<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
------------------------
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended March 31, 1999
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 0-23429
-------
BROUGHTON FOODS COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Ohio 31-4135-025
------------------------------------------ -------------------
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 N. Seventh Street
P.O. Box 656
Marietta, Ohio 45750
------------------------------------------ -------------------
(Address of principal (Zip Code)
executive offices)
</TABLE>
(740) 373-4121
--------------------------------------------------
(Registrant's telephone number including area code)
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,774,335 shares of the
Company's Common Stock ($1.00 par value) were
outstanding as of April 30, 1999.
<PAGE> 2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
December 31, 1998 and March 31, 1999
Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1999
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
All other schedules and compliance information called for by the instructions to
Form 10-Q have been omitted since the required information is not present or not
present in amounts sufficient to require submission.
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BROUGHTON FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,278,208 $ 5,610,681
Accounts receivable, less allowance for
doubtful accounts of $652,000 and
$721,000 at December 31, 1998
and March 31, 1999, respectively 18,437,190 17,330,234
Inventories 5,982,717 6,721,399
Prepaid expenses 1,249,943 980,555
Refundable income taxes 577,037 731,619
Deferred income taxes 240,617 240,617
----------- -----------
Total current assets 30,765,712 31,615,105
----------- -----------
Property, plant and equipment, at cost:
Buildings and land improvements 11,051,586 11,066,416
Machinery and equipment 24,718,705 25,174,021
Leasehold improvements 198,760 198,760
Assets under construction 1,986,190 2,057,487
----------- -----------
37,955,241 38,496,684
Less accumulated depreciation and
amortization 11,477,024 12,145,789
----------- -----------
26,478,217 26,350,895
Land 2,818,418 2,818,418
----------- -----------
29,296,635 29,169,313
----------- -----------
Intangible assets, net of accumulated
amortization of $332,770 and $439,283
at December 31, 1998 and
March 31, 1999, respectively 13,739,121 13,632,608
Other assets 770,026 765,632
Prepaid pension costs 604,361 604,361
----------- -----------
15,113,508 15,002,601
----------- -----------
Total assets $75,175,855 $75,787,019
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE> 4
BROUGHTON FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ --------------
<S> <C> <C>
Current liabilities:
Accounts payable $10,627,996 $11,919,144
Accrued expenses and other 2,681,903 2,837,815
Current installments on debt 554,420 16,075,792
---------- ----------
Total current liabilities 13,864,319 30,832,751
---------- ----------
Term Debt, net of current installments 19,363,574 3,787,317
Deferred income taxes 5,933,973 5,933,973
Other 1,967,476 1,933,168
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value; 10,000,000 6,314,575 6,314,575
shares authorized, 6,314,575 shares
issued at December 31, 1998
and March 31, 1999
Additional paid-in capital 20,482,702 20,482,702
Retained earnings 7,756,960 7,010,257
---------- ----------
34,554,237 33,807,534
Less 540,240 shares of common stock in
treasury, at cost 507,724 507,724
---------- ----------
Total shareholders' equity 34,046,513 33,299,810
---------- ----------
Total liabilities and shareholders'
equity $75,175,855 $75,787,019
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
BROUGHTON FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1999
--------------- --------------
<S> <C> <C>
Net sales $ 34,751,119 $ 49,704,027
Cost of sales 27,130,177 41,250,214
------------ ------------
Gross profit 7,620,942 8,453,813
Operating costs and expenses:
Selling and distribution 5,747,480 7,643,927
General and administrative
expenses 887,895 1,761,875
------------ ------------
6,635,375 9,405,802
------------ ------------
Income (loss) from operations 985,567 (951,989)
Other income (expense):
Other income, net 13,964 14,172
Interest income 145,517 78,327
Interest expense (1,626) (364,611)
------------ ------------
157,855 (272,112)
------------ ------------
Income (loss) before income taxes 1,143,422 (1,224,101)
Total income tax expense (benefit) 443,027 (477,398)
------------ ------------
Net income (loss) $ 700,395 ($746,703)
============ ============
Earnings (loss) per common share:
Basic $ 0.12 ($0.13)
============ ============
Diluted $ 0.12 ($0.13)
============ ============
Shares used in computing earnings
(loss) per common share:
Basic 5,774,335 5,774,335
============ ============
Diluted 5,774,335 5,774,335
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE> 6
BROUGHTON FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 700,395 ($746,703)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 434,416 851,644
Bad debt expense 12,000 73,004
Gain on disposal of property, plant
and equipment (7,500) (2,099)
Change in deferred gain on sale of
fixed assets (9,099) (9,096)
Change in assets and liabilities:
Accounts receivable 534,291 1,033,952
Inventories (238,644) (738,682)
Prepaid expenses (39,909) 269,388
Refundable income taxes 230,775 (154,582)
Other assets (140,938) (32,594)
Prepaid and accrued pension costs (217,291) ---
Accounts payable (1,002,935) 1,291,148
Accrued expenses and other (43,466) 155,912
Income taxes payable 180,252
Other long-term liabilities --- (25,212)
----------- ----------
Total adjustments (308,048) 2,712,783
----------- ----------
Net cash provided by operating activities 392,347 1,966,080
----------- ----------
Cash flows from investing activities:
Proceeds from disposal of property,
plant and equipment 383,500 16,686
Proceeds from termination of officer's
life insurance policy 197,775 ---
Purchases of property, plant and
equipment (1,114,903) (595,408)
----------- ----------
Net cash used in investing activities (533,628) (578,722)
----------- ----------
Cash flows from financing activities:
Payments on term debt (5,311) (54,885)
Dividends paid (288,717) ---
----------- ----------
Net cash used in financing activities (294,028) (54,885)
----------- ----------
Net (decrease) increase in cash and
cash equivalents (435,309) 1,332,473
</TABLE>
CONTINUED,
6
<PAGE> 7
BROUGHTON FOODS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1999
---------- ----------
<S> <C> <C>
Cash and cash equivalents,
beginning of period 9,633,184 4,278,208
---------- ----------
Cash and cash equivalents,
end of period $9,197,875 $5,610,681
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $1,643 $364,611
========== ==========
Income taxes --- $9,831
========== ==========
Supplemental disclosure of noncash investing
and financing activities:
The Company declared a $.05 per share
dividend on February 25, 1998 to
shareholders of record on March 27,
1998, payable on April 9, 1998. $288,717
==========
The Company recorded a deferred gain
in February 1998 as a result of a
sale leaseback of certain equipment. $181,958
==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE> 8
BROUGHTON FOODS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BUSINESS OPERATIONS AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. Interim
results are not necessarily indicative of results for a full year.
A summary of the Company's significant accounting policies is presented on
pages F-9 to F-11 of its 1998 Annual Report on Form 10-K. Users of financial
information produced for interim periods are encouraged to refer to the
footnotes contained in the Annual Report on Form 10-K when reviewing interim
financial results. There has been no material change in the accounting policies
followed by the Company during 1999, except as described below.
In the opinion of management, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the unaudited consolidated financial
position, results of operations and cash flows of Broughton Foods Company ("the
Company" or "Broughton") and subsidiaries for interim periods.
Effective January 1, 1999, the Company adopted Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The SOP requires that certain external costs and internal
payroll and payroll-related costs be capitalized during the application
development and implementation stages of a software development project and
amortized over the software's useful life. Additionally, the Company adopted
SOP 98-5, "Reporting on the Costs of Start-up Activities." The SOP requires
that entities expense start-up costs and organization costs as they are
incurred. The adoption of these pronouncements did not have a material impact
on the Company's presentation of financial statements for the period ended
March 31, 1999.
2. INVENTORIES
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out ("FIFO") method using standard costs which approximate
actual. The major components of inventory at December 31, 1998 and March 31,
1999 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
--------------- ----------------
<S> <C> <C>
Raw products and finished goods $3,458,923 $4,088,074
Ingredients 679,726 772,522
Warehouse, packaging supplies and
other 1,844,068 1,860,803
--------------- ----------------
$5,982,717 $6,721,399
=============== ================
</TABLE>
3. DEBT
The Company has an uncollateralized line of credit of $4.0 million with a Bank.
Interest on this line of credit is .25 percentage points under the highest
prime rate as published by the Wall Street Journal.
On March 30, 1998, the Company finalized an agreement with a Bank to provide
for two additional credit facilities, in addition to the Company's $4.0 million
line of credit agreement with another bank. The first facility provides for a
$15.0 million line of credit with interest at either the Bank's prime rate or
LIBOR plus a margin. The borrowings under this agreement are uncollateralized
and the Company pays a commitment fee on unused borrowings ranging
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<PAGE> 9
from .20% to .35 %. The principal is payable in full on March 30, 2000, with
monthly interest-only payments. The second facility is a $5.0 million
uncollateralized capital expenditure line of credit at either the Bank's prime
rate or LIBOR plus a margin. The borrowings under this commitment provide for
monthly interest-only payments for one year, converting to term debt to be paid
over seven years.
On February 23, 1999 the Company amended its credit agreement regarding the
$15.0 million line of credit and $5.0 million uncollateralized capital
expenditure line of credit. As a result of this amendent, certain terms and
covenants in the credit agreement have been modified.
The most restrictive covenants under these agreements are the maintenance of a
maximum funded debt to Earnings Before Interest Expense, Taxes, Depreciation
and Amortization (EBITDA) ratio, a minimum tangible net worth, a minimum
Earnings Before Interest and Taxes (EBIT) to interest expense ratio and a
cashflow coverage ratio.
The Company had $19,336,230 outstanding under its revolving credit facilities
at March 31, 1999.
4. SEGMENT INFORMATION:
In 1998, the Company adopted SFAS No. 131. Segment data includes intersegment
revenues with the elimination of intercompany profit. In addition, the Company
does not allocate interest or corporate general and administrative expenses to
the specific operating segment. Thus, the Company evaluates the performance of
its segment based on an operating profit basis prior to charges for corporate
general and administrative expenses and interest.
The Company is organized primarily on an operating division basis based on
historical operations, product sales and geographic location. The Company
operates through four divisions--The Dairy Division, Foods Division, Southern
Belle Division and London's Farm Dairy Division. All of the Company's four
divisions are primarily engaged in the manufacture and distribution of dairy
based products. Therefore, the Company reports under one segment referred to as
"Dairy." (The Dairy Division is an operating division of the Dairy segment.)
The Dairy Division, with its raw milk processing plant based in Marietta, Ohio
manufactures and distributes a full line of fresh milk and related products and
also distributes brand name dairy and non-dairy foods. The Foods Division, with
an ultra high temperature ("UHT") plant based in Charleston, West Virginia,
processes a variety of extended life products, including half-and-half, sour
cream, dips, dressings, aerosol toppings, whipped cream, coffee cream, table
cream, non-dairy creamers and whipped toppings. The Southern Belle Division
with its raw milk processing plant in Somerset, Kentucky manufactures and
distributes a full line of fresh milk and other products and also distributes
dairy and non-dairy foods. The London's Farm Dairy Division, with its raw milk
processing plant in Port Huron, Michigan manufactures and distributes a full
line of fresh milk and other products, while its Burton, Michigan plant
produces a variety of ice cream products.
The table below presents information about reported segments for the three
months ended March 31, 1998 and 1999, respectively:
<TABLE>
<CAPTION>
Three Months Ended March
31, (in thousands)
Dairy 1998 1999
----- ---- ----
<S> <C> <C>
Sales $37,467 $52,134
Operating income (loss) $1,131 ($578)
</TABLE>
A reconciliation of total segment sales to total consolidated sales and of
total segment operating income (loss) to total consolidated income (loss)
before income taxes, for the three months ended March 31, 1998 and 1999,
respectively is as follows:
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<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended March
31, (in thousands)
SALES: 1998 1999
---- ----
<S> <C> <C>
Total segment sales $37,467 $52,134
Elimination of intersegment
revenue (2,716) (2,430)
------------ -----------
Consolidated Sales $34,751 $49,704
============ ===========
OPERATING INCOME (LOSS):
Total operating income (loss)
from reportable segments $1,131 ($578)
Corporate General and
administrative (145) (373)
Interest (2) (365)
Other income 159 92
------------ -----------
Consolidated income (loss) before
income taxes $1,143 ($1,224)
============ ===========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The former Southern Belle Dairy Company received a Notice of Proposed Debarment
dated June 1, 1994, from the USDA, in which the USDA proposed to debar the
former Southern Belle Dairy Company from engaging in contracts and other
transactions involving all federal agency procurement and nonprocurement
programs for up to three years as a result of previously settled antitrust
violations by such entity. On April 18, 1995, the former Southern Belle Dairy
Company entered into a Compliance Agreement in Lieu of Debarment with the USDA
(the "Southern Belle Compliance Agreement"). This agreement was for a
three-year period and required the former Southern Belle Dairy Company to
establish and maintain a compliance program which included, among other things,
the establishment of an ethics committee and formal ethics and education
training for all employees. Although the Southern Belle Compliance Agreement
expired on April 18, 1998, the Southern Belle Division continued to operate
under its terms until the debarment notification described below.
By notice dated December 31, 1997, the USDA suspended the Southern Belle
Division from federal procurement and nonprocurement programs and proposed to
debar such division for a period that by regulation would not exceed three
years, based on alleged breaches of the Southern Belle Compliance Agreement by
the former Southern Belle Dairy Company, prior to its merger with the Company
in early December 1997. The Company challenged the USDA action in an
administrative proceeding. The USDA had proposed that the Southern Belle
Division and the Company enter into a new Compliance Agreement in Lieu of
Debarment as a means of resolving this matter and had indicated that Southern
Belle could be subject to debarment and the Company subject to suspension and
debarment if they failed to enter into such proposed agreement.
On September 23, 1998, the USDA agreed to the Company's request that it
separate the suspension and debarment proceedings against the Southern Belle
Division and such similar threatened proceedings against the Company, and
advised that it would pursue suspension and proposed debarment against the
Southern Belle Division and the Company, based on the Company's settlement of
civil antitrust litigation independent of each other. Accordingly, the USDA
withdrew its offer to the Company of the newly proposed Compliance Agreement in
Lieu of Debarment. The USDA advised that a decision on Southern Belle's
suspension and debarment would be rendered by October 15, 1998, unless good
cause exists to extend the determination period. Since that date, the USDA
extended that decision in successive 45-day periods.
On April 7, 1999, the USDA advised that it had debarred the Southern Belle
Division of Broughton from federal procurement and non-procurement programs for
a period of three years, effective from December 31, 1997. During
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the period of debarment, Southern Belle is excluded generally from engaging in
contracts and other transactions involving federal procurement and federal
non-procurement programs governmentwide, unless an agency head or other
authorized designee grants an exception with respect to a particular
transaction.
Broughton is currently considering its options with respect to the Southern
Belle Division debarment, including whether or not to appeal the debarment
decision.
The USDA also notified Broughton on April 7, 1999, by notice dated and
effective March 31, 1999, that the USDA had suspended Broughton, and is
proposing to debar Broughton from engaging in contracts and other transactions
involving federal non-procurement transactions, with the effect that Broughton
is excluded generally from engaging in contracts and other transactions
involving both federal non-procurement and federal procurement programs
governmentwide during the period of the suspension. The proposed debarment of
Broughton, if ordered, would remain in effect for a period commensurate with
the USDA's determination of the seriousness of the alleged cause, generally by
regulation not to exceed three years. The suspension and proposed debarment is
based upon Broughton's delivery to several schools of half-pint containers of
fluid milk which allegedly failed to contain the minimum required quantities of
fluid milk, and the alleged failure of such containers of milk to meet net
content labeling or contract requirements.
Broughton intends to oppose the suspension and proposed debarment of Broughton
through the administrative process. Broughton's management is unable at this
time to predict the outcome of the USDA proceedings or their effect on
Broughton's financial position and results of operations. However, neither the
Southern Belle Division debarment nor the Broughton suspension preclude the
performance of contracts existing at the time of debarment or suspension.
Further, under existing USDA regulations, neither debarment nor suspension
preclude the Southern Belle Division or Broughton from obtaining and performing
contracts awarded under federal non-procurement programs administered by the
USDA Food and Nutrition Service and valued under $100,000 unless an exception
is granted by the agency.
Management is unable at this time to predict the outcome of this USDA
proceeding; however, if unfavorably resolved, this USDA proceeding could have a
material adverse effect on the Company's financial position and results of
operations.
The Company is involved in or subject to certain other legal proceedings,
including with respect to regulatory matters, which arise in the ordinary
course of the Company's business. Although the Company cannot predict the
outcomes of these legal proceedings, the Company's management does not believe
that these actions will have a material adverse effect on the Company's
financial position, results of operations or liquidity.
6. PROPOSED MERGER WITH SUIZA FOODS CORPORATION
On September 11, 1998, the Company announced that it had executed an Agreement
and Plan of Merger with Suiza Foods Corporation ("Suiza") a Delaware
corporation and Suiza Foods Acquisition Corp. ("Merger Sub"), an Ohio
corporation and wholly owned subsidiary of Suiza dated September 10, 1998 (the
"Agreement"), providing for the merger of Broughton with Merger Sub, with each
Broughton share being exchanged for the sum of Nineteen Dollars ($19.00) cash.
Consummation of the merger was conditioned upon satisfaction of all conditions
contained in the Agreement. If the merger is consummated, Broughton will become
a wholly-owned subsidiary of Suiza. On September 10, 1998, 5,774,335 shares of
Broughton common stock were issued and outstanding. The Agreement was approved
by Broughton shareholders at a special meeting held on December 4, 1998.
On January 18, 1999 Broughton announced that Suiza and Broughton had executed
an Amendment No. 1 to the Merger Agreement.
That Amendment No. 1 to the Merger Agreement, dated January 18, 1999, extended
from December 31, 1998 to April 15, 1999 the date on which either party could
terminate the Merger Agreement (as amended) if the Merger had not been
completed on such date. A related Stock Purchase Agreement dated January 18,
1999 between Suiza, the Company and the Inside Shareholders provided that at
completion of the Merger, those Inside Shareholders would
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<PAGE> 12
sell Two Million (2,000,000) Company Shares to Suiza, and would receive, in
lieu of the $19.00 per Share cash merger consideration, the cash sum of $10.00
per share, without interest, plus the right to receive up to an additional
$9.00 per share if certain earnings and performance goals were met between the
date of the Merger and March 31, 2000. The Inside Shareholders, all of whom are
either Company directors or related parties, proposed this arrangement in
response to Suiza's concern with Broughton's financial performance since the
September 11, 1998 announcement of the proposed Merger, in an effort to ensure
performance and consummation of the Merger Agreement by Suiza.
Subject to satisfaction of all conditions contained in the Agreement and Plan
of Merger, as amended, and the Stock Purchase Agreement, the parties agreed to
complete the merger on March 31, 1999.
On March 18, 1999 the United States Department of Justice Antitrust Division
("DOJ") filed a Motion for Temporary Restraining Order ("TRO"), Motion for
Preliminary Injunction and a Complaint in the United States District Court for
the Eastern District of Kentucky, London Division, seeking to enjoin the
proposed acquisition of the Company by Suiza. The DOJ alleged that competition
in the production and sale of school milk in certain South Central Kentucky
school districts would be substantially lessened as a result of the proposed
transaction. On March 18, 1999 the court entered a TRO enjoining Suiza, the
Company and all persons acting on their behalf from consummating, directly or
indirectly, the proposed Merger, or implementing any other plan or agreement by
which Suiza and the Company, or any part of them would combine under common
ownership or control.
On April 28, 1999, the Company and Suiza reached an agreement with the DOJ to
settle the civil antitrust lawsuit brought by the DOJ against the Company and
Suiza. The proposed settlement will allow Suiza to complete the proposed merger
with Broughton, conditioned upon Suiza's agreement to later sell the business
conducted at Broughton's Southern Belle Dairy based in Pulaski County,
Kentucky. The proposed settlement is subject to approval by the U.S. District
Judge for the Eastern District of Kentucky London Division where the DOJ's
antitrust lawsuit is currently pending. Before finally approving the
settlement, the court must submit the proposed settlement for public comment
for a period of 60 days, but the parties may close the merger prior to final
approval of the settlement. Pursuant to the proposed settlement, Suiza will
agree to sell the Southern Belle Dairy to a buyer acceptable to the DOJ within
six months after the settlement agreement is filed with the court, or five days
after entry by the court of the final judgment, whichever is later.
As a result of the requirements of the proposed settlement agreement, Suiza and
Broughton have entered into an amendment to the September 1998 Agreement and
Plan of Merger between Suiza and Broughton. The amendment lowers the
consideration to be received by all Broughton stockholders (other than five
directors of Broughton and certain of their affiliates who are parties to a
separate stock purchase agreement with Suiza) from $19 cash per share to $16.50
cash per share. Pursuant to an amendment to the stock purchase agreement with
the five Broughton directors and certain of their affiliates, the five
Broughton directors and their affiliates will sell an aggregate of 2 million
Broughton shares to Suiza for $11.25 per share, plus the contingent right to
receive $1.25 per share if certain conditions are satisfied. The amendment to
the Agreement and Plan of Merger is subject to the approval of Broughton's
stockholders.
Assuming all conditions to closing are satisfied, Suiza and Broughton
anticipate closing the proposed acquisition on May 31, 1999. Either party may
terminate the amended merger agreement if the transaction is not closed by June
30, 1999.
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading manufacturer and distributor of fresh milk and related
dairy products in Ohio, West Virginia, Kentucky, Tennessee, Michigan and parts
of the eastern United States. The Company has grown primarily through internal
growth and strategic acquisitions. Through such growth, the Company has
realized regional economies of scale and operational efficiencies. The Company
operates through four major divisions -- the Dairy Division based in Marietta,
Ohio; the Foods Division based in Charleston, West Virginia; the Southern Belle
Division based in Somerset, Kentucky; and the London's Farm Division based in
Port Huron, Michigan.
The Company completed an acquisition of Southern Belle Dairy Company of
Somerset, Kentucky in December 1997. As a result of the Southern Belle
acquisition, the Company has taken and expects to take a number of actions
intended to integrate the operations of Southern Belle with the Company's
existing operations and to reduce certain product costs and overall, selling,
general and administrative expenses. The Company has successfully implemented
synergy savings involving the utilization of butterfat, a raw material required
in the production of many items within the Foods Division, including heavy
whipping cream, table cream, aerosol whipped toppings and half-and-half.
Southern Belle does not manufacture non-fluid dairy products and, therefore,
does not utilize butterfat, a by-product of its fluid milk manufacturing
processes and an integral raw material required in the production of non-fluid
dairy products. Accordingly, as a result of the Southern Belle acquisition, the
Company has received cost savings from less dependence on the "spot" market for
its butterfat requirements. Southern Belle is also supplying the Dairy Division
with orange juice and buttermilk, items which the Dairy Division previously
manufactured. The Dairy Division is currently successfully manufacturing for
the Southern Belle Division both plastic pints and soft-serve mixes. Southern
Belle previously purchased soft-serve mixes from an outside supplier and had
not initiated a plastic pint product within its market segment. In addition to
the products that have been successfully integrated into the Company,
additional cost savings are anticipated to be achieved through the further
integration of ice cream, sour cream and cottage cheese production, all
products that Southern Belle has historically purchased from outside suppliers
and which will now be supplied by the Company. The Company's Foods Division is
currently manufacturing for the Southern Belle Division a full complement of
UHT products including heavy whipping cream, half-and-half and non-dairy
creamers. The Company has been successful in integrating many of the cost
saving synergies identified in the Southern Belle acquisition, however, there
can be no assurance that the Company will be successful in integrating the
remaining operations of Southern Belle and realizing additional cost savings in
the future.
The Company completed the acquisition of London's Farm Dairy on May 29, 1998.
As a result of the London's acquisition, the Company had an increase in sales,
cost of sales and operating expenses for the second, third and fourth quarters
of 1998 and the first quarter 1999. As a result of the acquisition of London's,
the Company expected to take a number of actions intended to integrate the
operations of London's with the Company's existing operations and to reduce
overall selling, general and administrative expenses. London's previously
purchased certain products from outside suppliers, including UHT products,
cottage cheese and plastic pints, each of which can be supplied by the Company
at an anticipated savings. The acquisition is expected to provide the Company
with an additional source of butterfat for the Company's Foods Division during
certain peak periods of the year. London's operates an ice cream plant in
Burton, Michigan, and it is anticipated that additional internal ice cream
production needs will be converted to this plant for the Company as a whole,
thereby better utilizing internal equipment and production capacity. There can
be no assurance that the Company will be successful in integrating the
operations of London's and realizing the anticipated cost savings. Among the
factors that might affect the Company's ability to integrate the operations of
London's and realize anticipated cost savings include the Company's ability to
distribute London's products to other Company divisions in a cost-effective
manner, London's ability to realize an increase in plastic pint sales and the
Company's ability to develop uniform standards for ice cream production across
its plants.
The Company began discussions with Suiza in May of 1998 regarding a possible
business combination and as a result of the proposed merger with Suiza Foods,
announced on September 11, 1998, the Company has been delayed in integrating
the operations of London's and completing the integration of Southern Belle.
13
<PAGE> 14
Approximately $1.7 million of the purchase price for the Southern Belle
acquisition has been recorded by the Company as goodwill. Goodwill will be
amortized as a non-cash charge to the income statement over a period of 40
years. The impact of this amortization will result in a charge to earnings of
approximately $43,400 annually. Approximately $11.9 million of the purchase
price of the London's acquisition has been recorded by the Company as
intangible assets to be amortized as a non-cash charge to the income statement
over periods ranging from 23 to 40 years. The impact of this amortization will
result in a charge to earnings of approximately $311,000 annually for the first
23 years of charges.
The Company's net sales consist primarily of sales of products derived from raw
milk, including fluid milk, frozen desserts, cultured products and UHT
products. Revenues are recognized by the Company when the Company's products
are received by the customer. The Company's revenues are subject to quarterly
fluctuations caused by seasonal variations in the demand for milk and dairy
products.
The Company's cost of sales consists primarily of raw materials, including milk
and items procured from outside parties, such as packaging material, and
manufacturing costs, including direct labor and overhead. Significant factors
affecting the Company's cost of sales include the costs of raw materials and
labor and benefit rates.
The Company's operating costs consist of selling, distribution, general and
administrative components. These costs include salaries for sales and marketing
personnel, certain administrative personnel and executive salaries as well as
salary and related costs for transportation and distribution.
The former Southern Belle Dairy Company received a Notice of Proposed Debarment
dated June 1, 1994, from the USDA, in which the USDA proposed to debar the
former Southern Belle Dairy Company from engaging in contracts and other
transactions involving all federal agency procurement and nonprocurement
programs for up to three years as a result of previously settled antitrust
violations by such entity. On April 18, 1995, the former Southern Belle Dairy
Company entered into a Compliance Agreement in Lieu of Debarment with the USDA
(the "Southern Belle Compliance Agreement"). This agreement was for a
three-year period and required the former Southern Belle Dairy Company to
establish and maintain a compliance program which included, among other things,
the establishment of an ethics committee and formal ethics and education
training for all employees. Although the Southern Belle Compliance Agreement
expired on April 18, 1998, the Southern Belle Division continued to operate
under its terms until the debarment notification described below.
By notice dated December 31, 1997, the USDA suspended the Southern Belle
Division from federal procurement and nonprocurement programs and proposed to
debar such division for a period that by regulation would not exceed three
years, based on alleged breaches of the Southern Belle Compliance Agreement by
the former Southern Belle Dairy Company, prior to its merger with the Company
in early December 1997. The Company challenged the USDA action in an
administrative proceeding. The USDA had proposed that the Southern Belle
Division and the Company enter into a new Compliance Agreement in Lieu of
Debarment as a means of resolving this matter and had indicated that Southern
Belle could be subject to debarment and the Company subject to suspension and
debarment if they failed to enter into such proposed agreement.
On September 23, 1998, the USDA agreed to the Company's request that it
separate the suspension and debarment proceedings against the Southern Belle
Division and such similar threatened proceedings against the Company, and
advised that it would pursue suspension and proposed debarment against the
Southern Belle Division and the Company, based on the Company's settlement of
civil antitrust litigation independent of each other. Accordingly, the USDA
withdrew its offer to the Company of the newly proposed Compliance Agreement in
Lieu of Debarment. The USDA advised that a decision on Southern Belle's
suspension and debarment would be rendered by October 15, 1998, unless good
cause exists to extend the determination period. Since that date, the USDA
extended that decision in successive 45-day periods.
On April 7, 1999, the USDA advised that it had debarred the Southern Belle
Division of Broughton from federal procurement and non-procurement programs for
a period of three years, effective from December 31, 1997. During the period of
debarment, Southern Belle is excluded generally from engaging in contracts and
other transactions
14
<PAGE> 15
involving federal procurement and federal non-procurement programs
governmentwide, unless an agency head or other authorized designee grants an
exception with respect to a particular transaction.
Broughton is currently considering its options with respect to the Southern
Belle Division debarment, including whether or not to appeal the debarment
decision.
The USDA also notified Broughton on April 7, 1999, by notice dated and
effective March 31, 1999, that the USDA had suspended Broughton, and is
proposing to debar Broughton from engaging in contracts and other transactions
involving federal non-procurement transactions, with the effect that Broughton
is excluded generally from engaging in contracts and other transactions
involving both federal non-procurement and federal procurement programs
governmentwide during the period of the suspension. The proposed debarment of
Broughton, if ordered, would remain in effect for a period commensurate with
the USDA's determination of the seriousness of the alleged cause, generally by
regulation not to exceed three years. The suspension and proposed debarment is
based upon Broughton's delivery to several schools of half-pint containers of
fluid milk which allegedly failed to contain the minimum required quantities of
fluid milk, and the alleged failure of such containers of milk to meet net
content labeling or contract requirements.
Broughton intends to oppose the suspension and proposed debarment of Broughton
through the administrative process. Broughton's management is unable at this
time to predict the outcome of the USDA proceedings or their effect on
Broughton's financial position and results of operations. However, neither the
Southern Belle Division debarment nor the Broughton suspension preclude the
performance of contracts existing at the time of debarment or suspension.
Further, under existing USDA regulations, neither debarment nor suspension
preclude the Southern Belle Division or Broughton from obtaining and performing
contracts awarded under federal non-procurement programs administered by the
USDA Food and Nutrition Service and valued under $100,000 unless an exception
is granted by the agency.
Management is unable at this time to predict the outcome of this USDA
proceeding; however, if unfavorably resolved, this USDA proceeding could have a
material adverse effect on the Company's financial position and results of
operations.
The Company is involved in or subject to certain other legal proceedings,
including with respect to regulatory matters, which arise in the ordinary
course of the Company's business. Although the Company cannot predict the
outcomes of these legal proceedings, the Company's management does not believe
that these actions will have a material adverse effect on the Company's
financial position, results of operations or liquidity.
On September 11, 1998, the Company announced that it had executed an Agreement
and Plan of Merger with Suiza Foods Corporation ("Suiza") a Delaware
corporation and Suiza Foods Acquisition Corp. ("Merger Sub"), an Ohio
corporation and wholly owned subsidiary of Suiza dated September 10, 1998 (the
"Agreement"), providing for the merger of Broughton with Merger Sub, with each
Broughton share being exchanged for the sum of Nineteen Dollars ($19.00) cash.
Consummation of the merger was conditioned upon satisfaction of all conditions
contained in the Agreement. If the merger is consummated, Broughton will become
a wholly-owned subsidiary of Suiza. On September 10, 1998, 5,774,335 shares of
Broughton common stock were issued and outstanding. The Agreement was approved
by Broughton shareholders at a special meeting held on December 4, 1998.
On January 18, 1999 Broughton announced that Suiza and Broughton had executed
an Amendment No. 1 to the Merger Agreement.
That Amendment No. 1 to the Merger Agreement, dated January 18, 1999, extended
from December 31, 1998 to April 15, 1999 the date on which either party could
terminate the Merger Agreement (as amended) if the Merger had not been
completed on such date. A related Stock Purchase Agreement dated January 18,
1999 between Suiza, the Company and the Inside Shareholders provided that at
completion of the Merger, those Inside Shareholders would sell Two Million
(2,000,000) Company Shares to Suiza, and would receive, in lieu of the $19.00
per Share cash merger consideration, the cash sum of $10.00 per share, without
interest, plus the right to receive up to an additional $9.00 per share if
certain earnings and performance goals were met between the date of the Merger
and March 31,
15
<PAGE> 16
2000. The Inside Shareholders, all of whom are either Company directors or
related parties, proposed this arrangement in response to Suiza's concern with
Broughton's financial performance since the September 11, 1998 announcement of
the proposed Merger, in an effort to ensure performance and consummation of the
Merger Agreement by Suiza.
Subject to satisfaction of all conditions contained in the Agreement and Plan
of Merger, as amended, and the Stock Purchase Agreement, the parties agreed to
complete the merger on March 31, 1999.
On March 18, 1999 the United States Department of Justice Antitrust Division
("DOJ") filed a Motion for Temporary Restraining Order ("TRO"), Motion for
Preliminary Injunction and a Complaint in the United States District Court for
the Eastern District of Kentucky, London Division, seeking to enjoin the
proposed acquisition of the Company by Suiza. The DOJ alleged that competition
in the production and sale of school milk in certain South Central Kentucky
school districts would be substantially lessened as a result of the proposed
transaction. On March 18, 1999 the court entered a TRO enjoining Suiza, the
Company and all persons acting on their behalf from consummating, directly or
indirectly, the proposed Merger, or implementing any other plan or agreement by
which Suiza and the Company, or any part of them would combine under common
ownership or control.
On April 28, 1999, the Company and Suiza reached an agreement with the DOJ to
settle the civil antitrust lawsuit brought by the DOJ against the Company and
Suiza. The proposed settlement will allow Suiza to complete the proposed merger
with Broughton, conditioned upon Suiza's agreement to later sell the business
conducted at Broughton's Southern Belle Dairy based in Pulaski County,
Kentucky. The proposed settlement is subject to approval by the U.S. District
Judge for the Eastern District of Kentucky London Division where the DOJ's
antitrust lawsuit is currently pending. Before finally approving the
settlement, the court must submit the proposed settlement for public comment
for a period of 60 days, but the parties may close the merger prior to final
approval of the settlement. Pursuant to the proposed settlement, Suiza will
agree to sell the Southern Belle Dairy to a buyer acceptable to the DOJ within
six months after the settlement agreement is filed with the court, or five days
after entry by the court of the final judgment, whichever is later.
As a result of the requirements of the proposed settlement agreement, Suiza and
Broughton have entered into an amendment to the September 1998 Agreement and
Plan of Merger between Suiza and Broughton. The amendment lowers the
consideration to be received by all Broughton stockholders (other than five
directors of Broughton and certain of their affiliates who are parties to a
separate stock purchase agreement with Suiza) from $19 cash per share to $16.50
cash per share. Pursuant to an amendment to the stock purchase agreement with
the five Broughton directors and certain of their affiliates, the five
Broughton directors and their affiliates will sell an aggregate of 2 million
Broughton shares to Suiza for $11.25 per share, plus the contingent right to
receive $1.25 per share if certain conditions are satisfied. The amendment to
the Agreement and Plan of Merger is subject to the approval of Broughton's
stockholders.
Assuming all conditions to closing are satisfied, Suiza and Broughton
anticipate closing the proposed acquisition on May 31, 1999. Either party may
terminate the amended merger agreement if the transaction is not closed by June
30, 1999.
RESULTS OF OPERATIONS
The following table presents certain financial information concerning the
Company's results of operations, including certain information presented as a
percentage of sales.
16
<PAGE> 17
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
1998 1999
---- ----
<S> <C> <C> <C> <C>
Net Sales $34,751 100.0% $49,704 100.0%
Cost of sales 27,130 78.1 41,250 83.0
Gross profit 7,621 21.9 8,454 17.0
Operating costs
and Expenses 6,635 19.1 9,406 18.9
Operating income
(loss) 986 2.8 (952) (1.9)
Other income
(expense), net 158 0.5 (272) (0.6)
---------- ----------- ----------- ----------
Net income (loss) $700 2.0% ($747) (1.5%)
========== =========== =========== ==========
Earnings (loss) per
Common share:
Basic $0.12 ($0.13)
========== ===========
Diluted $0.12 ($0.13)
========== ===========
Shares used in computing
earnings (loss) per
common share:
Basic 5,774 5,774
========== ===========
Diluted 5,774 5,774
========== ===========
</TABLE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net Sales
Net sales for the first quarter 1999 increased $15.0 million or 43.0% to $49.7
million from $34.8 million for the first quarter 1998. The increase in net
sales was primarily due to the acquisition of London's in May 1998. Therefore,
a full quarter's sales for London's were reflected in the first quarter 1999
net sales amounts. The net sales increase is also attributable to higher raw
product costs partially offset by volume reductions at divisions reporting in
1998.
Cost of Sales
Cost of sales for the first quarter 1999 increased $14.1 million or 52.1%, to
$41.3 million from $27.1 million in the first quarter 1998. Cost of sales as a
percentage of net sales, however increased to 83.0% in the first quarter 1999
from 78.1% in the first quarter 1998 primarily as a result of an overall
increase in raw milk costs in the first quarter 1999 compared to the first
quarter 1998 and increased price competition.
Operating Expenses
Operating expenses for the first quarter 1999 increased $2.8 million, or 41.8%,
to $9.4 million from $6.6 million in the first quarter 1998. Operating expenses
as a percentage of net sales were 18.9% for the first quarter 1999,
17
<PAGE> 18
compared to 19.1% for the first quarter 1998. Operating expenses as a
percentage of net sales decreased primarily due to higher net sales resulting
from record raw milk costs in January and February 1999. The Company incurred
direct merger costs associated with the proposed merger with Suiza Foods of
approximately $127,000 in the first quarter of 1999.
Other income (expense)
Other expense for the first quarter 1999 was ($272,000) compared to income of
$158,000 for the first quarter 1998. The change was primarily the result of
increased interest expense resulting from the purchase of London's.
Net income(loss)
Net income(loss) for the first quarter 1999 changed by $1,447,098, to a loss of
($747,000) or ($0.13) per share on a diluted basis from income of $700,000 or
$0.12 per share on a diluted basis, for the first quarter 1998. The net loss is
primarily attributed to record raw milk costs for two months in 1999, decreases
in volume for divisions reporting in 1998 and increased price competition.
LIQUIDITY AND CAPITAL RESOURCES
The company has historically financed its capital expenditures and working
capital requirements through cash generated from operating activities. The
Company's working capital position was $782,000 and $16.9 million at March 31,
1999 and December 31, 1998, respectively.
The decrease in working capital position of $16.1 million resulted from certain
components of the Company's credit facility becoming payable in full on March
30, 2000. It is the Company's intent to review options regarding its credit
facilities which may include extensions of interest only payments or conversion
to term debt. These events will be contingent on the final outcome of the
proposed merger with Suiza.
During the first quarter 1999 as compared to the first quarter 1998, capital
expenditures decreased $519,000 to $595,000 from $1.1 million in the first
quarter 1998.
On March 30, 1998, the Company finalized a loan commitment agreement with a bank
that was entered into on February 16, 1998. The agreement provides for two
additional credit facilities, in addition to the Company's $4.0 million line of
credit agreement with another bank. The first facility provides for a $15.0
million line of credit with interest at either the Bank's prime rate or LIBOR
plus a margin. The borrowings under this agreement are uncollateralized and the
Company pays a commitment fee on unused borrowings ranging from .20% to .35%.
The second facility is a $5.0 million uncollateralized capital expenditure line
of credit at either the Bank's prime rate or LIBOR plus a margin. The borrowings
under this commitment are uncollateralized and provide for monthly interest-only
payments for one year, converting to term debt to be paid over seven years.
On February 23, 1999 the Company amended its credit agreement regarding the
$15.0 million line of credit and $5.0 million uncollateralized capital
expenditure line of credit. As a result of this amendent, certain terms and
covenants in the credit agreement have been modified.
The most restrictive covenants under these agreements are the maintenance of a
maximum funded debt to Earnings Before Interest Expense, Taxes, Depreciation and
Amortization (EBITDA) ratio, a minimum tangible net worth, a minimum Earnings
Before Interest and Taxes (EBIT) to interest expense ratio, a cashflow coverage
ratio as well as other restrictive covenants which are included in the credit
agreement dated March 30, 1998 and the amended credit agreement dated February
23, 1999. (See Exhibit 10)
Year 2000
The Year 2000 problem can affect all software programs and physical devices with
embedded computer chips or processors. The Company has been concerned with this
problem and committed to limiting its exposure. The
18
<PAGE> 19
Company and its subsidiaries have put in place a plan to analyze all software
and systems in order to isolate where Year 2000 problems will occur. This
project is divided into two major sections; General Offices and Plants, and is
being reviewed on a divisional basis.
The analysis of the General Offices includes all systems and software,
including, but not limited to, major business software and hardware; personal
computers; telephone systems; and security systems. The Company's General
Offices review is near completion. The major business application hardware and
software for the Company's London's Farm Dairy Division, a commercial software
package, is Year 2000 compliant; however, the software vendor is continuing its
testing program. The Company's Dairy division hardware is compliant and a
compliant software version of its business applications is to be supplied by the
vendor in the second quarter of 1999. The Company's Foods division hardware is
compliant and will commence conversion to the Company's Dairy division's
commercial software package in the second quarter of 1999. The Company's
Southern Belle division hardware and software is currently non-compliant. This
division will commence conversion to the software utilized by the Company's
Dairy division in the second quarter of 1999.
The analysis of the Company Plants includes all systems and software, including,
but not limited to, process control equipment (PLC) and software; personal
computers; safety systems; telephone systems; and security systems. The Company
Plants have been contacting their vendors to ensure Year 2000 compliance. A
substantial portion of this section of the project has been completed. The
analysis phase will be completed by the second quarter of 1999. All Company
Plant systems are expected to be compliant by the third quarter of 1999.
The Company is committed to remediate or replace any software or system that has
been identified as being non-Year 2000 compliant. The review of the majority of
software and systems is completed. As Year 2000 compliance issues are
identified, they have been eliminated. For the past several years, all software
and system purchases and/or upgrades were made with the understanding of Year
2000 compliance. An ownership change in November 1996 was a primary driver in
the replacement of major business hardware and software. Although Year 2000
compliance was a consideration, it did not accelerate the conversion to the new
systems. The remaining costs associated with Year 2000 compliance are not
expected to significantly affect the operating cash flow, although such costs
have not been completely quantified at this time.
Contingency plans have been created in order for the Company to produce and
distribute products in the event of non-compliance. The impact of these
contingencies would not adversely affect the operation or financial condition of
the Company.
The Company is also concerned with the readiness of its suppliers and vendors
with a material relationship to the Company. They are being contacted on the
Company's behalf to verify that their systems also will be Year 2000 compliant
and, if not, whether such non-compliance will have a material impact on the
operations of the Company. The Company intends to develop, if needed,
contingency plans to facilitate a supply of products to its customers and the
receipt of products from suppliers and vendors if problems are discovered.
Despite the Company's efforts in regards to this issue, there can be no
assurance that partial or total systems interruptions, or the costs necessary to
update hardware and software, would not have a material adverse effect upon the
Company. The foregoing assessments of the impact on the Year 2000 compliance
problem on the Company are based on management's best estimates at the present
time and could change substantially. The Company's readiness program is an
ongoing process and the estimated completion dates for various software and
systems described above are subject to change.
Inflation
The impact of inflation on the Company's business has been insignificant to date
and the Company believes that it will continue to be insignificant for the
foreseeable future.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q that are not
historical fact are "forward-looking" statements and involve important risks and
uncertainties. Such risks and uncertainties, which are detailed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, and other
filings with the Securities and Exchange Commission, could cause the Company's
results to differ materially from the Company's current expectations as
expressed herein.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's Annual Report on Form 10-K for the year ended December 31,
1998 describes a pending legal proceeding involving the Company's Southern Belle
Division and the U.S. Department of Agriculture. Note 5 to the Company's
unaudited Financial Statements included herein contains updating information and
is incorporated herein by reference.
The Company's Annual Report on Form 10-K for the year ended December 31,
1998 describes a legal proceeding initiated by the DOJ regarding the Company's
merger with Suiza. Note 6 to the Company's unaudited financial statements
included herein contains updating information and is incorporated herein by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit #10 - First Amendment to Credit Agreement dated February
23, 1999
Exhibit #27 - Financial Data Schedule
(B) Reports on Form 8-K
On January 18, 1999 the Company filed a report on Form 8-K
reporting under Item 2, disclosing an amendment to the Agreement
and Plan of Merger between Suiza Foods Corporation a Delaware
Corporation and Suiza Foods Acquisition Corp., an Ohio corporation
and wholly owned subsidiary of Suiza dated September 10, 1998.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROUGHTON FOODS COMPANY
By: /s/ Philip E. Cline
-------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 5, 1999
By: /s/ Todd R. Fry
---------------
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 5, 1999
22
<PAGE> 1
EXHIBIT 10.0
First Amendment To
CREDIT AGREEMENT
dated as of
February 23, 1999
between
Broughton Foods Company
and
National City Bank
<PAGE> 2
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") to Credit Agreement is entered
into as of the 23rd day of February, 1999, by and between Broughton Foods
Company (the "Company"), and National City Bank (the "Bank").
RECITALS:
A. As of March 30, 1998, the Company and the Bank executed a
certain Credit Agreement (the "Credit Agreement"), setting forth the terms of
certain extensions of credit to the Company; and
B. As of March 30, 1998, the Company executed and delivered to
the Bank, inter alia, a certain Revolving Note in the original principal sum of
Fifteen Million Dollars ($15,000,000.00) and a certain Revolving Note in the
original principal sum of Five Million Dollars ($5,000,000.00) (hereinafter
collectively, the "Notes"); and
C. In connection with the Credit Agreement and the Notes, the
Company executed and delivered to the Bank certain other loan documents,
instruments and agreements in connection with the indebtedness referred to in
the Credit Agreement (all of the foregoing, together with the Notes and the
Credit Agreement, are hereinafter collectively referred to as the "Loan
Documents"); and
D. The Company has requested that the Bank amend and modify
certain terms and covenants in the Credit Agreement, and the Bank is willing to
do so upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto for
themselves and their successors and assigns do hereby agree, represent and
warrant as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.
2. Section 7, "SECURITY," of the Credit Agreement is hereby
amended to recite in its entirety as follows:
<PAGE> 3
The Loan shall be secured by the unconditional guaranty of
London's Farm Dairy, Inc., a Subsidiary of the Company, and by the
guaranty of all future Subsidiaries of the Company, in the form of
Exhibit H hereto or such other form as shall be acceptable to the Bank.
Upon request of the Bank, the Loan further shall be secured by the
guaranty of Somerset Computer Services, Inc. in the form of Exhibit H
hereto or such other form as shall be acceptable to the Bank. As used
in this Agreement, "Subsidiary" or "subsidiary" means (i) a corporation
more than 50% of the combined voting power of the outstanding voting
stock of which is owned, directly or indirectly, by the Company, by one
or more Subsidiaries of the Company, or by the Company and one or more
such Subsidiaries thereof or (ii) any other entity in which the
Company, one or more Subsidiaries of the Company or the Company and one
or more such Subsidiaries, directly or indirectly, has at least a
majority ownership or power to direct the policies, management and
affairs thereof.
3. Section 10.12, "Tangible Net Worth," of the Credit Agreement
is hereby amended to recite in its entirety as follows:
10.12 Tangible Net Worth.
The Company shall maintain a Tangible Net Worth of not less
than $21,000,000.00, plus, for each fiscal year end beginning with the
1998 fiscal year, 50% of the Company's positive Net Income for such
year and 50% of the net proceeds from any sale of equities by the
Company during such year. "Tangible Net Worth" shall mean the Company's
equity, minus the sum of all the following: (i) the excess of cost over
the value of net assets of purchased businesses, rights, and other
similar intangibles, less other liabilities and commitments, including
unfavorable leases, contracts and commitments and plant closing expense
incident to the acquisition, at present values of amounts to be paid
determined at appropriate current interest rates, (ii) organizational
expenses, (iii) goodwill, (iv) deferred charges or deferred financing
costs, (v) loans or advances to and/or accounts or notes receivable
from affiliates, (vi) non-compete agreements, (vii) all other
intangible assets, and (viii) all other assets not directly related to
the operation of the business of the Company. "Net Income" for any
period shall mean the net income (or deficit) of the Company for such
period that, in accordance with generally accepted accounting
principles, would be included as net income on the statements of income
of the Company for such period (but excluding any extraordinary gains
or losses attributed to such period). Tangible Net Worth and Net Income
shall be determined for the Company and its Subsidiaries on a
consolidated basis.
4. Section 10.13, "Ratio of Funded Debt to EBITDA," of the
Credit Agreement is hereby amended to recite in its entirety as follows:
10.13 Ratio of Funded Debt to EBITDA.
The Company shall maintain at all times a ratio of Funded Debt
to EBITDA of not more than 3.50 to 1.00. The ratio of Funded Debt to
EBITDA shall be determined as of the last day of the most recently
completed fiscal quarter. "Funded Debt" shall be defined and determined
in accordance with generally accepted accounting principles and
calculated as of the end of the most recently completed fiscal quarter.
"EBITDA" shall mean, for the period consisting of the four most
recently completed fiscal quarters, (a) the sum of the amounts for such
period, for the Company and for any companies acquired in their
entirety by the Company during such period (each an "Acquired
Company"), of (i) net income, (ii) interest expense, (iii) charges for
federal, state, local and foreign income taxes, (iv) depreciation,
amortization expense and non-cash charges that were deducted in
determining net income, (v) extraordinary losses (and any unusual
losses arising outside the ordinary course of business not included in
extraordinary losses determined in accordance with generally accepted
accounting principles) and (vi) other non-operating expenses that have
been deducted in the determination of net income, minus (b) the sum of
the amounts for such period of (i) extraordinary gains (and any unusual
gains arising outside the ordinary course of business not included in
extraordinary gains determined in accordance with generally accepted
accounting principles), (ii) other non-operating income not already
excluded from the determination of net income and (iii) to the extent
not deducted from total interest expense, any net payments received
during such period under interest rate contracts and any interest
income received in respect of cash investments. Funded Debt and EBITDA
shall be determined for the Company and its Subsidiaries on a
consolidated basis.
5. Section 10.14, "Cash Flow Coverage Ratio," of the Credit
Agreement is hereby amended to recite in its entirety as follows:
<PAGE> 4
10.14 Cash Flow Coverage Ratio.
The Company shall maintain at each fiscal quarter end a ratio
of EBITDA (as defined in Section 10.13), minus unfunded capital
expenditures, minus dividends, plus net proceeds from the sale of
equities, to Debt Service of not less than 2.00 to 1.00. The ratio
shall be determined as of the last day of each fiscal quarter for the
four fiscal quarter period ending on such date. "Debt Service" shall
mean with respect to any period of four fiscal quarters, the sum of (a)
all amounts paid, without duplication, as interest on the indebtedness
of the Company and each Acquired Company for such period, as determined
in accordance with generally accepted accounting principles, less
interest paid other than in cash, plus (b) scheduled principal payments
on term obligations and capital leases of the Company and each Acquired
Company for such period. EBITDA and Debt Service shall be determined
for the Company and its Subsidiaries on a consolidated basis.
6. Section 10.15, "Ratio of EBIT to Interest Expense," of the
Credit Agreement is hereby amended to recite in its entirety as follows:
10.15 Ratio of EBIT to Interest Expense.
The Company shall achieve as of the end of each fiscal year
during the term of this Agreement a ratio of EBIT to interest expense
of not less than 2.50 to 1.00.
"EBIT" shall mean for the Company and each Acquired Company
(a) the Net Income (or deficit) for such period, plus (b) the
aggregate amounts deducted in determining such net income in respect
of (i) all amounts paid (without duplication) as interest on all
indebtedness and obligations of the Company and each Acquired Company
for such period, all as determined in accordance with generally
accepted accounting principles, and (ii) income taxes for such period,
as determined in accordance with generally accepted accounting
principles. "Net Income" for any period shall mean the net income (or
deficit) of the Company or any Acquired Company for such period that,
in accordance with generally accepted accounting principles, would be
included as net income on the statements of income of the Company or
such Acquired Company for such period (but excluding any extraordinary
gains or losses attributed to such period). EBIT, interest expense and
Net Income shall be determined for the Company and its Subsidiaries on
a consolidated basis.
7. Subparagraphs (a) and (c) of Section 11, "INFORMATION AS TO
COMPANY," of the Credit Agreement are hereby amended to replace the phrase
"financial statement" in each subparagraph with the phrase "consolidated
financial statement." The remainder of Section 11 shall remain as originally
written.
8. Conditions of Effectiveness. This Amendment shall become
effective as of February 23, 1999, upon satisfaction of all the following
conditions precedent:
(a) The Bank shall have received two (2) duly executed
original counterparts of this Amendment, a duly executed guaranty of London's
Farm Dairy, Inc. and such other certificates, instruments, documents,
agreements, and opinions of counsel as may be required by the Bank, each of
which shall be in form and substance satisfactory to the Bank and its counsel;
and
(b) The representations contained in paragraph 9 below shall
be true and accurate.
9. Representations. The Company represents and warrants that
after giving effect to this Amendment:
(a) Each and every one of the representations and warranties
made by or on behalf of the Company in the Credit Agreement or the Loan
Documents is true and correct in all respects on and as of the date hereof,
except to the extent that any of such representations and warranties related,
by the expressed terms thereof, solely to a date prior hereto; and
(b) The Company has duly and properly performed, complied
with and observed each of its covenants, agreements and obligations contained
in the Credit Agreement and Loan Documents; and
(c) No event has occurred or is continuing, and no condition
exists which would constitute an Event of Default.
<PAGE> 5
10. Amendment to Credit Agreement.
(a) Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "Credit Agreement," "Agreement," the prefix
"herein," "hereof," or words of similar import, and each reference in the Loan
Documents to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended hereby.
(b) Except as modified herein, all the representations,
warranties, terms, covenants and conditions of the Credit Agreement, the Loan
Documents and all other agreements executed in connection therewith shall
remain as written originally and in full force and effect in accordance with
their respective terms, and nothing herein shall affect, modify, limit or
impair any of the rights and powers which the Bank may have thereunder. The
amendment set forth herein shall be limited precisely as provided for herein,
and shall not be deemed to be a waiver of, amendment of, consent to or
modification of any of the Bank's rights under or of any other term or
provisions of the Credit Agreement, any Loan Document, or other agreement
executed in connection therewith, or of any term or provision of any other
instrument referred to therein or herein or of any transaction or future action
on the part of the Company which would require the consent of the Bank,
including, without limitation, waivers of Events of Default which may exist
after giving effect hereto. The Company ratifies and confirms each term,
provision, condition and covenant set forth in the Credit Agreement and the
Loan Documents and acknowledges that the agreement set forth therein continue
to be legal, valid and binding agreements, and enforceable in accordance with
their respective terms.
11. Authority. The Company hereby represents and warrants to the
Bank that:
(a) The Company has legal power and authority to execute and
deliver the within Amendment; and
(b) The officer executing the within Amendment on behalf of
the Company has been duly authorized to execute and deliver the same and bind
the Company with respect to the provisions provided for herein; and
(c) The execution and delivery hereof by the Company and the
performance and observance by the Company of the provisions hereof do not
violate or conflict with the articles of incorporation, regulations or by-laws
of the Company or any law applicable to the Company or result in the breach of
any provision of or constitute a default under any agreement, instrument or
document binding upon or enforceable against the Company; and
(d) This Amendment constitutes a valid and legally binding
obligation upon the Company in every respect.
12. Counterparts. This Amendment may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one and the same document.
Separate counterparts may be executed with the same effect as if all parties
had executed the same counterparts.
13. Costs and Expenses. The Company agrees to pay on demand in
accordance with the terms of the Credit Agreement all costs and expenses of the
Bank in connection with the preparation, reproduction, execution and delivery
of this Amendment and all other loan documents entered into in connection
herewith, including the reasonable fees and out-of-pocket expenses of the
Bank's counsel with respect thereto.
14. Governing Law. This Amendment shall be governed by and
construed in accordance with the law of the State of Ohio.
<PAGE> 6
IN WITNESS WHEREOF, the Company and the Bank have hereunto set their
hands as of the date first set forth above.
THE COMPANY:
BROUGHTON FOODS COMPANY
By:
----------------------------------------
Its:
---------------------------------------
THE BANK:
NATIONAL CITY BANK
By:
----------------------------------------
Its:
---------------------------------------
<PAGE> 7
EXHIBIT H
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
GUARANTOR: London's Farm Dairy, Inc. DEBTOR: Broughton Foods Company
2136 Pine Grove Avenue 210 North Seventh Street
Port Huron, Michigan 48060 Marietta, Ohio 45750
- ------------------------------------------------------------------------------------
</TABLE>
CONTINUING GUARANTY
UNLIMITED
For the purpose of inducing National City Bank (hereinafter referred to as
"Bank") to lend money or advance credit to, or renew, extend or forbear from
demanding immediate payment of the Obligations of Broughton Foods Company
(hereinafter referred to as "Debtor"), the undersigned (hereinafter referred to
as "Guarantors" whether one or more), jointly and severally if more than one
(which joint and several liability shall exist regardless of whether additional
Guarantors have evidenced or may in the future evidence their undertaking by
executing this Guaranty, by co-signing one or more promissory notes or other
instruments of indebtedness, by executing one or more separate agreements of
guaranty of any or all of the Obligations referred to herein or otherwise),
hereby unconditionally guarantee the prompt and full payment to Bank when due,
whether by acceleration or otherwise, of all Obligations of any kind for which
Debtor is now or may hereafter become liable to Bank in any manner.
The word "Obligations" is used in its most comprehensive sense and includes,
without limitation, all indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of Debtor to Bank, either created by Debtor alone or together with
another or others, primary or secondary, secured or unsecured, absolute or
contingent, liquidated or unliquidated, direct or indirect, whether evidenced
by note, draft, application for letter of credit, agreements of guaranty or
otherwise, and any and all renewals of, extensions of or substitutes therefor.
The word "Obligations" shall include, BUT NOT BE LIMITED TO, all indebtedness
owed by Debtor to Bank by reason of credit extended or to be extended to Debtor
in the principal amount of $20,000,000.00, pursuant to one or more instruments
of indebtedness and related loan documents.
Guarantors, and each of them, hereby promise that if one or more of the
Obligations are not paid promptly when due, they, and each of them, will, upon
request of Bank, pay the Obligations to Bank, irrespective of any action or
lack of action on Bank's part in connection with the acquisition, perfection,
possession, enforcement or disposition of any or all Obligations or any or all
security therefor or otherwise, and further irrespective of any invalidity in
any or all Obligations, the unenforceability thereof or the insufficiency,
invalidity or unenforceability of any security therefor.
<PAGE> 8
Guarantors waive notice of any and all acceptances of this Guaranty. This
Guaranty is a continuing guaranty, and, in addition to covering all present
Obligations of Debtor to Bank, will extend to all future Obligations of Debtor
to Bank, and this whether such Obligations are reduced or entirely extinguished
and thereafter increased or reincurred. This Guaranty is made and will remain
in effect as to any and all Obligations of Debtor incurred or arising prior to
receipt by the loan officer of Bank who is handling Debtor's Obligations of
written notice of termination of this Guaranty. No such written notice or other
revocation will in any way affect the duties of Guarantors to Bank with respect
to either Obligations incurred by Debtor or instruments executed by Debtor
prior to the receipt of such notice by such loan officer of Bank. In addition,
no such written notice or other revocation will in any way affect the
liabilities of Guarantors to Bank with respect to revolving Obligations of
Debtor on which loans or advances are made, whether such loans or advances are
made prior or subsequent to such notice. Revocation by any one or more of
Guarantors will not affect the duties of the remaining Guarantor or Guarantors.
Bank's rights hereunder shall be reinstated and revived, and this Guaranty
shall be fully enforceable, with respect to any amount at any time paid on
account of the Obligations which thereafter shall be required to be restored or
returned by Bank as a result of the bankruptcy, insolvency or reorganization of
Debtor, Guarantors, or any other person, or as a result of any other fact or
circumstance, all as though such amount had not been paid.
Guarantors waive any claims or other rights which they might now have or
hereafter acquire against Debtor or any other person, guarantor, maker or
endorser primarily or contingently liable on the Obligations that arise from
the existence or performance of Guarantors' obligations under this Guaranty or
under any instrument or agreement with respect to any property constituting
collateral or security herefor, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, or any
right to participate in any claim or remedy of Bank against Debtor or any
collateral security therefor which Bank now has or hereafter acquires; whether
such claim, remedy or right arises in equity, under contract or statute, at
common law, or otherwise.
Guarantors waive presentment, demand, protest, notice of protest and notice of
dishonor or other nonpayment of any and all Obligations and further waive
notice of sale or other disposition of any collateral or security now held or
hereafter acquired by Bank. Guarantors agree that no extension of time, whether
one or more, nor any other indulgence granted by Bank to Debtor, or to
Guarantors, or any of them, and no omission or delay on Bank's part in
exercising any right against, or in taking any action to collect from or pursue
Bank's remedies against Debtor or Guarantors, or any of them, will release,
discharge or modify the duties of Guarantors. Guarantors agree that Bank may,
without notice to or further consent from Guarantors, release or modify any
collateral, security or other guaranties now held or hereafter acquired, or
substitute other collateral, security or other guaranties, and no such action
will release, discharge or modify the duties of Guarantors hereunder.
Guarantors further agree that Bank will not be required to pursue or exhaust
any of its rights or remedies against Debtor or Guarantors, or any of them,
with respect to payment of any of the Obligations, or to pursue, exhaust or
preserve any of its rights or remedies with respect to any collateral, security
or other guaranties given to secure the Obligations, or to take any action of
any sort, prior to demanding payment from or pursuing its remedies against
Guarantors.
Guarantors agree to furnish true and complete financial statements from time to
time on request of Bank and agree that failure to furnish such financial
statements may constitute or be deemed to constitute a default or event of
default of the Obligations. Guarantors agree that any legal suit, action or
proceeding arising out of or relating to this Guaranty may be instituted in a
state or federal court of appropriate subject matter jurisdiction in the State
of Ohio; waive any objection which they may have now or hereafter to the laying
of venue of any such suit, action or proceeding; and irrevocably submit to the
jurisdiction of any such court in any such suit, action or proceeding.
WAIVER OF RIGHT TO TRIAL BY JURY
GUARANTORS ACKNOWLEDGE THAT, AS TO ANY AND ALL DISPUTES THAT MAY ARISE BETWEEN
GUARANTORS AND BANK, THE COMMERCIAL NATURE OF THE TRANSACTION OUT OF WHICH THIS
GUARANTY ARISES WOULD MAKE ANY SUCH DISPUTE UNSUITABLE FOR TRIAL BY JURY.
ACCORDINGLY, GUARANTORS HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY AS TO ANY AND
ALL DISPUTES THAT MAY ARISE RELATING TO THIS GUARANTY OR TO ANY OF THE OTHER
INSTRUMENTS OR DOCUMENTS EXECUTED IN CONNECTION HEREWITH.
Guarantors hereby authorize any attorney at law to appear for them in any action
on any or all Obligations guaranteed hereby at any time after such Obligations
become due, whether by acceleration or otherwise, in any court of record in or
of the State of Ohio or elsewhere, to waive the issuing and service of process
against, and confess
<PAGE> 9
judgment against Guarantors, or any of them, in favor of Bank for the amount
that may be due, including interest, late charges, collection costs, attorneys'
fees and the like as provided for in said Obligations, and costs of suit, and
to waive and release all errors in said proceedings and judgments, and all
petitions in error and rights of appeal from the judgments rendered. No such
judgment or judgments against less than all of Guarantors shall be a bar to a
subsequent judgment or judgments against any one or more of Guarantors against
whom judgment has not been obtained hereon, this being a joint and several
warrant of attorney to confess judgment. The attorney at law authorized hereby
to appear for the Guarantors may be an attorney at law representing the Bank,
and the Guarantors hereby expressly waive any conflict of interest that may
exist by virtue of such representation.
If any Obligation of Debtor is assigned by Bank, this Guaranty will inure to the
benefit of Bank's assignee, and to the benefit of any subsequent assignee, to
the extent of the assignment or assignments, provided that no assignment will
operate to relieve Guarantors, or any of them, from any duty to Bank hereunder
with respect to any unassigned Obligation. In the event that any one or more of
the provisions contained in this Guaranty or any application thereof shall be
determined to be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and any
other applications thereof shall not in any way be affected or impaired thereby.
This Guaranty shall be construed in accordance with the law of the State of
Ohio.
Executed and delivered at Columbus, Ohio, this 23rd day of February, 1999.
Guarantor:
LONDON'S FARM DAIRY, INC.
By:
-------------------------------
Its:
------------------------------
================================================================================
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
================================================================================
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF MARCH 31, 1999 AND THE STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3 MOS
<FISCAL-YEAR-END DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,611
<SECURITIES> 0
<RECEIVABLES> 18,051
<ALLOWANCES> 721
<INVENTORY> 6,721
<CURRENT ASSETS> 31,615
<PP&E> 38,497
<DEPRECIATION> 12,146
<TOTAL-ASSETS> 75,787
<CURRENT-LIABILITIES> 30,833
<BONDS> 3,787
0
0
<COMMON> 6,315
<OTHER-SE> 27,493
<TOTAL-LIABILITY-AND-EQUITY> 75,787
<SALES> 49,704
<TOTAL-REVENUES> 49,704
<CGS> 41,250
<TOTAL-COSTS> 41,250
<OTHER-EXPENSES> 9,406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 365
<INCOME-PRETAX> (1,224)
<INCOME-TAX> (477)
<INCOME-CONTINUING> (747)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (747)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
