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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarter (twelve weeks) ended June 19, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______________ to ______________
333-38853
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 JUNE 19, 1999
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of June 19, 1999 (unaudited) and January 2, 1999...................................3
Statements of Operations (unaudited) for the twelve and twenty-four weeks ended
June 19, 1999 and June 20, 1998............................................................4
Statements of Cash Flows (unaudited) for the twenty-four weeks ended
June 19, 1999 and June 20, 1998.............................................................5
Notes to Financial Statements........................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................................6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................................................10
Signatures..........................................................................................10
</TABLE>
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TOM'S FOODS INC.
BALANCE SHEETS
JUNE 19, 1999 AND JANUARY 2, 1999
(in thousands except per share data)
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<CAPTION>
June 19, 1999 January 2, 1999
------------- ---------------
(unaudited)
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ASSETS
Current Assets:
Cash and short-term investments $ 1,390 $ 3,087
Accounts and notes receivable, net 17,396 16,073
Inventories:
Raw Materials 4,036 2,383
Packaging materials 2,247 2,916
Finished goods and work in progress 5,529 5,657
Other current assets 3,386 2,859
--------- ---------
Total current assets 33,984 32,975
--------- ---------
Property, Plant, and Equipment:
Land and land improvements 5,535 5,690
Buildings 15,275 14,358
Machinery, equipment and vehicles 47,885 46,733
Vending and other distribution equipment 10,191 10,121
Furniture and fixtures 9,958 9,834
Construction in progress 5,170 4,497
--------- ---------
Total property, plant and equipment 94,014 91,233
Accumulated depreciation (43,330) (40,449)
--------- ---------
Net property, plant and equipment 50,684 50,784
--------- ---------
Noncurrent accounts and notes receivable, net 362 505
Other assets 1,770 1,770
Deferred debt issue costs 2,654 2,885
Goodwill and intangible assets, net 45,813 46,587
--------- ---------
Total assets $ 135,267 $ 135,506
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving Debt $ 2,606 $ --
Accounts payable 9,213 11,473
Accrued liabilities 8,107 8,277
Current portion of capital lease and other debt obligations 146 156
--------- ---------
Total current liabilities 20,072 19,906
--------- ---------
Long-Term Debt:
Senior secured notes 60,000 60,000
Industrial development revenue bonds 10,000 10,000
Capital lease and other debt obligations 529 585
--------- ---------
Total long-term debt 70,529 70,585
--------- ---------
Other long-term obligations 37 37
Accrued pension cost 7,372 7,115
Accrued postretirement benefits other than pensions 1,797 1,797
Exchangable Preferred Stock, $.01 par value, Class A, 7,000 shares
authorized, 7,000 shares issued and outstanding at June 19, 1999
and January 2, 1999 8,336 7,911
Shareholders' Equity:
Common stock, $0.01 par value; 10,000 shares authorized, and 5,000
shares issued and outstanding at June 19, 1999, and January 2, 1999 0 0
Preferred Stock, $.01 par value, Class B, 21,737 shares authorized, 21,737 shares
issued and outstanding at June 19, 1999 and January 2, 1999 25,494 24,316
Additional paid-in capital 43,725 43,725
Retained Deficit (42,095) (39,886)
--------- ---------
Total shareholders' equity 27,124 28,155
--------- ---------
Total liabilities and shareholders' equity $ 135,267 $ 135,506
========= =========
</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 AND TWENTY-FOUR WEEKS ENDED
JUNE 19, 1999 AND JUNE 20, 1998
(in thousands)
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TWELVE WEEKS ENDED TWENTY FOUR WEEKS ENDED
--------------------------------- ------------------------------
June 19, 1999 June 20, 1998 June 19, 1999 June 20, 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
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Net Sales $ 49,499 $ 50,025 $ 96,547 $ 95,681
Cost of Goods Sold (30,469) (30,045) (59,713) (58,110)
-------- -------- -------- --------
Gross Profit 19,030 19,980 36,834 37,571
Expenses and Other Income:
Selling and Administrative Expenses (16,500) (17,745) (33,494) (35,111)
Amortization of Goodwill, Intangible Assets
and Refinancing Costs (503) (503) (1,005) (1,005)
Other Income, Net 137 380 296 896
-------- -------- -------- --------
Income from Operations 2,164 2,112 2,631 2,351
Interest Expense (Net of Interest Income) (1,772) (1,887) (3,602) (3,701)
-------- -------- -------- --------
Income (Loss) before Income Taxes 392 225 (971) (1,350)
Provision for Income Taxes 30 115 60 230
-------- -------- -------- --------
Net Income (Loss) $ 362 $ 110 $ (1,031) $ (1,580)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TOM'S FOODS INC.
STATEMENTS OF CASH FLOWS
FOR THE TWENTY-FOUR WEEKS ENDED
JUNE 19, 1999 AND JUNE 20, 1998
(in thousands)
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TWENTY-FOUR WEEKS ENDED
-------------------------------
June 19, 1999 June 20, 1998
------------ -------------
(unaudited) (unaudited)
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Cash Flows from Operating Activities:
Net loss $(1,031) $(1,580)
------- -------
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 4,260 4,327
Provision (benefit) for income taxes 60 343
Dividends accrued 425 230
(Gain) loss on disposal of property, plant,
and equipment 14 (252)
Changes in assets and liabilities:
Accounts and notes receivable (1,078) (2,191)
Inventories (857) (3,335)
Other assets (528) 101
Accounts payable (2,259) (2,538)
Other liabilities (232) (3,168)
Accrued pension cost 258 248
------- -------
Total adjustments 63 (6,235)
------- -------
Net cash provided by (used in)
operating activities (968) (7,815)
------- -------
Cash Flows from Investing Activities:
Additions to property, plant, equipment (3,364) (3,059)
Proceeds from disposal of property,
plant and equipment 93 385
------- -------
Net cash used in investing activities (3,271) (2,674)
------- -------
Cash Flows from Financing Activities:
Net borrowing on working capital revolver 2,606 4,111
Other debt (64) 498
------- -------
Net cash provided by (used in)
financing activities 2,542 4,609
------- -------
Increase (decrease) in cash and
short-term investments (1,697) (5,880)
Cash and short-term investments,
beginning of period 3,087 7,487
------- -------
Cash and short-term investments,
end of period 1,390 1,607
======= =======
Interest paid during the period $ 3,728 $ 4,056
Income taxes paid during the period $ 70 $ 35
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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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 2, 1999.
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 1999, ends January 1, 2000 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
TWELVE WEEKS ENDED JUNE 19, 1999
COMPARED TO TWELVE WEEKS ENDED JUNE 20, 1998
Net sales for the second quarter ended June 19, 1999 were $49.5 million, a
decrease of 1.1%, or $526,000, compared to the $50.0 million reported for the
corresponding period in 1998.
Gross Profit decreased to $19.0 million in the second quarter of 1999 from $20.0
million in the second quarter of 1998, a decrease of $950,000, or 4.8%. The
Gross Profit percentage of 38.5% for the second quarter of 1999 was 1.4
percentage points lower than the 39.9% reported for the second quarter of 1998.
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Selling and Administrative expenses decreased to $16.5 million in the current
year from $17.7 million in the corresponding 1998 period, a decrease of 6.8%, or
$1.2 million. The decrease was driven primarily by lower distribution, selling,
and promotional costs.
Other Income was $137,000 for the second quarter of 1999 compared to $380,000
for the corresponding period in 1998 due primarily to lower affiliated product
income and to lower gains on asset disposals in the normal course of business.
Interest expense, net of interest income, decreased $115,000 to $1.8 million in
the second quarter of 1999 versus $1.9 million in the second quarter of 1998 due
to a lower interest rate and lower average outstanding borrowings on the
Company's revolving line of credit.
The Provision for Income Taxes was $30,000 in 1999 compared to $115,000 in 1998,
a decrease of $85,000, due to lower 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.
Net Income for the twelve week period ended June 19, 1999 was $362,000, an
increase of $252,000 compared to Net Income of $110,000 for the twelve week
period ended June 20, 1998.
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 the second quarter of 1999 increased to $4.3 million, or 8.7% of Net
Sales, compared to $4.2 million, or 8.5% of Net Sales, for the same quarter of
1998.
TWENTY-FOUR WEEKS ENDED JUNE 19, 1999
COMPARED TO THE TWENTY-FOUR WEEKS ENDED JUNE 20, 1998
Net Sales for the twenty-four weeks ended June 19, 1999 were $96.5 million, an
increase of 0.9%, or $866,000 compared to $95.7 million reported for the
corresponding period of 1998.
Gross Profit dollars for the first twenty-four weeks of 1999 decreased $737,000
to $36.8 million compared to $37.6 million reported for the same period in 1998
due to a shift in sales mix. The Gross Profit percentage of 38.2% for the first
twenty-four weeks of 1999 was 1.1 percentage points lower than the 39.3% for the
same period of 1998.
Selling and Administrative expenses for 1999 were $33.5 million, a decrease of
4.6%, or $1.6 million over the $35.1 million reported for the comparable
twenty-four week period of 1998. Selling and Administrative expenses as a
percentage of Net Sales decreased 2.0 percentage points to 34.7% in 1999
compared to 36.7% in 1998. The decrease in Selling and Administrative expenses
was driven primarily by lower distribution, selling, and promotional costs.
Other Income was $296,000 for the first twenty-four weeks of 1999 compared to
$896,000 for the same period in 1998 due primarily to lower affiliated product
commission income and lower gains on the disposal of certain assets in the
normal course of business.
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Interest Expense, net of interest income, decreased $99,000 to $3.6 million
during the first twenty-four weeks of 1999 versus $3.7 million for the
comparable period in 1998 due to a lower interest rate and lower average
borrowings on the Company's revolving line of credit.
The Provision for Income Taxes was $60,000 in 1999 compared to $230,000 for
1998, a decrease of $170,000 due to lower 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 of $1.0 million for the twenty-four week period ended June 19, 1999
was an improvement of $549,000 over the Net Loss of $1.6 million for the
twenty-four week period ended June 20, 1998.
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 the twenty-four weeks ended June 19, 1999 increased to $6.9 million,
or 7.1% of Net Sales, compared to $6.7 million, or 7.0% of Net Sales, for the
same period of 1998.
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 in October 1997. As of June 19, 1999, the Company had
$2.6 million in outstanding loans under the revolving line, had letters of
credit outstanding of $1.7 million, and had $8.4 million in excess borrowing
availability thereunder.
The Company's working capital position was relatively unchanged at $13.9 million
as of both June 19, 1999 and June 20, 1998.
Net cash used in operating activities was $1.0 million for the twenty-four week
period ended June 19, 1999 versus $7.8 million used during the same period of
1998. The improvement in operating cash flow versus the prior year was largely
due to favorable working capital changes in Inventory of $2.5 million and Other
Liabilities of $2.9 million.
Capital expenditures were $3.4 million and $3.1 million in the twenty-four week
periods ended June 19, 1999 and June 20, 1998, respectively.
Net cash provided by financing activities decreased $2.1 million to $2.5 million
provided during the first twenty-four weeks of 1999 versus $4.6 million for the
same period in 1998 due to lower revolver borrowings during the current year
period.
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Net cash used during the twenty-four week period ended June 19, 1999 of $1.7
million was an improvement of $4.2 million over the comparable twenty-four week
period ended June 20, 1998 when net cash used was $5.9 million.
YEAR 2000 ISSUES
The Company has conducted an assessment of its Year 2000 readiness including a
review of its financial information systems, manufacturing systems, and
distribution operations to identify those systems or operations that might be
affected by the arrival of the year 2000. Plans have been developed to correct
those components that were found to be affected by the date change. To date,
corrections have been addressed through limited outside services at a cost of
$120,000 and through the use of internal resources which should be adequate to
complete the Company's Year 2000 preparations. The costs of addressing Year 2000
issues have been expensed in the ordinary course of business. Substantially all,
if not all, of the Company's compliance activities are anticipated to be
complete by the end of the third quarter of 1999. The Company has begun to
develop contingency plans in the event that it does not reach its compliance
objectives on time. These plans are expected to be substantially complete by the
end of the third quarter of 1999.
In addition to the activities discussed above, the Company continues to work
with suppliers, customers, and other third parties with whom the Company
conducts business to determine the Year 2000 readiness of these key business
partners. Business partner preparation is anticipated to be adequate.
Additionally, there are alternative suppliers for most key raw materials. The
Company will continue to monitor year 2000 compliance progress of its trading
partners and work with, as appropriate, these business partners as the Company
develops its contingency plans.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("Statement 133"), Accounting for
Derivative Instruments and Hedging Activities. The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments imbedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met.
The Company has limited involvement with derivative financial instruments and
does not use them for trading purposes. The Company enters into various futures
contracts and futures options to reduce the impact of volatility in raw material
prices.
Statement 133 is effective for fiscal years beginning after June 15, 2000. The
Company has not yet quantified the impact of adopting Statement 133 on its
financial statements and has not determined the timing or method of its adoption
of Statement 133.
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-
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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 Financial data schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the
Registrants during the quarter ended June 19, 1999.
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
- ----------------------------------------------
Rolland G. Divin
President, Chief Executive Officer,
and Director (Principal Executive Officer)
Date: July 23, 1999
By /s/ S. Albert Gaston
- ----------------------------------------------
S. Albert Gaston
Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: July 23, 1999
10
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TOM'S FOODS FOR THE SIX MONTHS ENDED JUNE 19, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-2-1999
<PERIOD-END> JUN-19-1999
<CASH> 1390
<SECURITIES> 0
<RECEIVABLES> 19,762
<ALLOWANCES> 2,366
<INVENTORY> 11,812
<CURRENT-ASSETS> 33,984
<PP&E> 94,014
<DEPRECIATION> 43,330
<TOTAL-ASSETS> 135,267
<CURRENT-LIABILITIES> 20,072
<BONDS> 70,000
8,336
25,494
<COMMON> 0
<OTHER-SE> 43,725
<TOTAL-LIABILITY-AND-EQUITY> 135,267
<SALES> 96,547
<TOTAL-REVENUES> 96,547
<CGS> 59,713
<TOTAL-COSTS> 34,203
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,602
<INCOME-PRETAX> (971)
<INCOME-TAX> 60
<INCOME-CONTINUING> (1,031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,031)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
