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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarter (twelve weeks) ended March 28, 1998.
[ ] 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
Tom's Foods Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
58-1516963
(I.R.S. Employer Identification No.)
900 8th Street
Columbus, GA 31902
(Address of principal executive offices, including zip code)
(706) 323-2721
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [|X| ] No [ ]
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TOM'S FOODS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE TWELVE WEEKS
ENDED MARCH 28, 1998
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of March 28, 1998 (unaudited) and January 3, 1998..................................3
Statements of Operations (unaudited) for the twelve weeks ended
March 28, 1998 and March 22, 1997...........................................................4
Statements of Cash Flows (unaudited) for the twelve weeks ended
March 28, 1998 and March 22, 1997...........................................................5
Notes to Financial Statements........................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................................7
PART II. OTHER INFORMATION
Signatures ..................................................................................10
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TOM'S FOODS INC.
BALANCE SHEETS
MARCH 28, 1998 AND JANUARY 3, 1998
(in thousands except per share data)
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<CAPTION>
March 28, 1998 January 3, 1998
---------------- ----------------
(unaudited)
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ASSETS
Current Assets:
Cash and short-term investments $ 2,212 $ 7,487
Accounts and notes receivable, net 17,352 15,408
Inventories:
Raw Materials 3,190 2,494
Packaging materials 2,327 1,928
Finished goods and work in progress 5,930 5,217
Other current assets 2,097 2,328
-------------- ----------------
Total current assets 33,108 34,862
-------------- ----------------
Property, Plant, and Equipment:
Land and land improvements 5,541 5,546
Buildings 14,264 14,304
Machinery, equipment and vehicles 44,479 44,309
Vending and other distribution equipment 10,973 11,184
Furniture and fixtures 9,085 8,906
Construction in progress 3,558 2,743
-------------- ----------------
Total property, plant and equipment 87,900 86,992
Accumulated depreciation (35,994) (34,662)
-------------- ----------------
Net property, plant and equipment 51,906 52,330
-------------- ----------------
Noncurrent accounts and notes receivable, net 712 477
Other assets 4,997 5,112
Goodwill and intangible assets,net 47,877 48,264
-------------- ----------------
Total assets $ 138,600 $ 141,045
============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,080 $ 11,070
Accrued liabilities 11,924 10,973
Current portion of capital lease and other debt obligations 78 27
-------------- ----------------
Total current liabilities 21,082 22,070
-------------- ----------------
Long-Term Debt:
Senior secured notes 60,000 60,000
Industrial development revenue bonds 10,000 10,000
Capital lease and other debt obligations 235 297
-------------- ----------------
Total long-term debt 70,235 70,297
-------------- ----------------
Other long-term obligations 37 37
Accrued pension cost 6,710 6,587
Accrued postretirement benefits other than pensions 2,055 2,055
Exchangable Preferred Stock, $.01 par value, Class A, 7,000 shares authorized,
7,000 shares issued and outstanding at March 28, 1998 and January 3, 1998 7,339 7,167
Shareholders' Equity:
Common stock, $0.01 par value; 10,000 shares authorized, 5,000, and 5,000
shares issued and outstanding at March 28, 1998, and January 3, 1998
Preferred Stock, $.01 par value, Class B, 21,737 shares authorized, 21,737 shares
issued and outstanding at March 28, 1998 and January 3, 1998 22,708 22,226
Additional paid-in capital 43,225 43,225
Accumulated deficit (34,791) (32,619)
-------------- ----------------
Total shareholders' equity 31,142 32,832
-------------- ----------------
Total liabilities and shareholders' equity $ 138,600 $ 141,045
============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TOM'S FOODS INC.
STATEMENTS OF OPERATIONS
FOR THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 22, 1997
(in thousands)
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<CAPTION>
TWELVE WEEKS ENDED
-------------------------------------------------
March 28, 1998 March 22, 1997
-------------------------------------------------
(unaudited) (unaudited)
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Net Sales $ 45,656 $ 50,345
Cost of Goods Sold (28,065) (31,919)
------------------- -------------------
Gross Profit 17,591 18,426
Expenses and Other Income:
Selling and Administrative Expenses (17,366) (17,466)
Amortization of Goodwill, Intangible Assets
and Refinancing Costs (502) (387)
Other Income, Net 516 311
------------------- -------------------
Income from Operations 239 884
Interest Expense (Net of Interest Income) (1,814) (2,345)
------------------- -------------------
Loss before Income Taxes (1,575) (1,461)
Provision for Income Taxes 115 115
------------------- -------------------
Net Loss $ (1,690) $ (1,576)
=================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TOM'S FOODS INC.
STATEMENTS OF OPERATIONS
FOR THE TWELVE WEEKS ENDED
MARCH 28, 1998 AND MARCH 22, 1997
(in thousands)
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TWELVE WEEKS ENDED
----------------------------------------------
March 28,1998 March 22, 1997
----------------- ------------------
(unaudited) (unaudited)
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Cash Flows from Operating Activities:
Net loss $ (1,690) $ (1,576)
---------------- -----------------
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 2,190 1,989
Dividends accrued 172 -
Provision (benefit) for income taxes 115 115
Loss (gain) on disposal of property,
plant, and equipment (147) (13)
Changes in assets and liabilities:
Accounts and notes receivable (2,179) (1,307)
Inventories (1,808) (422)
Other assets 231 (782)
Accounts payable (1,990) (3,224)
Other liabilities 836 910
Accrued pension cost 123 202
---------------- -----------------
Total adjustments (2,457) (2,532)
---------------- -----------------
Net cash provided by (used in)
operating activities (4,147) (4,108)
---------------- -----------------
Cash Flows from Investing Activities:
Additions to property, plant, equipment (1,502) (851)
Proceeds from disposal of property,
plant and equipment 385 1
---------------- -----------------
Net cash used in investing activities (1,117) (850)
---------------- -----------------
Cash Flows from Financing Activities:
Net borrowing on working capital revolver - 3,324
Repayments of long-term debt - (348)
Proceeds from long-term debt - 840
Other debt (11) (34)
---------------- -----------------
Net cash provided by (used in)
financing activities (11) 3,782
---------------- -----------------
Increase (decrease) in cash and
short-term investments (5,275) (1,176)
Cash and short-term investments,
beginning of period 7,487 2,672
---------------- -----------------
Cash and short-term investments,
end of period $ 2,212 $ 1,496
================ =================
Interest paid during the period $ 262 $ 518
Income taxes paid during the period $ 57 $ 14
</TABLE>
5
The accompanying notes are an integral part of these financial statements.
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TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS
Item 1. BASIS OF FINANCIAL STATEMENTS AND FORMATION AND ORGANIZATION
The accompanying unaudited financial statements of Tom's Foods Inc. have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
annual report and Form 10-K for the fiscal year ended January 3, 1998.
The accompanying unaudited financial statements include, in the opinion of
management, all adjustments, which are of a normal recurring nature, necessary
for a fair presentation for the periods presented. Results for the interim
periods presented are not necessarily indicative of results that may be expected
for a full fiscal year.
FISCAL YEAR
The Company's fiscal year is the 52- or 53-week period ending on the Saturday
nearest to December 31. The current year, fiscal 1998, ends January 2, 1999 and
contains 52 weeks. The Company's first three quarters contain twelve weeks of
results while the fourth quarter contains 16 or 17 weeks coinciding with the
Company's fiscal year.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the average cost for raw materials, packaging materials, and work in process.
Finished goods cost is determined using the first-in, first-out method. Cost
elements include the cost of raw materials, direct labor, and overhead incurred
in the manufacturing process.
REFINANCING
On October 14, 1997, the Company sold $60,000,000 of 10.5% Senior Secured Notes
(the "Notes") due November 1, 2004. The Notes are secured by a first lien on and
security interest in substantially all of the assets and properties owned by the
Company, except those that are security for other debt obligations. The
indenture relating to the Notes has certain covenants, as defined. The Company
may not redeem the Notes prior to November 1, 2001, and following that date, the
Company may redeem the Notes in whole or in part at redemption prices, as
defined. In connection with the sale of the Notes, the Company incurred $3.5
million in fees and expenses which were capitalized and are being amortized over
the life of the Notes.
The proceeds from the Notes were used to pay certain of the Company's debt
obligations. Amounts paid included $40,000,000 toward obligations due to TFH
Corp. (the Company's parent), $8,336,000 to the lender under a senior credit
agreement, and $10,000,000 to satisfy the note payable and outstanding
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amounts relating to the Company's guarantee obligations with a financial
institution. After the disbursements of proceeds from the Notes, the remaining
portion of the TFH Corp. obligations, including accrued interest thereon, was
converted to $7,000,000 of Class A preferred stock and $21,755,000 of Class B
preferred stock.
The Class A preferred stock ranks senior to the Class B preferred stock.
Dividends on the Class A preferred stock and the Class B preferred stock accrue
at a rate of 10.5% and 9.5%, respectively. Dividends accrued to the Class A
preferred stock are included in interest expense in the statement of operations.
Dividends accrued to the Class B preferred stock are included in the accumulated
deficit.
The payment of $8,336,000 satisfied all outstanding term loans under a senior
credit agreement which the Company had entered into on August 30, 1996. Prior to
the offering of the Notes, the senior credit agreement provided for a revolving
loan, letter-of-credit accommodations, a term loan, and additional equipment
loans. After the payment, as part of the offering of the Notes, the senior
credit agreement was amended to include only letter-of-credit accommodations and
a revolving loan facility.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
TWELVE WEEKS ENDED MARCH 28, 1998
COMPARED TO TWELVE WEEKS ENDED MARCH 22, 1997
Net Sales for the first quarter ended March 28, 1998 were $45.7 million, a
decrease of 9.3% or $4.7 million compared to the corresponding period in 1997.
Most of the sales decrease in the first quarter 1998 was due to an anticipated
decrease in contract sales volume versus the same period in 1997 which benefited
from a higher level of contract sales.
Gross Profit decreased to $17.6 million in the first quarter of 1998 from $18.4
million in the first quarter of 1997, a decrease of $800,000 or 4.5%,
corresponding with the decrease in sales discussed above. The Gross Profit
percentage of 38.5% for the first quarter of 1998 was 1.9 percentage points
higher than the first quarter of 1997 due to a favorable product mix (including
benefits from new product introductions) and continued efforts to reduce raw
material costs and improve manufacturing efficiencies.
Selling, General and Administrative expenses were relatively flat from year to
year, decreasing slightly to $17.4 million from $17.5 million in the 1997
period, a decrease of 0.6% or $100,000. SG&A was higher as a percent of sales in
the first quarter 1998 versus 1997 due to the nominal SG&A costs associated with
contract sales which accounted for the majority of the sales decrease.
The increase in Amortization expense of approximately $115,000 was the result of
the capitalization and amortization of debt issuance costs incurred in
connection with the Notes issued in October 1997.
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Other Income was $516,000 for the first quarter 1998 compared to $311,000 for
the corresponding period in 1997 due primarily to an increase in vend rental
income and a gain on the disposal of certain assets in the normal course of
business.
Interest Expense, net of interest income, decreased to $1.8 million for the
first quarter 1998 from $2.3 million in the prior year's first quarter due to
lower debt levels and interest rates following the issuance of the Notes in
October 1997.
The Provision for Income Taxes was $115,000 in 1998 and 1997 primarily for state
income and franchise taxes. The Company estimates that it will have no Federal
Tax obligation for the fiscal year due to loss carryforwards from prior years.
The Net Loss for the twelve week period ended March 28, 1998 of $1.7 million was
$100,000 higher than the same period ended March 22, 1997 primarily due to the
net result of lower sales offset by the higher gross profit margin and lower net
interest expense.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of income (loss) before income taxes plus interest expense,
depreciation and amortization. EBITDA is a widely accepted measure of a
Company's ability to incur and service debt, to undertake capital expenditures,
and to meet working capital requirements. EBITDA is not a measure of financial
performance under generally accepted accounting principles ("GAAP") and should
not be considered an alternative either to net income as an indicator of the
Company's operating performance or as an indicator of the Company's liquidity.
EBITDA for first quarter 1998 was $2.4 million as compared to $2.9 million for
the same period 1997. The primary reason for the lower EBITDA in 1998 was due to
the anticipated decrease in contract sales versus the same period in 1997 which
benefited from a higher level of contract sales.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow requirements are for working capital, capital
expenditures and debt service. The Company has met its liquidity needs to date
through internally generated funds and a revolving line of credit established in
August 1996 as amended October 1997. As of March 28, 1998, the Company had no
outstanding loans under the revolving line, had letters of credit outstanding of
$2.8 million and had $10.3 million in borrowing availability thereunder.
The Company's working capital improved to $12.0 million as of March 28, 1998
from $9.5 million for the same period in 1997. The Company had no revolving line
of credit borrowings outstanding during the first quarter 1998 and had $2.8
million outstanding in letters of credit. At the end of the first quarter 1997,
$3.3 million was drawn on the Company's revolving line of credit and $3.0
million was outstanding in letters of credit.
Net cash used in operating activities was $4.1 million for each of the first
quarters 1998 and 1997. The net changes in receivables, inventory, accounts
payable and other working capital items are normal for the Company's first
quarter driven by a seasonal inventory build-up, increasing sales and
receivables levels and the payment of incentives to distributors and management
earned during the prior year.
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The inventory growth of $1.8 million in the first quarter of 1998 versus
$422,000 for the same period in 1997 was largely due to the timing of peanut
purchases made in the latter part of the first quarter 1998. In the first
quarter 1998, accounts payable decreased by $2.0 million versus $3.2 million in
the first quarter 1997 due primarily to the timing of inventory purchases and
capital expenditures.
Capital expenditures were $1.5 million and $851,000 in first quarter 1998 and
1997, respectively. These funds were used to support normal manufacturing
operations, the acquisition of distribution and equipment, and the Company's
investment in Information Systems.
Net cash provided by or used in financing activities was essentially nil in the
first quarter 1998 versus $3.8 million provided by financing activities in the
first quarter 1997. In the first quarter 1998, no borrowings were made against
the revolving line of credit.
The Company believes that internally generated funds, financing arrangements
with the Golden Peanut Company and amounts available through its revolving line
of credit are and will continue to be sufficient to satisfy its operating cash
requirements and planned capital expenditures.
CAUTIONARY STATEMENT RELATED TO FORWARD-LOOKING STATEMENTS
The statements contained in the foregoing "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements. There can be no assurance that any
forward-looking statement will be realized or that actual results will not be
significantly higher or lower than set forth in such forward-looking statement.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule for the three months ended
March 28, 1998 (for SEC use only).
27.2 Financial Data Schedule for the three months ended
March 22, 1997 (for SEC use only).
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Registrants
during the quarter ended March 28, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOM'S FOODS INC.
By: /s/ Rolland G. Divin
------------------------------------------
President, Chief Executive Officer,
and Director (Principal Executive Officer)
Date: May l, 1998
By /s/ S. Albert Gaston
-------------------------------------------
Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 1, 1998
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TOM'S FOODS, INC. FOR THE THREE MONTHS ENDED MARCH 28,
1998 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> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> MAR-28-1998
<CASH> 2,212
<SECURITIES> 0
<RECEIVABLES> 20,958
<ALLOWANCES> 3,606
<INVENTORY> 11,447
<CURRENT-ASSETS> 33,108
<PP&E> 87,900
<DEPRECIATION> 35,994
<TOTAL-ASSETS> 138,600
<CURRENT-LIABILITIES> 21,082
<BONDS> 70,000
7,339
22,708
<COMMON> 0
<OTHER-SE> 43,225
<TOTAL-LIABILITY-AND-EQUITY> 138,600
<SALES> 45,656
<TOTAL-REVENUES> 45,656
<CGS> 28,065
<TOTAL-COSTS> 17,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,814
<INCOME-PRETAX> (1,575)
<INCOME-TAX> 115
<INCOME-CONTINUING> (1,690)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,690)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TOM'S FOODS, INC. FOR THE THREE MONTHS ENDED MARCH 22,
1997 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> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-22-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 50,345
<TOTAL-REVENUES> 50,345
<CGS> 31,919
<TOTAL-COSTS> 17,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,345
<INCOME-PRETAX> (1,461)
<INCOME-TAX> 115
<INCOME-CONTINUING> (1,576)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,576)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
