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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 September 11, 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 SEPTEMBER 11, 1999
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of September 11, 1999 (unaudited) and January 2, 1999.......................................3
Statements of Operations (unaudited) for the twelve and thirty-six weeks ended
September 11, 1999 and September 12, 1998.....................................................................4
Statements of Cash Flows (unaudited) for the thirty-six weeks ended
September 11, 1999 and September 12, 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
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TOM'S FOODS INC.
BALANCE SHEETS
SEPTEMBER 11, 1999 AND JANUARY 2, 1999
(in thousands except per share data)
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Sept. 11, 1999 January 2, 1999
-------------- ---------------
ASSETS (unaudited)
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Current Assets:
Cash and short-term investments $ 1,255 $ 3,087
Accounts and notes receivable, net 18,443 16,073
Inventories:
Raw materials 4,881 2,383
Packaging materials 2,019 2,916
Finished goods and work in progress 5,515 5,657
Other current assets 2,987 2,859
--------- ---------
Total current assets 35,100 32,975
--------- ---------
Property, Plant, and Equipment:
Land and land improvements 5,535 5,690
Buildings 15,322 14,358
Machinery, equipment and vehicles 48,154 46,733
Vending and other distribution equipment 10,182 10,121
Furniture and fixtures 10,014 9,834
Construction in progress 6,158 4,497
--------- ---------
Total property, plant, and equipment 95,365 91,233
Accumulated depreciation (44,687) (40,449)
--------- ---------
Net property, plant, and equipment 50,678 50,784
--------- ---------
Noncurrent accounts and notes receivable, net 453 505
Other assets 1,805 1,770
Deferred debt issue costs 2,538 2,885
Goodwill and intangible assets, net 45,452 46,587
--------- ---------
Total Assets $ 136,026 $ 135,506
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving Debt $ 2,724 $ --
Accounts payable 8,210 11,473
Accrued liabilities 9,887 8,277
Current portion of capital lease and other debt obligations 137 156
--------- ---------
Total current liabilities 20,958 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 498 585
--------- ---------
Total long term debt 70,498 70,585
--------- ---------
Other long-term obligations 37 37
Accrued pension cost 7,502 7,115
Accrued postretirement benefits other than pensions 1,797 1,797
Exchangeable Preferred Stock, $.01 par value, Class A, 7,000 shares
authorized, 7,000 shares issued and outstanding at Sept. 11, 1999
and January 2, 1999 8,537 7,911
Shareholders' Equity:
Common stock, $0.01 par value; 10,000 shares authorized,
and 5,000 shares issued and outstanding at Sept. 11, 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 Sept. 11, 1999
and January 2, 1999 26,053 24,316
Additional paid-in capital 43,725 43,725
Retained Deficit (43,081) (39,886)
--------- ---------
Total shareholders' equity 26,697 28,155
--------- ---------
Total liabilities and shareholders' equity $ 136,026 $ 135,506
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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TOM'S FOODS INC.
STATEMENTS OF OPERATIONS
FOR THE TWELVE AND THIRTY-SIX WEEKS ENDED
SEPTEMBER 11, 1999 AND SEPTEMBER 12, 1998
(in thousands)
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TWELVE WEEKS ENDED THIRTY SIX WEEKS ENDED
--------------------------------- ----------------------------------
Sept. 11, 1999 Sept. 12, 1998 Sept. 11, 1999 Sept. 12, 1998
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
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Net Sales $ 47,989 $ 47,490 $ 144,536 $ 143,171
Cost of Goods Sold (29,756) (29,073) (89,469) (87,183)
--------- --------- --------- ---------
Gross Profit 18,233 18,417 55,067 55,988
Expenses and Other Income:
Selling and Administrative Expenses (16,453) (17,353) (49,947) (52,464)
Amortization of Goodwill, Intangible Assets
and Refinancing Costs (502) (502) (1,507) (1,507)
Other Income 244 882 540 1,777
--------- --------- --------- ---------
Income from Operations 1,522 1,444 4,153 3,794
Interest Expense, Net (1,918) (1,924) (5,520) (5,625)
--------- --------- --------- ---------
Loss before Income Taxes (396) (480) (1,367) (1,831)
Provision for Income Taxes 30 116 90 346
--------- --------- --------- ---------
Net Loss $ (426) $ (596) $ (1,457) $ (2,177)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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TOM'S FOODS INC.
STATEMENTS OF CASH FLOWS
FOR THE THIRTY-SIX WEEKS ENDED
SEPTEMBER 11, 1999 AND SEPTEMBER 12, 1998
(in thousands)
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<CAPTION>
THIRTY-SIX WEEKS ENDED
--------------------------------------------
September 11, 1999 September 12, 1998
------------------ ------------------
(unaudited) (unaudited)
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Cash Flows from Operating Activities:
Net loss $ (1,457) $ (2,177)
----------------- -----------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and Amortization 6,387 6,405
Provision (benefit) for income taxes 90 515
Dividends accrued 626 346
Gain on disposal of property, plant,
and equipment (71) (286)
Changes in operating assets and liabilities:
Accounts and notes receivable (2,176) (2,652)
Inventories (1,459) (2,529)
Other assets (187) 155
Accounts payable (3,263) (2,259)
Other liabilities 1,516 (2,331)
Accrued pension cost 387 373
----------------- -----------------
Total adjustments 1,850 (2,263)
----------------- -----------------
Net cash provided by (used in)
operating activities 393 (4,440)
----------------- -----------------
Cash Flows from Investing Activities:
Additions to property, plant, equipment (5,055) (3,969)
Proceeds from disposal of property, plant,
and equipment 208 385
----------------- -----------------
Net cash used in investing activities (4,847) (3,584)
----------------- -----------------
Cash Flows from Financing Activities:
Net borrowing on working capital revolver 2,724 2,142
Other debt (repayments) borrowings (102) 457
----------------- -----------------
Net cash provided by financing activities 2,622 2,599
----------------- -----------------
Decrease in cash and short-term
investments (1,832) (5,425)
Cash and short-term investments, beginning
of period 3,087 7,487
----------------- -----------------
Cash and short-term investments, end
of period $ 1,255 $ 2,062
================= =================
Interest paid during the period $ 4,200 $ 4,759
Income taxes paid during the period $ 70 $ --
</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 SEPTEMBER 11, 1999
COMPARED TO TWELVE WEEKS ENDED SEPTEMBER 12, 1998
Net sales for the third quarter ended September 11, 1999 were $48.0 million, an
increase of 1.1% or $499,000 compared to the corresponding period in 1998.
Gross profit decreased slightly to $18.2 million in the third quarter of 1999
from $18.4 million in the third quarter of 1998, a decrease of $184,000 or 1.0%,
due to a shift in sales mix. The Gross Profit percentage of 38.0% for the third
quarter of 1999 was 0.8 percentage points lower than the 38.8% reported for the
third quarter of 1998.
Selling and Administrative expenses decreased to $16.5 million in the current
quarter from $17.4
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million in the corresponding 1998 period, a decrease of 5.2% or $900,000. The
decrease was driven primarily by lower distribution, selling, and promotional
expenses.
Other Income was $244,000 for the third quarter 1999 compared to $882,000 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, remained relatively unchanged at $1.9
million in both the third quarter of 1999 and 1998.
The Provision for Income Taxes was $30,000 in 1999 compared to $116,000 in 1998,
a decrease of $86,000 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 for the twelve week period ended September 11, 1999 was $426,000,
an improvement of $170,000 compared to the Net Loss of $596,000 for the twelve
week period ended September 12, 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 third quarter of 1999 increased to $3.6 million, or 7.6% of Net
Sales, compared to $3.5 million, or $7.4% of Net Sales, for the same quarter of
1998.
THIRTY-SIX WEEKS ENDED SEPTEMBER 11, 1999
COMPARED TO THE THIRTY-SIX WEEKS ENDED SEPTEMBER 12, 1998
Net Sales for the thirty-six weeks ended September 11, 1999 were $144.5 million,
an increase of 1.0%, or $1.3 million compared to $143.2 million reported for the
corresponding period of 1998.
Gross Profit dollars for the first thirty-six weeks of 1999 decreased $921,000
to $55.1 million compared to $56.0 million reported for the same period in 1998
due to a shift in sales mix. The Gross Profit percentage of 38.1% for the
thirty-six weeks of 1999 was 1.0 percentage points lower than the 39.1% for the
same period of 1998.
Selling and Administrative expenses for 1999 were $49.9 million, a decrease of
4.8% or $2.5 million, from the $52.4 million reported for the comparable
thirty-six week period of 1998. Selling and Administrative expenses as a
percentage of Net Sales decreased 2.0 percentage points to 34.6% in 1999
compared to 36.6% in 1998. The decrease in Selling and Administrative expenses
was driven primarily by lower distribution, selling, and promotional expenses.
Other Income was $540,000 for the first thirty-six weeks of 1999 compared to
$1.8 million 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 $105,000 to $5.5 million
during the first thirty-six weeks of 1999 versus $5.6 million for the comparable
period in 1998 due to a lower effective interest rate and lower average
borrowings on the Company's revolving line of credit.
The Provision for Income Taxes was $90,000 in 1999 compared to $346,000 for
1998, a decrease of $256,000 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 $1.5 million for the thirty-six week period ended September 11,
1999 was an improvement of $720,000, or 33.1%, from the Net Loss of $2.2 million
for the thirty-six week period ended September 12, 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 thirty-six weeks ended September 11, 1999 increased to $10.5
million, or 7.3% of Net Sales, compared to $10.2 million, or 7.1% of Net Sales,
for the same period of 1998, an improvement of 3.3%.
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 and amended in October 1997. As of September 11, 1999, the Company
had $2.7 million of outstanding loans under the revolving line, had letters of
credit outstanding of $1.9 million and had $8.3 million in borrowing
availability thereunder.
The Company's working capital position of $14.1 million as of September 11, 1999
was a decrease of $549,000 compared to the working capital position of $14.7
million as of September 12, 1998.
Net cash provided by operating activities was $393,000 for the thirty-six week
period ended September 11, 1999, an improvement of $4.8 million versus net cash
used in operating activities of $4.4 million during the same period in 1998. The
improvement in operating cash flow versus the prior year was largely due to
favorable working capital changes in Inventory of $1.1 million and Other
Liabilities of $3.8 million.
Capital expenditures were $5.0 million and $4.0 million in the thirty-six week
periods ended September 11, 1999 and September 12, 1998, respectively.
Net cash provided by financing activities, primarily from use of the Company's
revolving line of credit, was relatively unchanged at $2.6 million for the
thirty-six week periods ending September 11, 1999 and September 12, 1998.
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The decrease in the Company's net cash position for the thirty-six week period
ended September 11, 1999 of $1.8 million was an improvement of $3.6 million over
the comparable thirty-six week period ended September 12, 1998 when the net cash
position had decreased $5.4 million from the beginning of the year.
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. Most of the
Company's compliance activities were complete by the end of the third quarter of
1999. Remaining compliance activities are anticipated to be completed early in
the fourth quarter. The Company has begun to develop contingency plans to
address supply or delivery problems and other potential unforeseen disruptions
that could possibly occur in its business due to Y2K issues. These plans are
expected to be substantially complete early in the fourth 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.
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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 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 September 11,
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: October 6, 1999
By /s/ S. Albert Gaston
- ----------------------------------------------
S. Albert Gaston
Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: October 6, 1999
10
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<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> SEP-11-1999
<CASH> 1,255
<SECURITIES> 0
<RECEIVABLES> 20,585
<ALLOWANCES> 2,142
<INVENTORY> 12,415
<CURRENT-ASSETS> 35,100
<PP&E> 95,365
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<TOTAL-ASSETS> 136,026
<CURRENT-LIABILITIES> 20,958
<BONDS> 70,000
8,537
26,053
<COMMON> 0
<OTHER-SE> 43,725
<TOTAL-LIABILITY-AND-EQUITY> 136,026
<SALES> 144,536
<TOTAL-REVENUES> 144,536
<CGS> 89,469
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