red Star label and to supply molasses, a major raw material in yeast production. BioProducts During 1994, the Company created the Red Star BioProducts division from its existing Red Star Specialty Products division and two acquisitions. Red Star Specialty Products had been established as a small, stand-alone profit center in 1989 out of the Company's yeast group. With internally developed expertise, the group focused on highly technical product development using extracts from brewer's yeast and baker's yeast. The 1994 acquisitions of Champlain Industries Limited in Canada and The Biolux Group in Belgium expanded the division's product lines and international presence. The expanded Red Star BioProducts division serves the food and feed processing and bionutrient industries with the broadest line of natural extracts and specialty flavors. It supplies various natural extracts from brewer's yeast, baker's yeast, vegetable proteins, meat, casein and other naturally occurring materials. These specialty extracts function primarily as savory flavor and texture modifiers and enhancers in the food 3 6 processing industries. The nutritional and functional properties of Red Star BioProducts extracts are the basis for their use in enzyme and pharmaceutical production. The Company believes Red Star BioProducts is the leading supplier of yeast extracts and second in supply of hydrolyzed vegetable proteins (HVPs) in the U.S. market. The products are marketed under a number of Red Star trademarks. The division operates production facilities in Wisconsin, Michigan and New Jersey. Foreign manufacturing is conducted in Canada, the United Kingdom, Belgium and France. More than half of the division's products are produced outside of the United States. Its products are marketed through technically trained sales personnel directly to customers and through distributors in some international markets. As part of the integration of the Flavor and BioProducts operations, the Company plans to close its New Jersey BioProducts facility in 1998. Asia Pacific In 1997, the Company established a separate operating division in the Pacific Rim to leverage the Company's diverse business base in this region. The Asia Pacific division, headquartered in Singapore, manages sales, marketing and technical functions previously directed by U.S.-based divisions. Regional technical teams create high-quality products that appeal to local and regional preferences. The division, which offers customers the full line of Company products under one unified name, does business as Universal Foods Corporation (Asia Pacific). Manufacturing operations are located in Australia, Hong Kong, New Zealand, and the Philippines. Frozen Foods On August 1, 1994, the Company completed the sale of Universal Frozen Foods Company, a wholly owned subsidiary of the Company ("Frozen Foods") to ConAgra, Inc. The sale was a major step in Universal Foods' strategic transition to focus on high-performance ingredients and ingredient systems for foods and other products. Frozen Foods produced frozen potato products for U.S. and international markets, selling most of its product to the food service industry. It had a share of the retail market with branded and private labeled products. It operated processing facilities in Idaho, Oregon and Washington. RESEARCH AND DEVELOPMENT/QUALITY ASSURANCE The Company believes that its competitive advantages and ability to develop and deliver high-performance products are based on its technical expertise in the processing and application of its technology for foods and other products. Therefore, the Company provides an above-industry average investment in research, development and quality assurance, and is committed to the training and development of its people. The Company employs approximately 400 people in research and quality assurance. Over the past five years, expenditures as a percentage of revenue have increased from 3.2% in 1993 to 3.8% in 1997. Expenditures in 1997 were $31.5 million compared with $29.8 million in 1996 and $28.6 million in 1995. The Company's commitment to research and product development continues at a level significantly higher than the food industry average. Of the aforesaid amounts, 4 7 approximately $19.7 million in 1997, $21.4 million in 1996 and $19.3 million in 1995 were research and development expenses as defined by the Financial Accounting Standards Board. As part of its commitment to quality as a competitive advantage, the Company has undertaken efforts to achieve certification to the requirements established by the International Organization for Standardization in Geneva, Switzerland, through its ISO 9000 series of quality standards. Red Star BioProducts believes it was the first North American ingredients supplier to receive ISO 9002 certification. Facilities currently certified include Universal Flavors facilities in Spain, Italy and the United Kingdom; Red Star BioProducts facilities in the United States, the United Kingdom and Canada; Warner-Jenkinson facilities in the United States, the Netherlands and United Kingdom; and Dehydrated Products facilities in the United States, Ireland, France and the Netherlands. COMPETITION All Company products are sold in highly competitive markets. Some competitors have more product lines and greater resources than the Company has. Since the Company and its competitors use similar methods of production, marketing and delivery, the Company competes primarily on process and applications expertise, quality and service. The Company competes in many market niches where price is not the most important variable. Universal Foods competes with only a few companies across multiple ingredient lines, and is more likely to encounter competition specific to an individual business. With the evolution of food processing as a global business, competition to supply the industry has taken on an increasingly global nature. In the worldwide flavor market, the Company's principal competition comes from other U.S. and European producers. Building an international presence is a key goal for Universal Flavors as demonstrated by acquisitions. W-J is the leading producer of certified colors in North America and Western Europe. State-of-the-art equipment, the latest process technology, a Color Service Laboratory unequaled in the industry, and the most complete range of synthetic and natural colors constitute the basis for its market leadership position. Acquisitions have resulted in product and process technology synergies as well as a growing international presence. In 1997, W-J expanded its business into the ink-jet inks market with the acquisition of Tricon Colors, Inc. For Dehydrated Products, acquisitions in Europe have provided international expansion and enhanced export opportunities for U.S.-based operations. Red Star Yeast & Products competes primarily in the North American market and has two major competitors. Competition in Red Star BioProducts comes primarily from domestic and European producers. PRODUCTS AND APPLICATION ACTIVITIES With the Company's strategic focus on high-performance ingredients and ingredient systems, the Company's emphasis has shifted from the development of major new products to application activities and processing improvements in the support of its customers numerous new and reformulated products. The Company maintains many of its proprietary processes and formulae as trade secrets and under secrecy agreements with customers. 5 8 Development activities continue on a line of stable aqueous dispersion of colors for foods and pharmaceutical products. Patents have been granted on the products marketed under the SPECTRASPRAY and SPECTRABLEND CLEAR labels. The development of natural food colors remain a growth opportunity for W-J. With the 1997 acquisition of Tricon Colors, Inc., W-J expanded its purification technology, with the primary opportunity in colors for ink-jet printers. Lower calorie ingredients and nutritive sweeteners for dairy applications are a focus of development activity for Universal Flavors. Formulations for enriched beverages, new blends for juice drinks, and flavors for frozen and alcoholic beverages offer opportunities as well. In 1997, the Flavor division introduced the proprietary UNIZYME line of all-natural savory flavors, which has unique performance characteristics. Development of savory flavors is expected to accelerate, with the integration of the Company's BioProducts division in 1998. Specialized ingredients are being developed for bakery applications and the food service sector. In 1997, the Company's BioProducts division commercialized several new products. Introductions of high-performance baker's yeast extracts, which use advanced enzyme technology in its production, build on the Flavor Mate series, which was introduced in 1993. In 1997, the BioProducts division also introduced a line of savory reaction flavor products in Europe. Acquisitions in 1994 expanded the division's product line particularly in hydrolyzed vegetable proteins. The transfer of technology to European acquisitions, begun in 1995, has enabled the production of flavor enhancers as well as bionutrients for pharmaceutical production. Highly refined yeast extracts are also supplied to producers of diagnostic media. European acquisitions in 1994 and 1995 expanded the Dehydrated Products product line to include peas, carrots, beans, celery root and other specialty vegetables. In addition, the discussion of operational activities in the "Business Profile" on Pages 4 and 5 of the 1997 Annual Report to Shareholders is incorporated by reference. RAW MATERIALS In producing its products, the Company uses a wide range of raw materials. Chemicals and petrochemicals used to produce certified colors are obtained from several domestic and foreign suppliers. Raw materials for natural colors, such as carmine, beta carotene, annatto and turmeric, are purchased from overseas and U.S. sources. In the production of flavors, the principal raw materials include essential oils, aroma chemicals, botanicals, fruits and juices, and are obtained from local vendors. Flavor enhancers and secondary flavors are produced from brewer's yeast, baker's yeast from the Company's own operations, and vegetable materials such as corn and soybeans. The acquisition of the Biolux Group in 1994 provides long-term supply arrangements on supplies of brewer's yeast for European production needs. Chili peppers, onion, garlic and other vegetables are acquired under annual contracts with numerous growers in the western United States and Europe. The principal raw material used in the production of yeast products is molasses, which is purchased through brokers and producers, usually under yearly fixed-price contracts. Processes have been developed to permit partial replacement of molasses with alternate, 6 9 readily-available substrates for use if molasses supplies should become limited. In 1994, the Company entered into a supply agreement with Minn-Dak Farmers Cooperative, a major North American molasses supplier, to provide additional assurances of adequate supplies. The Company believes that its required raw materials are generally in adequate supply and available from numerous competitively priced sources. PATENTS, FORMULAE AND TRADEMARKS The Company owns or controls many patents, formulae and trademarks related to its businesses. The businesses are not materially dependent upon patent or trademark protection; however, trademarks, patents and formulae are important for the continued consistent growth of the Company. EMPLOYEES As of September 30, 1997, the Company employed 4,127 persons worldwide. Approximately 650 U.S. employees are represented by one of the 12 union contracts with whom the Company has collective bargaining relationships. The Company considers its employee relations to be good. REGULATION Compliance with government provisions regulating the discharge of material into the environment, or otherwise relating to the protection of the environment, did not have a material adverse effect on the Company's operations for the year covered by this report. Compliance is not expected to have a material adverse effect in the succeeding two years as well. As is true with the food industry in general, the production, packaging, labeling and distribution of the products of the Company are subject to the regulations of various federal, state and local governmental agencies, in particular the U.S. Food & Drug Administration. ITEM 2. PROPERTIES Domestically, the Company operated 18 manufacturing and processing plants in nine states as of September 30, 1997. Four plants produced yeast, three facilities provided flavor enhancers and other bioproducts, three produced dehydrated products, four plants produced colors and related products, and four plants produced flavors. None of these properties are held subject to any material encumbrances. At September 30, 1997, the Company operated 26 foreign manufacturing facilities located in one U.S. territory and 16 foreign countries. Of these facilities, two produced or distributed yeast, four produced flavor enhancers and other bioproducts, three manufactured dehydrated and frozen vegetables, four produced colors only, twelve produced or distributed flavors and aroma chemicals only, and one produced both flavors and colors. In addition, the Company has minority interest investments in eight companies located in the U.S. and seven foreign countries. 7 10 ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings of a character regarded as normal to its business and in which, the Company believes, adverse decisions, in the aggregate, would not subject the Company to damages of a material amount. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the last quarter of fiscal 1997. 8 11 ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the registrant and their ages as of December 1, 1997 are as follows: EXECUTIVE OFFICERS Name Age Position ---- --- -------- Kenneth P. Manning 55 Chairman, President and Chief Executive Officer Richard Carney 47 Vice President - Human Resources Steven O. Cordier 41 Treasurer Michael Fung 47 Vice President and Chief Financial Officer Michael L. Hennen 44 Controller Richard F. Hobbs 50 Vice President - Administration R. Steven Martin 41 Vice President and Group Executive Terrence M. O'Reilly 52 Vice President, Secretary and General Counsel James F. Palo 57 President - Dehydrated Products Kenneth G. Scheffel 61 Vice President - Technologies K.T. Thomas Tchang 46 President - Red Star Yeast & Products William Tesch 47 President - Red Star BioProducts Charles G. Tuchel 42 President - Universal Flavor Michael A. Wick 54 President - Color Messrs. Carney, Cordier, Fung, Hennen, Martin, Tchang, Tesch and Tuchel have been employed by the Company in an executive capacity for less than five years. Mr. Carney was elected Vice President - Human Resources in April 1993. He joined the Company in 1981 as Treasury Manager and held various positions in the Treasurer's Department until 1986 when he assumed the Director of Benefits responsibilities which he performed until being elected a Vice President. Mr. Cordier joined the Company in October 1995 as Treasurer. From 1990 until joining the Company he was Director of Financial Planning at International Flavors and Fragrances, a New York Stock Exchange company. 9 12 Mr. Fung joined the Company in June 1995 as Vice President and Chief Financial Officer. From 1992 to 1995 he served as Senior Vice President and Chief Financial Officer for Vanstar Corporation, a leading provider of products and services to design, build and manage computer network infrastructures for large enterprises. From 1988 to 1992, Mr. Fung was Vice President and Chief Financial Officer of Bass Pro Shops and Tracker Marine Corporation, privately-held companies operated under common ownership involved in the manufacture and marketing of outdoor sporting goods. Mr. Hennen joined the Company in January 1995 as Controller. From 1985 until joining the Company he was a Senior Manager at Deloitte & Touche LLP, a public accounting firm providing audit and tax services to the Company as its outside auditor. Mr. Martin was elected Vice President and Group Executive in June 1997. He joined the Company as Vice President - Marketing of its Red Star Yeast & Products Division in 1993. In June 1995, Mr. Martin was elected President - Red Star Yeast & Products Division. Prior to joining the Company, Mr. Martin was with the Monsanto Company since 1978 in various general management positions. Mr. Tchang was elected President - Red Star Yeast & Products Division in September 1997. He joined the Company in 1995 as Vice President, Sales and Marketing for the Company's BioProducts division. Immediately prior to joining the Company, he was the business director of Huntsman Specialty Chemicals Corp. Mr. Tesch joined the Company in 1971, becoming Plant Manager of the Red Star BioProducts Division in 1989. From 1993 to 1994 he was Director, Training and Development of The Universal Way and from 1994 to 1996 he served as Vice President, Manufacturing Operations of the Red Star BioProducts Division. On April 16, 1996, Mr. Tesch was elected President of the Red Star BioProducts Division. Mr. Tuchel joined the Company in May 1992 as the Managing Director - Europe for the Color Division. In October 1994, he was promoted to Vice President and General Manager of Universal Flavors International, and in June 1995 elected President - Flavor Division. Prior to joining the Company, Mr. Tuchel was Business Manager at ICI Petrochemicals from 1990 through 1992. 10 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The principal market in which the common stock of the Company is traded is the New York Stock Exchange. The range of the high and low sales prices as quoted in the New York Stock Exchange - Composite Transaction tape for the common stock of the Company and the amount of dividends declared for fiscal 1997 appearing under "Common Stock prices and dividends" on Page 18 of the 1997 Annual Report to Shareholders are incorporated by reference. Common stock dividends were paid on a quarterly basis, and it is expected that quarterly dividends will continue to be paid in the future. In addition to the restrictions contained in its Restated Articles of Incorporation, the Company is subject to restrictions on the amount of dividends which may be paid on its common stock under the provisions of various credit agreements. On the basis of the consolidated financial statements of the Company as of September 30, 1997, $10,734,000 is available for the payment of dividends on the common stock of the Company under the most restrictive loan covenants. On January 27, 1994 the Board of Directors established a share repurchase program which authorizes the Company to repurchase up to 2.5 million shares. As of September 30, 1997, 970,718 shares had been repurchased under the new authorization. On September 8, 1988 the Board of Directors of the Company adopted a common stock shareholder rights plan which is described at Note 7 of Notes to Consolidated Financial Statements - "Shareholders' Equity" on Page 26 of the 1997 Annual Report to Shareholders and which is incorporated by reference. The number of shareholders of record on December 5, 1997 was 5,719. ITEM 6. SELECTED FINANCIAL DATA The selected financial data required by this item is incorporated by reference from the "Five-Year Review" and the notes thereto on Page 31 of the 1997 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION "Management's Analysis of Operations and Financial Condition" is incorporated by reference from Pages 13 through 17 of the 1997 Annual Report to Shareholders. 11 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this item are set forth on Pages 18 through 30 of the 1997 Annual Report to Shareholders and are incorporated by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and officers appearing under "Election of Directors" (ending before "Committees of the Board of Directors") and "Other Matters" on Pages 2 through Page 6 and Pages 22-23, respectively, of the Notice of Annual Meeting and Proxy Statement of the Company dated December 16, 1997, is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information relating to compensation of directors and officers is incorporated by reference from "Director Compensation and Benefits," and "Compensation and Development Committee Report" and "Executive Compensation" on Pages 7 through 15 of the Notice of Annual Meeting and Proxy Statement of the Company dated December 16, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The discussion of securities ownership of certain beneficial owners and management appearing under "Principal Shareholders" on Pages 8 and 9 of the Notice of Annual Meeting and Proxy Statement of the Company dated December 16, 1997, is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There are no family relationships between any of the directors, nominees for director and officers of the Company nor any arrangement or understanding between any director or officer or any other person pursuant to which any of the nominees has been nominated. No director, nominee for director or officer had any material interest, direct or indirect, in any business transaction of the Company or any subsidiary during the period October 1, 1996 through September 30, 1997, or in any such proposed transaction. In the ordinary course of business, the Company engages in business transactions with companies whose officers or directors are also directors of the Company. These transactions are routine in nature and are conducted on an arm's-length basis. The terms of any such transactions are comparable at all times to those obtainable in business transactions with unrelated persons. 12 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed: 1. and 2. Financial Statements and Financial Statement Schedule. (See following "List of Financial Statements and Financial Statement Schedules.") 3. Exhibits. (See Exhibit Index on the last page of this report.) (No instruments defining the rights of holders of long-term debt of the Company and its consolidated subsidiaries are filed herewith because no long-term debt instrument authorizes securities exceeding 10% of the total consolidated assets of the Company. The Company agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.) (b) Reports on Form 8-K: None 13 16 LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page Reference in 1997 Annual Report 1. FINANCIAL STATEMENTS to Shareholders --------------------- The following consolidated financial statements of Universal Foods Corporation and Subsidiaries are incorporated by reference from the Annual Report to Shareholders for the year ended September 30, 1997. Independent Auditors' Report 30 Consolidated Balance Sheets - September 30, 1997 and 1996 20 Consolidated Earnings - Years ended September 30, 1997, 1996, and 1995 19 Consolidated Shareholders' Equity - Years ended September 30, 1997, 1996 and 1995 21 Consolidated Cash Flows - Years ended September 30, 1997, 1996 and 1995 22 Notes to Consolidated Financial Statements 23 - 29 Page Reference in 2. FINANCIAL STATEMENT SCHEDULES Form 10-K ---------------------- Independent Auditors' Report 15 Schedule II - Valuation and Qualifying Accounts and Reserves 16
All other schedules are omitted because they are inapplicable, not required by the instructions or the information is included in the consolidated financial statements or notes thereto. 14 17 INDEPENDENT AUDITORS' REPORT To the Shareholders and Directors of Universal Foods Corporation: We have audited the consolidated financial statements of Universal Foods Corporation as of September 30, 1997 and 1996 and for each of the three years in the period ended September 30, 1997, and have issued our report thereon dated November 13, 1997, which report expresses an unqualified opinion and includes a paragraph relating to the adoption of the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"; such consolidated financial statements and report are included in your 1997 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Universal Foods Corporation, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCH LLP Milwaukee, Wisconsin November 13, 1997 15 18 SCHEDULE II UNIVERSAL FOODS CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS) YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
Additions Valuation accounts charged deducted in the balance Balance at to costs Balance sheet from the assets to beginning and at end of which they apply of period expenses Deductions(A) period - ------------------------ ---------- --------- ------------- --------- 1995 Allowance for losses: Trade accounts receivable $3,527 $1,356 $1,115 $3,768 ====== ====== ====== ====== 1996 Allowance for losses: Trade accounts receivable $3,768 $ 349 $ 608 $3,509 ====== ====== ====== ====== 1997 Allowance for losses: Trade accounts receivable $3,509 $ 572 $ 47 $4,034 ====== ====== ====== ======
(A) Accounts written off, less recoveries. 16 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: /s/ T. M. O'Reilly ------------------------------ T. M. O'Reilly, Vice President Secretary & General Counsel Dated: December 22, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 22, 1997, by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Kenneth P. Manning Chairman of the Board, President and - -------------------------------- Chief Executive Officer Kenneth P. Manning /s/ Michael Fung Vice President and Chief Financial - -------------------------------- Officer Michael Fung /s/ Michael L. Hennen Corporate Controller - -------------------------------- Michael L. Hennen /s/ Michael E. Batten Director - -------------------------------- Michael E. Batten Director - -------------------------------- John F. Bergstrom S-1 20 /s/ James A.D. Croft - ---------------------------------- James A.D. Croft Director /s/ James L. Forbes - ---------------------------------- James L. Forbes Director /s/ Dr. Carol I. Waslien Ghazaii - ---------------------------------- Dr. Carol I. Waslien Ghazaii Director /s/ William V. Hickey - ---------------------------------- William V. Hickey Director /s/ Leon T. Kendall - ---------------------------------- Leon T. Kendall Director /s/ James H. Keyes - ---------------------------------- James H. Keyes Director /s/ Guy A. Osborn - ---------------------------------- Guy A. Osborn Director /s/ Essie Whitelaw - ---------------------------------- Essie Whitelaw Director S-2 21 UNIVERSAL FOODS CORPORATION EXHIBIT INDEX 1997 ANNUAL REPORT ON FORM 10-K The Company will furnish a copy of any exhibit described below upon request and upon reimbursement to the Company of its reasonable expenses of furnishing such exhibit, which shall be limited to a photocopying charge of $0.25 per page and, if mailed to the requesting party, the cost of first-class postage. Exhibit Incorporated Herein Filed Number Description by Reference from Herewith - ------- ---------------- ---------------------- ----------- 3.1 Restated Articles of Previously filed at Incorporation Exhibit 3.1 to the 1993 Annual Report on Form 10-K 3.2 Restated Bylaws Previously filed at Exhibit 3.2 to the 1995 Annual Report on Form 10-K 4 Shareholders Rights Plan Previously filed on Form 8-A dated September 15, 1988 as amended by Exhibit 3 to Form 8 dated December 22, 1988 and by Exhibits 4 and 5 to Form 8 dated September 14, 1990 10 Material Contracts * (a) Executive Employment Previously filed at Contract Exhibit 10(a) to the 1985 Annual Report on Form 10-K * (d) 1990 Employee Stock Previously filed with Plan the Notice of Annual Meeting & Proxy Statement dated December 18, 1989 * (e) Director Stock Grant Previously filed as Plan, as amended Exhibit 10(e) to the 1991 Annual Report on Form 10-K Exhibit Index - Page 1 22
Exhibit Incorporated Herein by Filed Number Description Reference from Herewith - ------- ---------------- ------------------------ ---------- * (f) Management Income Previously filed as Deferral Plan Exhibit 10(f) to the 1991 Annual Report on Form 10-K * (g) Executive Income Previously filed as Deferral Plan Exhibit 10(g) to the 1991 Annual Report on Form 10-K * (h) Change of Control Previously filed as Employment and Exhibit 10(h) to Severance Agreement the 1995 Annual Report on Form 10-K (i) Trust Agreement dated Previously filed as January 18, 1988 between Exhibit 18 to Amendment and the Company Marshall No. 1 of the Company's & Ilsley Trust Company Schedule 14D-9 filed December 9, 1988 (j) Trust Agreement dated Previously filed as January 18, 1988 Exhibit 19 to between the Company Amendment No. 1 of and Marshall & Ilsley the Company's Schedule 14D-9 Trust Company filed December 9, 1988 (k) Trust Agreement dated Previously filed as Exhibit September 18, 1988 20 to Amendment No. 1 of the between the Company Company's Schedule 14D-9 filed and Marshall & Ilsley December 9, 1988 Trust Company * (l) Management Incentive Plan X for Elected Corporate Officers * (m) Management Incentive Plan X for Division Management * (n) Management Incentive Plan X for Corporate Management
Exhibit Index - Page 2 23
Exhibit Incorporated Herein by Filed Number Description Reference from Herewith - -------- ------------------------------ ------------------------------- -------------- * (o) 1994 Employees Stock Previously filed on Form S-8 Option Plan dated September 12, 1994 * (p) 1998 Stock Option Plan Included as Appendix A to Exhibit 99 hereto 13 Portions of Annual Report to X Shareholders for the year ended September 30, 1997 that are incorporated by reference 21 Subsidiaries of Universal Foods X Corporation 23 Consent of Deloitte & Touche LLP X 27 Financial Data Schedule X 99 Notice of Annual Meeting and Previously filed on Proxy Statement, dated December 16, 1997 December 16, 1997 as the Company's Schedule 14A Except to the extent incorporated by reference, the Proxy Statement shall not be deemed to be filed with the Securities and Exchange Commission as part of this annual Report on Form 10-K.
* Indicates management contracts or compensatory plans. Exhibit Index - Page 3 EX-10.L 2 PLAN FOR ELECTED 1 EXHIBIT 10(1) UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR ELECTED CORPORATE OFFICERS I. THE PLAN The name of this Plan is the Universal Foods Corporation Management Incentive Plan for Elected Corporate Officers. The purpose of this Plan is to promote the interests of the shareholders and to provide incentive to those elected officers who can contribute most to the profitability of the Company. It is separate and distinct from other Company incentive plans currently in effect. II. DEFINITIONS In this Plan, the terms used will have the following definitions: A. "Board of Directors" means the Board of Directors of Universal Foods Corporation. B. "Bonus Award" means an award, either paid currently or paid on a deferred basis, as the result of the operation of this Plan. C. "Bonus Provision" means monies available for distribution as Bonus Awards as the result of the operation of this Plan. D. "Committee" means the committee provided for in Section III. E. "Company" means Universal Foods Corporation. F. "Employee" means any employee regularly employed by Universal Foods Corporation or any of its subsidiaries and paid on a salary basis. G. "Fiscal Year Salary" means base pay earned during the period October 1 through September 30 each Company operating year exclusive of any incentive or supplemental payments by the Company. H. "Independent Auditors" means with respect to any fiscal year, the independent public accounts appointed by the Board of Directors to certify to the Board of Directors the financial statements of the Company. 2 I. "Operating Income After Taxes" is defined as net earnings, as shown in the Company's Statement of Consolidated Earnings as certified by the Company's Independent Auditors, plus the after-tax costs of interest on long-term and short-term debt and the Bonus Awards for that fiscal year. This amount shall be further adjusted for extraordinary items of income or expense if, in the opinion of the Committee, it is appropriate to do so. J. "Plan" means this Management Incentive Plan for Major Corporate Executives. K. "Subsidiary" means with respect to any year, any corporation in which Universal Foods Corporation owns a stock interest of more than 50%, and the financial results of whose operations are consolidated with those of the Company in the financial statements included in the annual report to shareholders for that year. III. COMMITTEE A. The Board of Directors shall appoint a Compensation and Development Committee composed of three non- management members of the Company's Board of Directors. This Committee shall be known as the "Committee" and shall have full power and authority to interpret and administer the Plan in accordance with the Regulations. No member of the Committee shall be eligible to participate in the Plan while a member of the Committee. B. The Board of Directors may, from time to time, remove members from the Committee or add members thereto; and vacancies on the Committee, however caused, shall be filled by action of the Board of Directors. The Committee shall select one of its members as Chairman and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made at a meeting of the Committee duly called and held. The members of the Committee may receive such compensation for their services as the Board of Directors may determine. IV PLAN ADMINISTRATION The Committee shall have the power to adopt eligibility and other rules not inconsistent with the provisions of the Plan (hereinafter referred to as the 3 "Regulations" and attached hereto as "Exhibit A") for the administration thereof and to alter, amend, or revoke any Regulations so adopted. V. PLAN PARTICIPATION Participation in the Plan shall be in accordance with the Regulations. A. At the beginning of each fiscal year, the Chairman and Chief Executive Officer shall submit to the Committee a written list of recommended participants in the Plan for that year. B. Not all officers and major executives need to be selected as participants, and selection as a participant one year does not automatically ensure selection in future years. C. At the end of each fiscal year, the Chairman and Chief Executive Officer shall submit to the Committee a written list of recommendations as to the amount of Bonus Award each participant in the Plan should receive for that fiscal year. D. The Committee's selection of the Employees to whom a Bonus Award shall be made and its determination of the amount and method of payment of each such Bonus Award shall be final. E. This Plan is not a part of the Company's regular compensation plan nor is it part of the Employee's regular compensation. VI. BONUS AWARD The performance measurement upon which the Bonus Award is based is determined in accordance with the Regulations for each fiscal year. VII. CHANGE OF CONTROL OF COMPANY In the event of a change of control of the Company in accordance with an Employee's Severance or Employment Agreement and the Employee's subsequent termination of employment without cause by the successor entity, the "Change of Control Benefits" under the Employee's Severance or Employment Agreement in respect to this Plan shall be received as a severance payment by the Employee. 4 VIII. SUCCESSORS AND ASSIGNS If the Company sells, assigns or transfers all or substantially all of its business and assets to any person, excluding affiliates of the Company, or if the Company merges into or consolidates or otherwise combines with any person which is a continuing or successor entity, then the Company shall assign all of its right, title and interest in this Plan as of the date of such event to the person which is either the acquiring or successor corporation, and such person(s) shall assume and perform from and after the date of such assignment all of the terms, conditions and provisions imposed by this Plan upon the Company. In case of such assignment by the Company and of such assumption and agreement by the Company and of such person(s), all further rights as well as all other obligations of the Company under this Agreement thenceforth shall cease and terminate and thereafter the expression "the Company" wherever used herein shall be deemed to mean such person(s). IX PLAN AMENDMENTS The Board of Directors may suspend or discontinue the Plan at anytime. 5 UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR ELECTED CORPORATE OFFICERS REGULATIONS F-98 These Regulations apply to the Elected Corporate Officers Management Incentive Plan for the fiscal year October 1, 1997 through September 30, 1998. i. Participants will be notified of their selection and be provided with a copy of the Plan with specific provisions related to their level of participation. ii. An Employee may be selected as a participant after the beginning of a fiscal year and, if eligible, may receive, at the discretion of the Committee, a Bonus Award prorated to reflect duration of Plan participation. iii. A participant may receive a Bonus Award based on prorated participation in more than one plan, if eligible to do so, under provisions of the plan(s). iv. The Bonus Award granted to individual participants shall be based upon achievement of defined EPS objectives and, in certain cases, division sales operating profit as defined by the Management Incentive Plan for Division Management, copy attached if applicable. v. The following schedule shows the maximum Bonus Award, as a percent of Fiscal Year Salary, that may be granted to various levels of participants under the Plan: 6
- ----------------------------------------------------------------------------------------------------------------- Division Title/Level EPS SOP Total - ----------------------------------------------------------------------------------------------------------------- Chairman & Chief Executive Officer 85.0% 00.0% 85% - ----------------------------------------------------------------------------------------------------------------- Group Vice President Vice President & Chief Financial Officer Vice President Administration 65.0% 0.00% 65% - ----------------------------------------------------------------------------------------------------------------- Divisional Presidents 18.0% 42.0% 60% - ----------------------------------------------------------------------------------------------------------------- Corporate Staff Officers 45.0% 0.00% 45% - -----------------------------------------------------------------------------------------------------------------
vi. The bonus award amount may, at the sole discretion of the Chairman and Chief Executive Officer, be adjusted up or down by five to twenty percent (5% to 20%) to recognize individual performance. vii. The Bonus Award shall not be paid to participants who resigned or were discharged for cause prior to their receiving the Bonus Award unless the Committee decides otherwise. viii. If an Employee ceases to be a Plan participant during the fiscal year as a result of death, disability, or retirement under the Company's ESOP, the Employee or his/her estate may, at the discretion of the Committee, receive a pro-rata Bonus Award based upon the number of months spent as a participant. In such cases, the Committee may, at its discretion, increase the Bonus Award up to, but not in excess of, the amount that would have been earned for a full year of participation. 7 UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR ELECTED CORPORATE OFFICERS PERFORMANCE MEASURES F-98 NAME TITLE ---- ----- MAXIMUM BONUS AWARD AS PERCENTAGE OF FISCAL YEAR SALARY ------------------------------
- -------------------------------------------------------------------------------------------------------- DIVISION EPS SOP TOTAL - -------------------------------------------------------------------------------------------------------- 45.0% 0.00% 45.0% - --------------------------------------------------------------------------------------------------------
8 GUIDELINES Upon the determination of the amount of the Bonus Provision for the fiscal year, an amount may be awarded by the Committee as a Bonus Award to selected Plan participants according to the following guidelines: 1. Formula Award The F-98 objective is to attain a Corporate Earnings Per Share for the fiscal year of $_______ (Target).
- --------------------------------------------------------------------------------------- EARNINGS PER SHARE (EPS) PERCENTAGE OF FORMULA AWARD - --------------------------------------------------------------------------------------- 5% - --------------------------------------------------------------------------------------- 10% - --------------------------------------------------------------------------------------- 15% - --------------------------------------------------------------------------------------- 20% - --------------------------------------------------------------------------------------- 25% - --------------------------------------------------------------------------------------- 30% - --------------------------------------------------------------------------------------- 35% - --------------------------------------------------------------------------------------- 40% - --------------------------------------------------------------------------------------- 45% - --------------------------------------------------------------------------------------- 50% - --------------------------------------------------------------------------------------- 55% - --------------------------------------------------------------------------------------- 60% - --------------------------------------------------------------------------------------- 65% - --------------------------------------------------------------------------------------- 72% - --------------------------------------------------------------------------------------- 79% - --------------------------------------------------------------------------------------- 86% - --------------------------------------------------------------------------------------- 93% - --------------------------------------------------------------------------------------- 100% - ---------------------------------------------------------------------------------------
9 EXHIBIT B - PERFORMANCE MEASURES ELECTED CORPORATE OFFICERS 2. Special Adjustments Upon the recommendation of the Chairman and Chief Executive Officer, the Committee may approve special adjustments to Earnings Per Share necessary to give consideration to unbudgeted and/or unplanned situations which developed after finalization of the operating budget. Such adjustments will be submitted for consideration only if required to correct major inequities. EX-10.M 3 PLAN FOR DIVISION 1 EXHIBIT 10(m) UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR DIVISION MANAGEMENT I. THE PLAN The name of this Plan is the Universal Foods Corporation Management Incentive Plan for Division Management. The purpose of the Plan is to promote the interests of the shareholders and to provide incentive to those Division management employees who can contribute most to the profitability of the Company. II. DEFINITIONS In this Plan, the terms used will have the following definitions: A. "Actual Average Assets Managed" means the twelve-month average of month-end balances of key assets and liabilities subject to Division or Business Unit control, as defined in Exhibit B,2c. B. "Actual Sales Operating Profit" means profit reported on the Company's sales operating reports, as adjusted per Exhibit B,2b. C. "Bonus Award" means an award, either paid currently or paid on a deferred basis, as the result of the operation of this Plan. D. "Business Unit" means a segmented profit center within a Division. E. "Company" means Universal Foods Corporation. F. "Division" means a business entity designated as such by the Corporation normally segmented based on product line. G. "Employee" means any employee regularly employed by Universal Foods Corporation or any of its subsidiaries and paid on a salary basis. H. "Fiscal Year Salary" means base pay earned during the period October 1 through September 30 of each Company operating year exclusive of any incentive or supplemental payments by the Company. I. "Plan" means this Management Incentive Plan for Division Management. J. "Targeted Average Assets Managed" means the Division or Business Unit Average Assets Managed scheduled per Exhibit B,2a. K. "Targeted Profit" means the Division or Business Unit profit objective scheduled per Exhibit B,2a. 2 MANAGEMENT INCENTIVE PLAN FOR DIVISION MANAGEMENT Page 2 III. PLAN ADMINISTRATION The Board of Directors of Universal Foods Corporation has delegated to the Chairman and Chief Executive Officer the authority to adopt eligibility and other rules not inconsistent with the provisions of the Plan (hereinafter referred to as the "Regulations" and attached hereto as "Exhibit A") for the administration thereof and to alter, amend, or revoke any Regulations so adopted. IV. PLAN PARTICIPATION Participation in the Plan shall be in accordance with the Regulations. A. At the beginning of the fiscal year, the Chairman and Chief Executive Officer shall determine who should participate in the Plan for that fiscal year, based on recommendations from the Division President or other Corporate Officer. B. Not all key Division or Business Unit employees need be selected as participants, and selection as a participant does not ensure selection in future plans, if such plans should be implemented. C. At the end of the fiscal year, the Division President shall recommend to the Chairman and Chief Executive Officer the amount of the Bonus Award each participant in the Plan should receive for that fiscal year. D. The Chairman and Chief Executive Officer's selection of the Employees to whom Bonus Awards shall be made and his/her determination of the amounts and methods of payment shall be final. E. This Plan is not a part of the Company's regular compensation plan nor is it part of the employee's regular compensation. V. BONUS AWARDS The performance measurement upon which the Bonus Award is based is determined in accordance with the Regulations for each fiscal year. IV. BONUS PROVISION All Bonus Awards under this Plan will be budgeted and funded within the operations of the specific Division/Business Unit in which participants are employed. 3 VII. SUCCESSORS AND ASSIGNS If the Company sells, assigns or transfers all or substantially all of its business and assets to any person, excluding affiliates of the Company, or if the Company merges into or consolidates or otherwise combines with any person which is a continuing or successor entity, then the Company shall assign all of its right, title and interest in this Plan as of the date of such event to the person which is either the acquiring or successor corporation, and such person(s) shall assume and perform from and after the date of such assignment all of the terms, conditions and provisions imposed by this Plan upon the Company. In case of such assignment by the Company and of such assumption and agreement by the Company and of such person(s), all further rights as well as all other obligations of the Company under this Agreement thenceforth shall cease and terminate and thereafter the expression "the Company" wherever used herein shall be deemed to mean such person(s). VIII. MISCELLANEOUS All expenses incurred in interpreting and administering the Plan shall be charged against the Division. IX. PLAN AMENDMENTS The Chairman and Chief Executive Officer may suspend or discontinue the Plan at anytime. 4 UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR DIVISION MANAGEMENT REGULATIONS F-98 These Regulations apply to the Division Management Incentive Plan for the fiscal year October 1, 1997 through September 30, 1998. 1. Participants will be notified of their selection and be provided with a copy of the Plan with specific provisions related to their Division or Business Unit and level of participation. 2. An Employee may be selected as a participant after the beginning of a fiscal year and, if eligible, may receive a Bonus Award prorated to reflect duration of Plan participation. 3. participant may receive a Bonus Award based on prorated participation in more than one Division or Business Unit activity, if eligible to do so under provisions of the plan(s) 4. The Bonus Award granted to individual participants shall be based upon achievement of defined target objectives (Formula). 5. The Bonus Award amount may, on the recommendation of the Chairman and Chief Executive Officer and approval of the Committee, be adjusted up or down by five to twenty percent (5% to 20%) to recognize individual performance. 6. If an Employee ceases to be a Plan participant during the fiscal year, but remains in the Company's service, the Employee may, at the discretion of the Chairman and Chief Executive Officer, receive a pro-rata Bonus Award based upon the number of months spent as a participant. 7. The Bonus Award shall not be paid to participants who resigned or were discharged for cause prior to their receiving the Bonus Award unless the Chairman and Chief Executive Officer decides otherwise. 8. If an Employee ceases to be a Plan participant during the fiscal year as a result of death, disability, or retirement under the Company's ESOP, the Employee or his/her estate may, at the discretion of the Chairman and Chief Executive Officer, receive a pro-rata Bonus Award based upon the number of months spent as a participant. 9. In such cases, the Chairman and Chief Executive Officer may increase the Bonus Award up to, but not in excess of, the amount that would have been earned for a full year of participation. 5 For the purpose of determining the appropriate Plan Award, profit changes due to fluctuation in currency exchange or internal hedges will not be considered. International business unit profit performance will be based upon actual vs. budget comparisons in local currencies. Upon the recommendations of the Senior Corporate Officers, the Chairman and Chief Executive Officer may approve special adjustments to Incentive Targets necessary to give consideration to unbudgeted and/or unplanned situations which developed after finalization of the operating budget. Such adjustments will be submitted for consideration only if required to correct major inequities. 6 UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR DIVISION MANAGEMENT PERFORMANCE MEASURES F-98 NAME TITLE ---- ----- Richard Carney Vice President-Human Resources Maximum Bonus Award as Percentage of Fiscal Year Salary ------------------------------ Division EPS SOP Total --- --- ----- 7 I. The method by which the Formula portion of the Bonus Awards will be earned has been designed to encourage the following: A. The setting of realistic operating budgets and performance targets. B. The improvement of return on investment through maximization of profits and careful utilization of corporate assets. II. Schedule - Formula Portion: a) Participants will receive a formula portion of their Bonus Award in accordance with the Division or Business Unit Schedule (Exhibit C). The Schedule will be sent under a separate cover when finalized. (b) Actual Sales Operating Profit for the Division is the profit reported on the Company's sales operating reports adjusted by adding back any interest expense, foreign taxes, or goodwill amortization which had been charged against the reported profit. (c) Actual Average Assets Managed is the twelve-month average of month-end balances of key assets and liabilities subject to Division control consisting of accounts receivable, inventories, accounts payable, accrued expenses and any other assets or liabilities specifically identifiable with a Division and so specified prior to the beginning of the fiscal year (such as advances to suppliers, deferred farming costs, etc.). Adjustments If the Actual Assets Managed for the Division during the fiscal year exceed the Targeted Assets Managed, the increase will be multiplied by 25% and added to the Targeted Profit as a charge for the use of additional capital. If the Actual Average Assets Managed for the Division during the fiscal year are less than the Targeted Average Assets Managed, the reduction will be multiplied by 25% and subtracted from the Targeted Profit as a credit for the reduction in capital utilized. 8 UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR DIVISION MANAGEMENT PERFORMANCE MEASURES-SCHEDULE F-98 PARTICIPANT - NAME / TITLE BUSINESS UNIT
- ------------------------------------------------------------------------------- ACTUAL SALES OPERATING PERCENTAGE OF PROFIT AS A PERCENTAGE OF FORMULA AWARD TARGETED PROFIT EARNED - ------------------------------------------------------------------------------- 0% - ------------------------------------------------------------------------------- 5 - ------------------------------------------------------------------------------- 10 - ------------------------------------------------------------------------------- 15 - ------------------------------------------------------------------------------- 20 - ------------------------------------------------------------------------------- 25 - ------------------------------------------------------------------------------- 30 - ------------------------------------------------------------------------------- 40 - ------------------------------------------------------------------------------- 50 - ------------------------------------------------------------------------------- 60 - ------------------------------------------------------------------------------- 70 - ------------------------------------------------------------------------------- 80 - ------------------------------------------------------------------------------- 85 - ------------------------------------------------------------------------------- 90 - ------------------------------------------------------------------------------- 95 - ------------------------------------------------------------------------------- 100 - ------------------------------------------------------------------------------- 110 - ------------------------------------------------------------------------------- 115 - ------------------------------------------------------------------------------- 120% - -------------------------------------------------------------------------------
9 ((APPROVED_BUS_U1)) Targeted Sales Operating Profit$((OP)) Targeted Average Assets Managed$((ASSETS MAN)) ((APPROVED_BUS_U2)) Targeted Sales Operating Profit$((OPER_PROF)) Targeted Average Assets Managed$((ASSETS_MAN2)) EX-10.N 4 PLAN FOR CORPORATE MANAGEMENT 1 EXHIBIT 10(n) UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR CORPORATE MANAGEMENT I. THE PLAN The name of this Plan is the Universal Foods Corporation Management Incentive Plan for Corporate Management. The purpose of this Plan is to promote the interests of the shareholders and to provide incentive to those corporate management employees who can contribute most to the profitability of the Company. It is separate and distinct from other Company incentive plans currently in effect. II. DEFINITIONS In this Plan, the terms used will have the following definitions: A. "Board of Directors" means the Board of Directors of Universal Foods Corporation. B. "Bonus Award" means an award, either paid currently or paid on a deferred basis, as the result of the operation of this Plan. C. "Bonus Provision" means monies available for distribution as a Bonus Award as the result of the operation of this Plan. D. "Company" means Universal Foods Corporation. E. "Employee" means any employee regularly employed by Universal Foods Corporation, and paid on a salary basis. F. "Fiscal Year Salary" means base pay earned during the period October 1 through September 30 each Company operating year exclusive of any incentive or supplemental payments by the Company. G. "Independent Auditors" means with respect to any fiscal year, the independent public accountants appointed by the Board of Directors to certify to the Board of Directors the financial statements of the Company. 2 H. "Operating Income After Taxes" is defined as net earnings, as shown in the Company's Statement of Consolidated Earnings as certified by the Company's Independent Auditors, plus the after-tax costs of interest on long and short term debt and the Bonus Awards for that fiscal year. This amount shall be further adjusted for extraordinary items of income or expense if, in the opinion of the Chairman and the President and Chief Executive Officer, it is appropriate to do so. I. "Plan" means this Management Incentive Plan for Corporate Management. J. "Subsidiary" means with respect to any year, any corporation in which Universal Foods Corporation owns a stock interest of more than 50%, and the financial results of whose operations are consolidated with those of the Company in the financial statements included in the annual report to shareholders for that year. III. PLAN ADMINISTRATION The Board of Directors of Universal Foods Corporation has delegated to the Chairman and Chief Executive Officer the authority to adopt eligibility and other rules not inconsistent with the provisions of the Plan (hereinafter referred to as the "Regulations" and attached hereto as "Exhibit A") for the administration thereof and to alter, amend, or revoke any Regulations so adopted. IV. PLAN PARTICIPATION A. At the beginning of the fiscal year, the Chairman and Chief Executive Officer shall determine who should participate in the Plan for that fiscal year. B. Not all management employees need be selected as participants, and selection as a participant one year does not automatically ensure selection in future years, if such Plans should be implemented. C. At the end of each fiscal year, the Chairman and Chief Executive Officer shall determine the amount of Bonus Award each participant in the Plan should receive for that fiscal year. D. The Chairman and Chief Executive Officer's selection of the Employees to whom a Bonus Award shall be made and its determination of the amount and method of payment of each such Bonus Award shall be final. 3 E. This Plan is not a part of the Company's regular compensation plan nor is it part of the Employee's regular compensation. V. BONUS AWARDS The performance measurement upon which the Bonus Award is based is determined in accordance with the Regulations for each fiscal year. VI. SUCCESSORS AND ASSIGNS If the Company sells, assigns or transfers all or substantially all of its business and assets to any person, excluding affiliates of the Company, or if the Company merges into or consolidates or otherwise combines with any person which is a continuing or successor entity, then the Company shall assign all of its right, title and interest in this Plan as of the date of such event to the person which is either the acquiring or successor corporation, and such person(s) shall assume and perform from and after the date of such assignment all of the terms, conditions and provisions imposed by this Plan upon the Company. In case of such assignment by the Company and of such assumption and agreement by the Company and of such person(s), all further rights as well as all other obligations of the Company under this Agreement thenceforth shall cease and terminate and thereafter the expression "the Company" wherever used herein shall be deemed to mean such person(s). VII. PLAN AMENDMENTS The Chairman and Chief Executive Officer may suspend or discontinue the Plan at anytime. 4 UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR CORPORATE MANAGEMENT REGULATIONS F-98 These Regulations apply to the Corporate Management Incentive Plan for the fiscal year October 1, 1997 through September 30, 1998. 1. Participants will be notified of their selection and be provided with a copy of the Plan with specific provisions related to their level of participation. 2. An Employee may be selected as a participant after the beginning of a fiscal year and, if eligible, may receive a Bonus Award prorated to reflect duration of Plan participation. 3. A participant may receive a Bonus Award based on prorated participation in more than one plan if eligible to do so under provisions of the plan(s). 4. The Bonus Award granted to individual participants shall be based upon achievement of defined target objectives (Formula). 5. The following schedule shows the maximum Bonus Award, as a percent of Fiscal Year Salary, that may be granted to various levels of participants under the Plan:
FORMULA TOTAL ------- ----- Corporate Management Plan 20.00% 20.00%
6. The bonus award amount may, at the decision of the Chairman and Chief Executive Officer, be adjusted up or down by five to twenty percent (5% to 20%) to recognize individual performance. 7. If an Employee ceases to be a Plan participant during the fiscal year, but remains in the Company's service, the Employee may, at the discretion of the Chairman and Chief Executive Officer, receive a pro-rata Bonus Award based upon the number of months spent as a participant. 8. The Bonus Award shall not be paid to participants who resigned or were discharged for cause prior to the completion of the fiscal year of the Plan unless the Chairman and Chief Executive Officer decides otherwise. 9. If an Employee ceases to be a Plan participant during the fiscal year as a result of death, disability, or retirement under the Company's ESOP, the Employee or his/her 5 estate may, at the discretion of the Chairman and Chief Executive Officer, receive a pro-rata Bonus Award based upon the number of months spent as a participant. In such cases, the Chairman and Chief Executive Officer may increase the Bonus Award up to, but not in excess of, the amount that would have been earned for a full year of participation. 6 EXHIBIT B - PERFORMANCE MEASURES CORPORATE MANAGEMENT PAGE 1 UNIVERSAL FOODS CORPORATION MANAGEMENT INCENTIVE PLAN FOR CORPORATE MANAGEMENT PERFORMANCE MEASURES F-98 NAME TITLE/DIVISION ---- -------------- Manager MAXIMUM BONUS AWARD AS PERCENTAGE OF FISCAL YEAR SALARY ------------------------------
FORMULA TOTAL ------- ----- 20.00% 20.00%
7 EXHIBIT B - PERFORMANCE MEASURES CORPORATE MANAGEMENT PAGE 2 GUIDELINES Upon the determination of the amount of the Bonus Provision for the fiscal year, an amount may be awarded by the Chairman and the President and Chief Executive Officer as a Bonus Award to selected Plan participants according to the following guidelines: 1. Formula Award The F-98 objective is to attain a Corporate Earnings Per Share for the fiscal year of $______ (Target).
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2. Special Adjustments Upon the recommendations of the Senior Corporate Officers, the Chairman and Chief Executive Officer may approve special adjustments to Earnings Per Share necessary to give consideration to unbudgeted and/or unplanned situations which developed 8 EXHIBIT B - PERFORMANCE MEASURES CORPORATE MANAGEMENT PAGE 3 after finalization of the operating budget. Such adjustments will be submitted for consideration only if required to correct major inequities. EX-13 5 ANNUAL REPORT 1 EXHIBIT 13 color 2 pie charts Customers Percent of Revenue Food: 70% Cosmetics/Pharma- ceuticals/specialty inks: 30% Products Worldwide Markets Food: 48% Cosmetics/pharma- ceuticals/specialty inks: 41% Other: 11% Total Market: $2.7 billion Technical Expertise We are the acknowledged number one food color supplier in the world. Our unique understanding of color-creating chemistry complements the most extensive and skilled technical service staff in the industry. Basic research in natural and synthetic colors and a responsive customer service group also deliver value for our customers. Operates as Warner- Jenkinson. 1997 Review Sales and income grew on the strength of pharmaceuticals, dispersions, lakes, and natural color categories. This growth was complemented by the contribution from Tricon Colors, which the company acquired in the second quarter. The division's St. Louis facility achieved ISO 9001 certification, underscoring the Color division's commitment to world- class quality. Opportunities We will leverage our core competencies to expand into non-food markets such as specialty inks, pharmaceuticals, and cosmetics. Natural color sourcing and manufacturing and advanced purification technology will also play an important role in our worldwide growth. Chart Revenue (in millions) 93 $123 94 $143 95 $149 96* $157 97 $191 *revised for revenue included in Asia Pacific division dehydrated 2 pie chart Customers Percent of Revenue Industrial food processors: 100% Products Worldwide Markets Garlic: 20% Onion: 45% Chili: 20% Speciality vegetables: 15% Total Market: $1.2 billion Technical Expertise We produce high-quality dehydrated onion, garlic, chili, and other vegetables in the U.S. using state-of-the-art dehydration technology, extensive plant breeding and seed development programs, and comprehensive field management techniques. Our laboratories develop customized blends and applications for our customers. European operations produce premium vegetable products for the world market. Operates as Rogers Foods in the U.S. and Universal Dehydrates in Europe. 1997 Review Operating income outpaced sales growth, as volume gains accompanied improvements in operating efficiency. Productivity improvements in European operation resulted from further implementation of U.S. field management techniques and growing practices as well as more efficient production scheduling. Opportunities Our ongoing focus on improving quality, consistency, and customer service supports our efforts to capture new domestic and international business. Further implementation of U.S. field management and growing practices in Europe will help increase yield and efficiency. Chart Revenue (in millions) 93 $78 94 $85 95 $117 96 $132 97 $135 Asia pacific Technical Expertise We market our full line of products through a focused effort under one unified name. Regional technical teams enable us to provide high-quality flavor and color solutions that appeal to local tastes and preferences. Operates as Universal Foods Corporation (Asia Pacific). 3 1997 Review We integrated product lines, created a consumer marketing function and strengthened management during the division's first year in operation. Opportunities The actions taken in fiscal 1997 have positioned the Asia Pacific division to exceed market growth rates. Savory flavors and color products offer particularly significant growth opportunities. Chart Revenue (in millions) 93 94 95 96 $28 97 $32 page four 4 yeast chart Revenue (in millions) 93 $160 94 $163 95 $155 96 $156 97 $155 Technical Expertise Efficient operations produce a diversified line of yeast products for baking, nutritional and wine-making needs. Quality, consistency, and reliability are critical to the production and delivery of yeast, a living organism. Operates as Red Star Yeast & Products. 1997 Review Improvements in operating efficiencies led to continued strong profitability for the division. Volumes of cream yeast increased significantly, as the division capitalized on the trend toward bulk deliveries to large commercial bakeries. Results from the division's retail yeast business remained strong on the continuing popularity of bread-making machines. Opportunities Productivity improvements and further market penetration through the conversion of major customers to cream yeast systems will drive growth. International sales of dry yeast also hold opportunity. 2 pie charts Customers Percent of Revenue Commercial bakers: 88% Retail: 12% Products Worldwide Markets Commercial compressed/ cream: 63% Commercial dry: 24% Consumer dry: 13% Total Market: $2.2 billion flavor Revenue (in millions) 93 $241 94 $263 5 95 $273 96* $234 97 $216 *revised for revenue included in Asia Pacific division Technical Expertise Proprietary processes combine with compounding and reaction chemistry to produce an exceptional range of flavors, flavor systems, and ingredients for food, beverage and dairy applications. Our aroma chemicals operation creates the building blocks for fragrances and flavors. Customized formulas improve end-product performance, as food and flavors must endure a variety of demanding processing conditions such as extreme temperature, mixing, and pumping. Operates as Universal Flavors. 1997 Review Improved results from international operations partially offset ongoing softness in carbonated beverage and dairy segments. Operating costs significantly declined, service levels improved, and aroma chemicals business expansion accelerated. A realignment of sales and marketing has positioned the division to win more business from targeted customers. Opportunities Natural flavors and flavor systems for new age and nutraceutical beverages offer worldwide opportunities. Further expansion into savory food flavors and aroma chemicals are also avenues for growth. In fiscal 1998, we will integrate our Flavor and BioProducts divisions, which will allow our customers to choose from a full range of flavor solutions from a single source. 2 pie charts Customers Percent of Revenue Dairy: 32% Beverage: 35% Food processors: 21% Other: 12% Products Worldwide Markets Flavors: 34% Fragrances: 33% Essential oils: 17% Aroma chemicals: 16% Total Market: $14.5 billion bioproducts Revenue (in millions) 93 $22 94 $37 95 $98 96 $99 97 $97 6 Technical Expertise We offer the broadest line of savory flavor products for meat, fish, poultry, and cheese products from natural sources for the food and fermentation industry. Our processes also create products for the bionutrient and health food markets. Operates as Red Star BioProducts. 1997 Review Healthy sales to North American customers offset lower demand for beef products in the U.K. The new facility in Strasbourg, France, began building volumes to commercial levels. The division commercialized 22 new products. Two plants received ISO 9002 certification and one plant successfully completed recertification. Opportunities Continued development of proprietary blends will improve product mix. With completion of the first phase of our new facility in Strasbourgh, France, we are building toward commercial levels of yeast extracts for the large European markets. In fiscal 1998, we will integrate our Flavor and BioProducts divisions, which will allow our customers to choose from a full range of flavor solutions from a single source. 2 pie charts Customers Percent of Revenue Food processors: 75% Feed processors: 12% Bionutrients: 13% Products Worldwide Markets Bionutrients: 10% Yeast extracts: 20% HVPs: 26% MSG: 44% Total Market: $1.9 billion page five 7 PRODUCT customized From food ingredients to specialty inks, our growing product strength provides customized solutions, enhancing the quality of our customers' distinctive products. WJ Whether helping a packaged food company achieve just the right color in a new product or working with a customer in the herb and spice business to find the optimal seasoning blend, our business is based on delivering superior solutions every time. Our commitment to supplying customized solutions generated more than 1,300 color products in fiscal 1997 alone. This insight into our customers' needs and our exceptional knowledge of our products' capabilities and applications make us a valued and recognized resource for our customers. Although often comprising less than 1% of an end product's total cost, our ingredients are critical to our customers' product success. Children of all ages delight in the rainbow of colors candy receives from our color systems. The yeast we supply puts more bread on American tables than any other yeast producer in the United States. A growing array of prepared foods, from soup mixes to microwaveable dinners, rely on our dehydrated vegetables and all- natural flavor enhancers to provide consistently high-quality meals that satisfy consumers' hunger for healthy, flavorful foods. Superior service backs our superior products. Color service labs, strategically located around the world, can ship specifically formulated samples to customers within 24 hours. Our Flavor division is winning business in the rapidly growing "New Age" beverage category for teas, flavored waters, sports drinks, and natural sodas. Our ability to develop complete flavor systems, including flavoring, color, and clarity, plus expert consulting in packaging and marketing, is driving sales growth in this promising area. Strategic acquisitions are also propelling Universal Foods into new, higher-growth businesses. Our acquisition of Tricon Colors brought us into the rapidly growing market for high-purity ink-jet inks, and today our largest customer is outside the food arena. Leveraging Technology Highly purified colors create vibrant document from ink-jet printers, a rapidly growing market. TECHNOLOGY Consistency From dehydration to extraction, our technological strength opens new markets, expands existing ones, and most importantly, adds value to our customers. Universal Foods has a single strategic focus: to be a technology-driven industrial marketer of high-performance ingredients and systems for a growing number of markets and applications. With our superior process technologies, we deliver remarkably consistent value-added solutions to our customers. We are enlarging the potential market available to us, and our business mix is shifting toward faster-growing, higher-margin products. Universal Foods' competitive edge and growth opportunities rest in its ability to create products through expertise in specialized chemical, biological, and physical processes. Understanding process technologies, however, is not enough. Our end-use applications knowledge enhances the success of our customers' product development initiatives. Our Dehydrated Products division is winning business because of the quality and consistency of its dehydrated onion, garlic, and chili. Active 8 seed development initiatives, plant tissue culture programs and comprehensive field management techniques page eight 9 Leveraging Technology Sub-critical CO2 extraction creates natural flavors from botanicals like juniper berries. are increasing acreage yields and improving plant quality. Exacting size tolerances (to .01 of an inch) and carefully controlled drying processes help this division ensure that it meets stringent customer requirements. We use our fermentation technology to produce enough yeast every year to make enough 12-inch pizzas to circle the earth 44 times. Our efficient production and consistent quality have made us the exclusive yeast supplier to a significant number of the largest commercial baking companies in the U.S. Fermentation is also one of the cornerstone technologies of our BioProducts division in the production of yeast extracts for flavor enhancers, bionutrients for the pharmaceutical industry, and products for the health food market. We took a big leap forward in our purification capabilities with the acquisition of Tricon Colors. New purification processes are also being used to develop our line of increasingly popular natural colors for foods, cosmetics and pharmaceuticals. page nine 10 GLOBAL Strategic From Strasbourgh to Singapore, our global strength means we meed each customer's unique process and application needs, wherever they may be. Every corner of the world offers Universal Foods opportunities. Our business is truly global, as our customers expand internationally, and the markets we serve reach beyond local and regional borders. The developing regions of Asia Pacific and Latin America and untapped markets in western Europe and North America all hold exciting growth potential. Today we have operations and sales offices in 20 countries serving customers in 127 countries. We greatly improved our position in the Latin American market for food color products with the September 1997 acquisition of the food color business of Pyosa, S.A. Pyosa's food colors are sold under the CertigamaMR trademark. Strong population growth and rising standards of living are making this region attractive for international expansion. In Granada, Spain, we are increasing the business opportunities of our Flavor division by expanding our aroma chemicals operation. Aroma chemicals are the building page ten 11 Leveraging Technology Customers worldwide rely on our service and quality for their own product success. blocks for favors as well as the scents in a remarkably broad array of household and industrial products, including soaps, detergents, and toiletries. Our aroma chemicals operation also lowers the cost of raw materials for our own operations and improves quality and consistency. Our Asia Pacific division approaches customers in this region, from New Zealand to Japan, with a complete line of products from a single source. This enables us to pursue this broad and diverse market with a focused effort and one corporate identity. By focusing internally in technology and externally on product applications and new markets, Universal Foods is enhancing its growth opportunities. With broad vision and strategic drive, we are building a larger, more capable, and more competitive company positioned for long-term success. page eleven 12 Financial Review 13 Management's Analysis of Operations and Financial Condition 18 Quarterly Data 18 Common Stock Prices and Dividends 19 Consolidated Earnings 20 Consolidated Balance Sheets 21 Consolidated Shareholders' Equity 22 Consolidated Cash Flows 23 Notes to Consolidated Financial Statements 30 Management's Responsibility for Financial Statements 30 Independent Auditors' Report 31 Five Year Review page twelve 13 MANAGEMENT'S ANALYSIS of operations and financial conditions [ Years ended September 30, 1997, 1996 and 1995 ] Results of Operations Net earnings for 1997 were $64.7 million, or $2.54 per share, compared with $44.2 million, or $1.71 per share, for 1996 and $66.1 million, or $2.54 per share, for 1995. The 1996 earnings include pretax charges from unusual items of $25.0 million ($16.7 million after tax, or $.65 per share). The 1995 results include a net pretax gain of $26.8 million ($9.2 million after tax, or $.36 per share). Excluding unusual items, net earnings per share increased 7.6% in 1997 and 8.3% in 1996. Unusual items in 1996 include a $20.0 million non-cash charge in adopting Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." During 1996, the Company also recorded a $5 million restructuring charge to address opportunities to streamline its production base, improve efficiency and reduce operating costs. Unusual items in 1995 include a pretax gain of $49.6 million from the sale of the Frozen Foods business, offset by the cost of discontinuing a product line of $14.1 million and other items totaling $8.7 million. Revenue for 1997 increased to $826 million from $806 million in 1996 and $793 million in 1995. The Color and Dehydrated Products divisions reported solid revenue growth for 1997. The Company's Red Star Yeast & Products and Red Star BioProducts divisions' revenues were flat. Yeast revenue reflects the impact of customers moving to cream yeast, which reduces both revenue and product cost. Red Star BioProducts' 1997 revenue was negatively impacted by the slack demand for beef products in the U.K. Flavor division revenue declined 7.3% primarily from continued weakness in the dairy segment. Revenue increases in 1996 were achieved by all divisions except the Flavor division, with the Dehydrated Products division leading the way with revenue growth of 12.9%. Revenue in the Flavor division decreased in 1996 as consolidations, restructuring and a slow-down in new product roll-outs among the division's customers in the food processing industry impacted the overall market. chart Foreign Revenue (in millions) 93 $184 94 $232 95 $313 96 $325 97 $330 Revenue generated outside the United States, including exports, was approximately 40% of total revenue. Approximately 57% of 1997 foreign revenue is derived from Europe. The Company also generates revenue in Canada, Mexico and the Pacific Rim. Consistent with historical experience, changes in foreign currency rates had no material effect on revenue and expenses in 1997, and management currently expects no significant impact from foreign currency rate changes in 1998. The cost of products sold was 66.7% of revenue in 1997, 66.1% in 1996 and 65.3% in 1995. The increases in 1997 and 1996 resulted primarily from decreased margins in the Flavor business, as continued market weakness in 14 North America negatively impacted both pricing and capacity utilization. Selling and administrative expenses increased $3.2 million, or 2.0%, in 1997. Included in 1997 selling and administrative expenses are $7.5 million of integration expenses for the costs of combining the Company's BioProducts and Flavor divisions. Excluding these expenses, selling and administrative expenses would have been 19.4% of revenue, a decrease of $4.3 million, or 2.6%, from 1996. In 1996, selling and administrative expenses decreased 4.5% to 20.4% of revenue from 21.7% in 1995. page thirteen 15 Operating income, excluding the integration costs in 1997 and unusual items in 1996 and 1995, increased $5.8 million in 1997 to $114.7 million from $108.9 million in 1996 and $102.9 in 1995. The 1997 increase is primarily the result of strong gains by the Color and Dehydrated Products divisions. Color division results include the results of Tricon Colors, Inc., since it was acquired in the second quarter of 1997. The 1996 increase in operating income is attributable to improved results in all divisions, except the Flavor division which experienced weakness in certain markets. The effective income tax rate was 28.5% in 1997, 35.6% in 1996 and 42.3% in 1995. The decrease in the effective tax rate to 28.5% in 1997 reflects settlements of prior years' issues and other items. Excluding the effect of these items, the effective tax rate would have been 33.8%. The effective tax rate in 1995 was increased by a higher than normal tax rate on the gain from 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. Liquidity and Financial Position Cash provided by operating activities was $91.6 million in 1997, $91.3 million in 1996 and $23.1 million in 1995. The 1997 amounts include increases in net earnings and depreciation, offset by an increase in net working capital. The increase in 1996 of $68.2 million reflects continued improvement in earnings before unusual items and reduced working capital amounts. Cash used for investing activities increased to $129.3 million in 1997 from $61.6 million in 1996 and $16.3 million in 1995. Cash used for acquisitions was $50.5 million in 1997, $.5 million in 1996 and $12.4 million in 1995. Investing activities in 1995 included $39 million of cash received from the sale of the Frozen Foods business. Capital expenditures totaled $73.5 million in 1997, $59.0 million in 1996, and $42.6 million in 1995. All years reflect expenditures for productivity improvements and plant expansions. In 1998, capital expenditures are estimated to be between $65 million and $75 million; depreciation expense should approximate $40 million. chart Operating Margins 93 11.9% 94 11.7% 95 13.0% 96 13.5% 97 13.0% (excluding unusual items) Financing activities provided cash of $35.6 million in 1997 and used $35.0 million in 1996 and $41.6 million in 1995. During 1997 the Company repurchased 142,600 shares of treasury stock at a cost of $5.8 million. In 1996 the Company repurchased 763,118 shares at a cost of $27.6 million. Net additional borrowings were $59.8 million in 1997 compared to $16.7 million in 1996. The majority of the 1997 borrowings were used to finance acquisitions. The Company uses debt financing to lower its overall cost of capital, which 16 increases the return to shareholders. The Company maintains debt levels considered prudent based on its cash flows, interest coverage and percentage of total debt to total capital. The Company has paid uninterrupted quarterly cash dividends since commencing public trading in its stock over twenty years ago. In 1997, dividends paid per share were $1.04, up 4.0% from $1.00 in 1996, which was an increase of 4.2% over 1995. As evidence of the Company's continued effort to provide page fourteen 17 shareholders with immediate and tangible participation in current earnings, the dividends paid in 1997 represented 41% of net earnings, 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 $1.06 per share. 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 1998 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. Total Debt to Total Capital 93 38.7% 94 37.6% 95 34.3% 96 36.9% 97 41.1% Outlook This report contains forward-looking statements that reflect management's current assumptions and estimates of future economic circumstances, industry conditions, Company performance and financial results, in particular, earnings growth and return on shareholders' equity. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking 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 international business; and the outcome of various productivity-improvement and cost-reduction efforts. Universal Foods Corporation seeks to grow in both its primary market, the food industry, and through leveraging its technology into non-food applications. Currently, about 11% of revenue comes from non-food applications. These include such diverse, but technically related applications as cosmetics, personal care, pharmaceuticals, specialty inks and specialty chemicals. The Company believes that technology in its Flavor, Color and Yeast divisions offers opportunities to expand into non-food markets. In addition, the Company is seeking strategic acquisitions to increase its business base, enhance its technology and expand geographically. In fiscal 1997, the Company entered the rapidly growing market for ink-jet inks and advanced its purification technology with the acquisition of Tricon Colors, Inc. Within the food 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. In fiscal 1997, the Company acquired the food color business of Pyosa, S.A., located in Monterrey, Mexico, thereby expanding its geographic presence in Latin America. The Company views current 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. 18 Certain of the Company's businesses and products provide slower, stable growth and positive cash flows while others can be expected to achieve higher levels of performance. As a supplier of value-added ingredients, the Company can benefit from new page fifteen 19 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. To further penetrate the growing market for flavors, flavor enhancers and colors in Asia/Pacific Rim, the Company established a separate operating division headquartered in Singapore. The Asia Pacific division operates as Universal Foods Corporation (Asia Pacific) and coordinates sales, marketing and technical functions previously directed from U.S.- based divisions. Resources and personnel have been devoted to build an infrastructure for the expanded technical and marketing support. 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%. Capital Expenditures/ Depreciation (in millions) 93 $36.4 $29.6 94 $55.1 $31.0 95 $42.6 $28.2 96 $59.0 $29.2 97 $73.5 $32.4 Year 2000 The Company has developed preliminary plans to address the possible exposures related to the impact on its computer systems of the Year 2000. Key financial, information and operational systems have been assessed and detailed plans are being developed to address systems modifications required by December 31, 1999. The financial impact of making the required systems changes is not expected to be material to the Company's consolidated financial position, results of operations or cash flows. Other Issues Environmental Issues: Universal Foods has a proactive environmental program, which is transforming environmental issues into positive business opportunities to increase productivity and profitability resulting in a competitive advantage for our business. Increased emphasis is being placed on waste minimization to reduce any short- and long-term environmental issues. All environmental compliance systems utilize the most cost-effective and innovative technology. These efforts continue on a world-wide basis with increased emphasis on the environmental aspects of European operations. New environmental control systems completed in 1997 include upgrades to air emission control systems in Dallas and Oakland. New wastewater systems at Midleton, Ireland, and Elberg, Netherlands, are planned for completion in early calendar 1998. For fiscal 1998, new environmental systems are planned for facilities in California, Indiana, and Marchais, France. 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. 20 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. page sixteen 21 Independent Committees: The audit, finance, 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. 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. 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. 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. The Company 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. page seventeen 22 Quarterly Data [ Unaudited ]
(Dollars in thousands Net Earnings except per share amounts) Revenue Gross Profit Earnings Per Share 1997 First Quarter $193,484 $65,852 $13,883 $.55 Second Quarter 204,826 66,567 15,620 .61 Third Quarter 209,725 69,410 16,748 .66 Fourth Quarter 217,679 72,795 18,437 .72 1996 First Quarter $193,446 $66,979 $13,490 $ .52 Second Quarter 200,034 67,836 14,542 .56 Third Quarter 200,776 67,848 15,721 .61 Fourth Quarter 212,096 70,429 452 .02
The fourth quarter of 1996 includes pretax charges of $25 million ($16.7 million after tax or $.65 per share). Common Stock Prices and Dividends
Market Price Dividends High Low Per Share 1997 First Quarter $37.75 $31.88 $.26 Second Quarter 37.88 33.25 .26 Third Quarter 39.25 32.00 .26 Fourth Quarter 41.38 36.88 .26 1996 First Quarter $41.00 $33.75 $.25 Second Quarter 40.13 36.63 .25 Third Quarter 38.13 33.00 .25 Fourth Quarter 36.25 28.00 .25
page eighteen 23 Consolidated Earnings (In thousands except per share amounts)
Years ended September 30, 1997 1996 1995 Earnings Revenue $825,714 $806,352 $792,971 Operating costs and expenses: Cost of products sold 551,090 533,260 518,194 Selling and administrative expenses 167,390 164,186 171,914 Unusual items 25,000 (26,847) -------- -------- -------- 718,480 722,446 663,261 -------- -------- -------- Operating income 107,234 83,906 129,710 Interest expense 16,798 15,266 15,107 -------- -------- -------- Earnings before income taxes 90,436 68,640 114,603 Income taxes 25,748 24,435 48,500 -------- -------- -------- Net earnings $ 64,688 $ 44,205 $ 66,103 -------- -------- -------- Earnings per Common Share $ 2.54 $ 1.71 $ 2.54 Weighted average shares 25,513 25,798 26,061 -------- -------- --------
See notes to consolidated financial statements. page nineteen 24 Consolidated Balance Sheets (Dollars in thousands except per share amounts)
September 30, 1997 1996 Assets Current Assets: Cash and cash equivalents $ 1,258 $ 3,395 Trade accounts receivable less allowance for losses of $4,034 and $3,509 117,259 105,850 Inventories 185,552 174,193 Prepaid expenses and other current assets 20,855 24,793 Prepaid income taxes 17,324 16,373 -------- -------- Total current assets 342,248 324,604 Investments 26,540 20,821 Other assets 28,653 25,099 Intangibles-at cost, less accumulated amortization of $34,312 and $29,385 181,309 141,487 Property, Plant and Equipment: Cost: Land 16,360 15,901 Buildings 131,299 120,071 Machinery and equipment 388,402 343,793 -------- -------- 536,061 479,765 Less accumulated depreciation 227,082 211,304 -------- -------- 308,979 268,461 -------- -------- Total assets $887,729 $780,472 ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $ 7,971 $ 2,919 Accounts payable and accrued expenses 135,522 127,637 Salaries, wages and withholdings from employees 13,978 11,579 Income taxes 16,151 14,207 Current maturities of long-term debt 4,905 5,810 -------- -------- Total current liabilities 178,527 162,152 Deferred income taxes 17,550 12,770 Other deferred liabilities 20,798 19,123 Accrued employee and retiree benefits 37,877 38,592 Long-term debt 252,526 196,869 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 76,774 78,177 Earnings reinvested in the business 371,444 333,290 -------- -------- 450,916 414,165 Less: Treasury stock, 1,386,248 and 1,557,008 shares, respectively, at cost 45,742 49,892 Other 24,723 13,307 -------- -------- 380,451 350,966 -------- -------- Total liabilities and shareholders' equity $887,729 $780,472 ======== ========
See notes to consolidated financial statements. page twenty 25 Consolidated Shareholders' Equity
Other Earnings Unearned Foreign (Dollars in thousands Additional reinvested portion of currency except per share Common paid-in in the Treasury Stock restricted translation amounts) stock capital business Shares Amount stock adjustments 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 canceled 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) Net earnings for the year 44,205 Cash dividends paid-$1.00 a share (25,798) Stock options exercised, net of 6,020 shares exchanged (788) (83,414) 2,451 Other 12 1,343 (48) Restricted stock issued (2) (2,000) 64 (62) Amortization of restricted stock 444 Translation adjustment for year (3,703) Purchase of treasury stock 763,118 (27,589) ------- ------ ------- ------- ------- ------- ------
26 Balances at September 30, 1996 2,698 78,177 333,290 1,557,008 (49,892) (953) (12,354) Net earnings for the year 64,688 Cash dividends paid-$1.04 a share (26,534) Stock options exercised, net of 19,248 shares exchanged (1,513) (304,819) 9,768 Other 1 5,459 (287) 120 Restricted stock issued 109 (14,000) 454 (563) Amortization of restricted stock 420 Translation adjustment for year (11,393) Purchase of treasury stock 142,600 (5,785) ------ -------- --------- --------- --------- -------- --------- Balances at September 30, 1997 $2,698 $ 76,774 $ 371,444 1,386,248 $ (45,742) $ (976) $ (23,747) ====== ======== ========= ========= ========= ======== =========
See notes to consolidated financial statements. page twenty=one 27 Consolidated Cash Flows [Dollars in thousands]
Years ended September 30, 1997 1996 1995 Cash Flows from Operating Activities Net earnings $ 64,688 $ 44,205 $ 66,103 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 32,399 29,178 28,206 Amortization 4,927 4,341 6,435 Impairment of long-lived assets and other unusual charges -- 25,000 22,713 Loss (gain) on sale of property, plant and equipment and other productive assets 16 (332) (50,530) Changes in operating assets and liabilities (net of effects from acquisition of businesses): Trade accounts receivable (9,709) (3) (5,187) Inventories (8,481) 4,937 (11,109) Prepaid expenses, income taxes and other assets (6,603) (8,681) (3,935) Accounts payable and accrued expenses 4,244 715 (18,325) Salaries, wages and withholdings from employees 2,399 (136) 828 Income taxes 1,944 (6,548) (8,194) Deferred income taxes 4,780 (1,744) (5,881) Other liabilities 960 417 2,009 --------- -------- -------- Net cash provided by operating activities 91,564 91,349 23,133 --------- -------- -------- Cash Flows from Investing Activities Acquisition of property, plant and equipment (73,502) (59,012) (42,562) Acquisition of new businesses-net of cash acquired (50,492) (529) (12,431) Proceeds from disposition of business and sale of property, plant and equipment and other productive assets 438 658 43,317 Increase in investments (5,719) (2,740) (4,574) --------- -------- -------- Net cash used in investing activities (129,275) (61,623) (16,250) ========= ======== ======== Cash Flows from Financing Activities Proceeds from additional borrowings 66,455 76,822 11,948 Reduction in debt (6,651) (60,110) (27,920) Purchase of treasury stock (5,785) (27,589) (1,759) Dividends (26,534) (25,798) (25,020) Proceeds from options exercised and other equity transactions 8,089 1,627 1,155 --------- -------- -------- Net cash provided by (used in) financing activities 35,574 (35,048) (41,596) ========= ======== ======== Net decrease in cash and cash equivalents (2,137) (5,322) (34,713) Cash and cash equivalents at beginning of year 3,395 8,717 43,430 --------- -------- -------- Cash and cash equivalents at end of year $ 1,258 $ 3,395 $ 8,717 --------- -------- -------- Cash paid during the year for: Interest $ 16,062 $ 15,175 $ 15,352 Income taxes 16,261 27,222 53,500 --------- -------- --------
See notes to consolidated financial statements. page twenty-two 28 Notes to Consolidated Financial Statements [ Tabular amounts in thousands except per share data ] [ Years ended September 30, 1997, 1996 and 1995 ] 1/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. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated. 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. Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. 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, Goodwill and Long-Lived Assets The excess cost over net assets of businesses acquired and other intangibles, principally formulae and customer lists, are being amortized using the straight-line method over periods ranging up to 40 years. In fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121, ("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (see note 3). Under SFAS 121 long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. Prior to fiscal 1996, the carrying value of intangibles, goodwill and long-lived assets was evaluated on the basis of management's estimates of future undiscounted operating income associated with the assets. Assets were generally grouped at major operating entity levels, and these levels were reviewed for impairment. Recoverability of other long-lived assets not included under SFAS No. 121, primarily investments in unconsolidated affiliates and goodwill not identified with impaired assets, will continue to be evaluated on a recurring basis. The primary indicators of recoverability are current or forecasted profitability over the estimated remaining life of these assets, based on the operating profit of the businesses directly related to these assets. If recoverability is unlikely based on the evaluation, the carrying amount is reduced by the amount it exceeds the forecasted operating profit and any estimated disposal value. Financial Instruments The Company uses financial instruments in its 29 management of foreign currency. 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 shareholders' equity. Gains and losses related to hedges of intercompany loans offset the gains and losses on intercompany loans and are recorded in net earnings. The Company 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 $632,000 in 1997, $23,000 in 1996, and $(140,000) in 1995, are included in earnings before income taxes. Stock-Based Compensation The Company currently accounts for its stock-based compensation plans using the intrinsic value-based method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). page twenty-three 30 Notes to Consolidated Financial Statements [ Years ended September 30, 1997, 1996 and 1995] New Accounting Pronouncement The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, "Earnings per share." The statement will be effective for the Company in the first quarter of 1998. The Company does not expect the impact of the new Standard to be material. 2/Acquisitions During the second quarter of 1997, the Company acquired Tricon Colors, Inc., an ink and dye producer, for cash of $44,492,000. The allocation of the purchase price resulted in goodwill of $37,923,000 which is being amortized on a straight-line basis over 40 years. In September 1997, the Company acquired certain assets of the food color business of Pyosa S.A., for cash and notes aggregating $7,500,000. In 1995, the Company acquired the common stock of two foreign dehydrated vegetable processors for $12,798,000. 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. On an unaudited pro- forma basis, the effects of the acquisitions were not significant to the Company's results of operations. 3/Restructuring, Integration and Other Charges In 1997, the Company recorded an integration charge of $7,500,000 ($4,600,000 after tax, or $.18 per share) for the cost of combining its BioProducts and Flavor divisions. This charge, which is classified in selling and administrative expenses, relates primarily to severance costs which will be paid in 1998. The Company adopted SFAS No. 121 as of the beginning of the fourth quarter of 1996. Certain long-lived assets which were held and used in the business were identified as impaired. The Company considers continued operating losses, or significant and long-term changes in industry conditions, to be its primary indicators of potential impairment. In 1996 an impairment was recognized when the future undiscounted cash flows of each asset was estimated to be less than the asset's related carrying value. As such, the carrying values of these assets were written down to the Company's estimates of fair value. Fair value was based on sales of similar assets, or other estimates of fair value such as discounting estimated future cash flows. The non-cash charge for adoption of this standard was $20,000,000 and resulted from changes in industry conditions, continued operating losses and from the Company grouping assets at a lower level than under its previous method of accounting. In addition, in 1996 the Company identified opportunities to streamline its production base, improve efficiency and enhance its competitiveness. Accordingly, the Company adopted a restructuring plan which includes closing or reconfiguring a number of production facilities and reducing the workforce by approximately 130 employees. The restructuring charge of approximately $5,000,000 includes charges primarily related to severance costs, substantially all of which were paid in 1997. The total 1996 charge for adopting SFAS No. 121 and restructuring was $25,000,000 ($16,700,000 after tax or $.65 per share). 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, 31 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. 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 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. 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 has appealed the judgment and the court should issue their findings in fiscal 1998. page twenty-four 32 4/Inventories Inventories include finished and in-process products totaling $132,150,000 and $122,775,000 at September 30, 1997 and 1996, respectively, and raw materials and supplies of $53,402,000 and $51,418,000 at September 30, 1997 and 1996, respectively. 5/Debt Long-term debt consists of the following obligations:
1997 1996 Payable in U.S. Dollars: 9.06% senior notes due through July 2004 $ 38,000 $ 42,000 7.59% senior notes due through December 2008 30,000 30,000 6.99% senior notes due through December 2007 40,000 40,000 6.77% senior notes due through January 2010 15,000 15,000 6.70% senior notes due through December 2009 20,000 20,000 6.68% senior notes due through January 2011 15,000 15,000 6.38% senior notes due through December 2003 20,000 20,000 Commercial paper and other short-term notes 70,000 12,407 Various mortgage notes, capital lease obligations and other notes 5,702 6,050 Notes and credit facilities payable in foreign currencies 3,729 2,222 -------- -------- 257,431 202,679 Current maturities 4,905 5,810 ======== ======== Total long-term debt $252,526 $196,869 ======== ========
The Company has a $70,000,000 multicurrency revolving loan agreement with a group of three 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 September 2002. Uncommitted lines of credit totaling $289,000,000 are also available to the Company from several banks. The Company issues short-term commercial paper obligations supported by committed lines of credit included in the Revolving Loan Agreement. The Company also issues other short-term notes. At September 30, 1997 and 1996, $70,000,000 and $12,407,000 of short-term borrowings were classified as long-term debt reflecting the Company's intent and ability, through the existence of the unused credit facility, to refinance these borrowings. The aggregate amounts of maturities on long-term debt each year for the five years subsequent to September 30, 1997 are as follows: 1998, $4,905,000; 1999, $7,636,000; 2000, $12,868,000; 2001, $13,750,000 and 2002, $83,665,000. Substantially all of the loan agreements contain restrictions concerning working capital, borrowings, investments and dividends. Earnings reinvested of $10,734,000 at September 30, 1997 were unrestricted. Short-term borrowings consist of bankers acceptances and loans to foreign 33 subsidiaries denominated in local currencies which are borrowed under various foreign uncommitted lines of credit. The weighted average Interest rate on short-term borrowings, including the amounts reclassified To long-term debt, were 5.78% and 5.61% at September 30, 1997 and 1996, respectively. 6/Financial Instruments and Risk Management 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, 1997 and 1996, the Company had forward exchange contracts, generally with maturities of one year or less, of $105,726,000 and $49,098,000, respectively. Concentrations of Credit Risk Counterparties to currency exchange contracts 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. page twenty-five 34 Notes to Consolidated Financial Statements [ Years ended September 30, 1997, 1996 and 1995 ] Fair Values The carrying amount of cash and cash equivalents, trade receivables, investments, financial instruments, accounts payable, and short-term borrowings approximated fair value as of September 30, 1997 and 1996. 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, 1997 and 1996 was approximately $261,978,000 and $203,714,000, respectively. 7/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. Generally stock options become exercisable over a three-year vesting period and expire 10 years from the date of grant. The 1994 Plan also authorizes the grant of up to 400,000 stock appreciation rights (SARs) in connection with stock options. The Plans have awarded shares of restricted stock which become freely transferable at the end of 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. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the Company's stock option plans. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net earnings and earnings per common share would have been reduced to the pro forma amounts indicated below:
1997 1996 Pro forma net earnings $63,120 $43,874 Pro forma net earnings per common share 2.47 1.70
The pro forma effect on net earnings for 1997 and 1996 is not representative of the pro forma effect on net earnings in future years because it does not take into consideration pro forma compensation expense 35 related to grants made prior to 1996. The weighted-average fair value of options granted was $7.80 per share in 1997 and $7.77 per share in 1996. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
1997 1996 Dividend yield 2.6% 3.1% Volatility 19% 23% Risk-free interest rate 5.8% 6.4% Expected term (years) 5 5
page twenty-six 36 The changes in outstanding stock options during the three years ended September 30, 1997 are summarized below:
Shares Weighted Outstanding average Options Available price Balances at September 30, 1994 1,600 1,189 $28.89 Granted 372 (372) 31.48 Restricted stock --- (13) 33.00 Exercised (189) --- 21.68 Canceled (167) 167 32.94 Balances at September 30, 1995 1,616 971 29.94 Granted 442 (442) 33.62 Restricted stock --- (2) 31.13 Exercised (89) --- 21.21 Canceled (29) 29 34.33 Balances at September 30, 1996 1,940 556 31.13 Granted 342 (342) 37.43 Restricted stock --- (14) 40.19 Exercised (324) --- 27.37 Canceled (60) 60 33.63 Balances at September 30, 1997 1,898 260 $32.85
Weighted Options average exercisable price September 30, 1995 965 $30.33 September 30, 1996 1,176 $30.09 September 30, 1997 1,231 $31.49
The following summarizes information concerning currently outstanding and exercisable options: Range of exercise price
$11.83 - $20.01 - $30.01 - 20.00 30.00 40.19 Number outstanding 38 235 1,625 Weighted average remaining contractual life, in years 0.8 4.8 7.4 Weighted average exercise price $15.15 $27.52 $34.05 Number exercisable 38 205 988 Weighted average exercise price $15.15 $27.41 $32.97
The Company is authorized to issue 250,000 shares of cumulative preferred stock. 8/Retirement Plans The Company 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 37 0 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 $6,984,000, $7,144,000 and $5,205,000 in 1997, 1996 and 1995, respectively. 9/Other Postretirement Benefits The Company provides certain health insurance benefits to eligible domestic retirees and their dependents. Effective in 1997 the Company implemented programs intended to mitigate rising costs, including adopting a provision that limits its future obligation to absorb health care cost inflation. The amendment resulted in an unrecognized prior service gain of $4,318,000 which is being amortized over the employees average remaining service life. Postretirement benefit expense includes the following components:
1997 1996 1995 Service cost $ 419 $ 831 $1,139 Interest cost on accumulated benefit obligation 959 1,212 1,733 Amortization of prior service cost (548) (278) (278) Other (441) (363) (15) ------ ------ ------ Postretirement benefit expense $ 389 $1,402 $2,579 ====== ====== ======
The Company continues to fund benefit costs on a pay-as-you-go basis, with retirees paying a portion of the costs. page twenty-seven 38 Notes to Consolidated Financial Statements [ Years ended September 30, 1997, 1996, and 1995 ] The status of the Company's postretirement benefit obligation was:
1997 1996 Actuarial present value of accumulated benefit obligation: Retirees $ 6,629 $ 7,142 Fully eligible active plan participants 1,763 2,032 4,898 8,327 ------- ------- Accumulated benefit obligation 13,290 17,501 Unrecognized prior service cost 8,491 4,721 Unrecognized gain 10,503 10,477 ------- ------- Postretirement benefits accrued $32,284 $32,699 ======= =======
The weighted average discount rates used in determining the accumulated postretirement benefit obligation at September 30, 1997 and 1996 were 7.5%. The health care cost trend rates were assumed to be 9.25% in 1997 and 10% in 1996, gradually declining to 5.5% by the year 2002 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, 1997 by approximately $2,150,000 and the aggregate of the service and interest cost components of the 1997 postretirement benefit expense by $224,000. 10/Income Taxes The provision for income taxes, is as follows:
1997 1996 1995 Currently payable: Federal $10,556 $14,179 $33,181 State 3,192 2,683 5,636 Foreign 8,171 8,140 8,305 Deferred (benefit): Federal 3,426 1,792 1,021 State 403 180 210 Foreign --- (2,539) 147 ------- ------- -------- $25,748 $24,435 $ 48,500 ======= ======= ========
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities consist of the following:
1997 1996 Deferred tax assets: Benefit plans $(19,466) $(19,300) Liabilities and reserves (10,674) (9,097) Other (14,257) (13,605) -------- -------- Gross deferred tax assets (44,397) (42,002) Valuation allowance 11,468 8,794 -------- -------- Total deferred tax assets (32,929) (33,208) -------- -------- Deferred tax liabilities: Property, plant and equipment 16,405 15,587 Other 16,750 14,018 -------- -------- Total deferred tax liabilities 33,155 29,605 -------- -------- Net deferred tax (assets) liabilities $ 226 (3,603) -------- --------
39 The effective tax rate differs from the statutory Federal income tax rate of 35% as described below:
1997 1996 1995 Taxes at statutory rate 35.0% 35.0% 35.0% State income taxes, net of Federal income tax benefit 2.6 2.7 3.3 Tax credits (4.6) (3.3) (2.7) Settlements of prior years' issues (5.3) --- --- Sale of business --- --- 5.1 Other, net 0.8 1.2 1.6 ------ ------ ------ Effective tax rate 28.5% 35.6% 42.3% ====== ====== ======
The 1997 effective tax rate declined to 28.5%, reflecting the reversal of tax accruals no longer required resulting from settlement of prior years' issues and other items. The 1997 effective tax rate would have been 33.8% excluding the favorable impact of the above items. Earnings before income taxes are summarized as follows:
1997 1996 1995 United States $ 67,960 $ 55,228 $ 92,043 Foreign 22,476 13,412 22,560 -------- -------- -------- $ 90,436 $ 68,640 $114,603 ======== ======== ========
page twenty-eight 40 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. 11/Foreign Operations Summarized information relating to the Company's domestic and foreign operations are as follows:
1997 1996 1995 Revenue: United States $544,123 $517,678 $516,683 Europe 178,054 186,547 174,931 Other foreign 103,537 102,127 101,357 -------- -------- -------- $825,714 $806,352 $792,971 ======== ======== ======== Operating Income: United States $ 84,859 $ 67,850 $ 98,816 Europe 9,690 2,160 14,912 Other foreign 12,685 13,896 15,982 -------- -------- -------- $107,234 $ 83,906 $129,710 ======== ======== ======== Identifiable Assets: United States $528,272 $438,474 $434,011 Europe 246,379 234,686 231,873 Other foreign 113,078 107,312 110,986 -------- -------- -------- $887,729 $780,472 $776,870 ======== ======== ========
Operating income includes pre-tax charges for restructuring, integration and other as follows:
1997 1996 1995 United States $5,555 $11,100 $(26,847) Europe 1,700 13,900 --- Other foreign 245 --- --- ------ ------- ------- $7,500 $25,000 $(26,847) ====== ======= ========
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. 12/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. page twenty-nine 41 Management's Responsibility for Financial Statements [ Years ended September 30, 1997, 1996 and 1995 ] 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. Kenneth P. Manning Chairman, President 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, 1997 and 1996, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1997. 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 42 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, in fiscal 1996 the Company adopted the provisions of the Financial Accounting Standards Boards' Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Deloitte & Touche LLP Milwaukee, Wisconsin November 13, 1997 page thirty 43
Five Year Review (Dollars in thousands except per share data) 1997 1996 1995 1994 1993 Summary of Operations Revenue $825,714 100.0% $806,352 100.0% $792,971 100.0% $929,863 100.0% $891,566 100.0% Operating costs and expenses: Cost of products sold 551,090 66.7 533,260 66.1 518,194 65.3 616,752 66.3 589,735 66.1 Selling and administrative expenses 167,390 20.3 164,186 20.4 171,914 21.7 203,965 22.0 196,102 22.0 Unusual items --- --- 25,000 3.1 (26,847) (3.4) 12,125 1.3 - - -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- 718,480 87.0 722,446 89.6 663,261 83.6 832,842 89.6 785,837 88.1 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Operating income 107,234 13.0 83,906 10.4 129,710 16.4 97,021 10.4 105,729 11.9 Interest expense 16,798 2.0 15,266 1.9 15,107 1.9 15,888 1.7 15,172 1.7 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Earnings before income taxes and cumulative effect of accounting changes 90,436 11.0 68,640 8.5 114,603 14.5 81,133 8.7 90,557 10.2 Income taxes 25,748 3.2 24,435 3.0 48,500 6.2 30,222 3.2 33,959 3.9 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Earnings before cumulative effect of accounting changes 64,688 7.8 44,205 5.5 66,103 8.3 50,911 5.5 56,598 6.3 Cumulative effect of accounting changes net of tax - - - - - - - - 23,563 2.6 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Net earnings $ 64,688 7.8% $ 44,205 5.5% $ 66,103 8.3% $ 50,911 5.5% $ 33,035 3.7% ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
44 Earnings per common share before cumulative effect of accounting changes $ 2.54 $ 1.71 $ 2.54 $ 1.95 $ 2.15 Net earnings per common share $ 2.54 $ 1.71 $ 2.54 $ 1.95 $ 1.25 =========== ========== ========== =========== =========== Other Related Data Earnings per common share excluding unusual items and cumulative effect of accounting changes $ 2.54 $ 2.36 $ 2.18 $ 2.24 $ 2.15 Dividend per common share 1.04 1.00 0.96 0.92 0.88 Average shares outstanding 25,512,771 25,798,482 26,061,269 26,130,783 26,350,346 Book value per common share $ 14.89 $ 13.85 $ 13.89 $ 12.60 $ 11.60 Price range per common share 31.88-41.38 28.00-41.00 26.13-34.88 28.88-35.00 30.25-37.25 Share price at September 30 40.25 32.50 34.88 29.63 33.88 Research and development expenditures 31,510 29,824 28,558 32,217 28,460 Capital expenditures 73,502 59,012 42,562 55,071 36,363 Depreciation 32,399 29,178 28,206 31,012 29,644 Amortization 4,927 4,341 6,435 5,366 5,409 Total assets 887,729 780,472 776,870 763,664 729,993 Long-term debt 252,526 196,869 160,678 172,235 171,907 Shareholders' equity 380,451 350,966 361,780 327,390 305,066 Return on average shareholders' equity before cumulative effect of accounting change 17.5% 12.2% 18.5% 16.1% 18.7% Total debt to total capital 41.1% 36.9% 34.3% 37.6% 38.7% Employees 4,127 4,035 4,104 4,063 5,450
The 1997 results include a pretax charge of $7.5 million for integrating two divisions. The 1996 results include pretax charges of $25 million relating to adopting SFAS No. 121 and restructuring costs. The 1995 results include a net pretax gain of $26.8 million relating to the sale of the Frozen Foods business, the cost of discontinuing a product line and other items. The 1994 results include a pretax restructuring charge of $12.1 million. page thirty-one EX-21 6 SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF UNIVERSAL FOODS CORPORATION Warner-Jenkinson Company, a New York corporation formerly known as H. Kohnstamm & Co., Inc. through which the Company conducts its food color business, has 5 foreign subsidiaries and one domestic subsidiary. Rogers Foods Inc., a California corporation formerly the Company's Dehydrated Division has three foreign subsidiaries. Universal Holdings Inc., a Nevada investment subsidiary which is the parent company of Rogers Foods Inc. and the Warner-Jenkinson Company. Universal Flavor Corporation, an Indiana corporation through which the Company now conducts its food flavor and bio-products businesses, has 1 domestic and 11 foreign subsidiaries. Universal Foods Corporation (Asia Pacific) PTE LTD., a Singapore corporation, has 5 foreign subsidiaries. EX-23 7 CONSENT 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Amendment No. 1 to Registration Statements No. 33-7235, 33-34555 and 33-55437, and Registration Statements No. 33-27356 and 33-35707 of Universal Foods Corporation on Form S-8 of our reports dated November 13, 1997, which express an unqualified opinion and include a paragragh relating to the adoption of the provisions of Statement of Financial Accounting Standards No. 121, " Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," appearing in and incorporated by reference in the Annual Report on Form 10-K of Universal Foods Corporation for the year ended September 30, 1997. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin December 22, 1997 EX-27 8 FDS
5 UNIVERSAL FOODS CORPORATION YEAR ENDED SEPTEMBER 30, 1997 FINANCIAL DATA TAGGING SCHEDULES. 1,000 12-MOS SEP-30-1997 OCT-01-1996 SEP-30-1997 1,258 0 121,293 4,034 185,552 342,248 536,061 227,082 887,729 178,527 252,526 0 0 2,698 377,753 887,729 825,714 825,714 551,090 551,090 0 572 16,798 90,436 25,748 64,688 0 0 0 64,688 2.54 2.54
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