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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 23, 2000
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: 333-76569
Luigino's, Inc.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Minnesota 2038 59-3015985
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
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525 Lake Avenue South
Duluth, MN 55802
(218) 723-5555
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices.)
Check whether the registrant: (1) 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.
Common 1,000
- --------------------------- --------------------------------
(Class) (Outstanding at May 19, 2000)
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LUIGINO'S, INC.
INDEX
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PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements (Unaudited)
Balance Sheets as of April 23, 2000 (Unaudited)
and January 2, 2000................................................................ 3
Statements of Operations for the first fiscal
quarter ended April 23, 2000 (Unaudited) and April 25, 1999........................ 4
Statements of Cash Flows for year to date ended April
23, 2000 (Unaudited) and April 25, 1999 ........................................... 5
Notes to Financial Statements (Unaudited).......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................ 10
Item 5. Other Information.................................................................. 10
Item 6. Exhibits and Reports on Form 8-K................................................... 11
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2
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Part 1 - Financial Information
Item 1. Financial Statements
LUIGINO'S, INC.
Balance Sheets
(In Thousands, Except Share and Per Share Data)
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<CAPTION>
April 23, January 2,
2000 2000
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 178 $ 105
Receivables, net of allowance for doubtful accounts of $146............... 17,978 22,059
and $145, respectively
Inventories............................................................... 22,137 22,420
Notes receivable from principal stockholder............................... 5,472 250
Prepaid expenses.......................................................... 1,991 1,547
--------- ---------
Total current assets.................................................. 47,756 46,381
--------- ---------
Property, Plant and Equipment:
Land...................................................................... 22 22
Buildings and improvements................................................ 16,812 16,783
Machinery and equipment................................................... 107,280 98,159
Office equipment and leasehold improvements............................... 5,262 5,022
Construction in progress.................................................. 1,538 8,835
Less - - Accumulated depreciation......................................... (37,771) (34,211)
--------- ---------
Net property, plant and equipment....................................... 93,143 94,610
--------- ---------
Other Assets:
Restricted cash........................................................... 709 747
Notes receivable from principal stockholder............................... -- 5,472
Other..................................................................... 5,317 5,398
--------- ---------
Total other assets .................................................. 6,026 11,617
--------- ---------
Total Assets................................................................. $ 146,925 $ 152,608
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt...................................... $ 2,642 $ 2,729
Accounts payable.......................................................... 16,721 25,422
Accrued expenses - -
Accrued payroll and benefits......................................... 2,623 4,817
Accrued interest..................................................... 2,491 4,430
Accrued promotions and other......................................... 3,024 4,915
--------- ---------
Total current liabilities............................................ 27,501 42,313
Long-Term Debt, less current maturities...................................... 127,292 117,698
--------- ---------
Total liabilities............................................................ 154,793 160,011
--------- ---------
Commitments and Contingencies
Stockholders' Deficit:
Common stocks - -
Voting, $1 stated par value, 600 shares authorized;
100 shares issued and outstanding................................... -- --
Nonvoting, $1 stated par value, 900 shares authorized;............... 1 1
900 shares issued and outstanding
Additional paid-in capital................................................ 655 655
Retained deficit.......................................................... (8,524) (8,059)
--------- ---------
Total stockholders' deficit.................................................. (7,868) (7,403)
--------- ---------
Total Liabilities and Stockholders' Deficit.................................. $ 146,925 $ 152,608
========= =========
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The accompanying notes are an integral part of these financial statements
3
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LUIGINO'S, INC.
Statements of Operations
(In Thousands)
(Unaudited)
`<TABLE>
<CAPTION>
First Fiscal Quarter Ended
----------------------------------------
April 23, 2000 April 25, 1999
------------------ ------------------
<S> <C> <C>
Net Sales...................... $ 81,692 $ 75,646
Cost of Goods Sold............. 49,151 44,591
------------ --------------
Gross profit............... 32,541 31,055
------------ --------------
Operating Expenses:
Selling and promotional........ 21,498 25,578
General and administrative..... 7,376 7,093
------------ --------------
Total operating expenses....... 28,874 32,671
------------ --------------
Operating income (loss)........ 3,667 (1,616)
Other Income (Expense):
Interest expense............... (4,169) (3,471)
Interest income................ 119 155
Other, net..................... (82) 137
------------ --------------
Total other expense............ (4,132) (3,179)
------------ --------------
Net Loss....................... $ (465) $ (4,795)
============ ==============
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The accompanying notes are an integral part of these financial statements
4
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LUIGINO'S, INC.
Statements of Cash Flows
(In Thousands)
(Unaudited)
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<CAPTION>
Year to Date Ended
-------------------------------
April 23, 2000 April 25, 1999
-------------- --------------
<S> <C> <C>
Operating Activities:
Net loss...................................................... $ (465) $ (4,795)
Adjustments to net loss used in operating activities -
Depreciation and amortization............................. 3,785 3,295
Changes in operating assets and liabilities:
Receivables.......................................... 4,081 3,307
Inventories.......................................... 283 (2,273)
Prepaid expenses and other........................... (444) (865)
Accounts payable and accrued expenses................ (14,725) (5,670)
-------------- --------------
Net cash used in operating activities............. (7,485) (7,001)
-------------- --------------
Investing Activities:
Purchases of property, plant and equipment.................... (2,093) (10,608)
Purchases of other assets..................................... (344) (273)
-------------- --------------
Net cash used in investing activities............. (2,437) (10,881)
-------------- --------------
Financing Activities:
Borrowings on revolving credit agreement...................... 36,500 3,300
Payments on revolving credit agreement........................ (26,100) (18,400)
Proceeds from debt............................................ -- 100,000
Repayments of debt............................................ (893) (53,097)
Decrease (increase) in deferred financing costs............... 200 (3,326)
Decrease in restricted cash................................... 38 28
Decrease of notes receivable.................................. 250 3,338
Distributions to stockholders................................. -- (15,000)
-------------- --------------
Net cash provided by financing activities......... 9,995 16,843
-------------- --------------
Increase (decrease) in cash and cash equivalents................... 73 (1,039)
Cash and cash equivalents, beginning of period..................... 105 1,193
-------------- --------------
Cash and cash equivalents, end of period........................... $ 178 $ 154
============== ==============
Supplemental Information:
Interest paid........................................ $ 6,108 $ 1,336
============== ==============
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The accompanying notes are an integral part of these financial statements
5
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LUIGINO'S, INC.
Notes to Financial Statements
(Unaudited)
(Dollars in Thousands)
1. Operations:
Luigino's, Inc. (the "Company"), a Minnesota corporation, manufactures food
products primarily under the Michelina's label at production facilities located
in Minnesota and Ohio. Its products, distributed predominately in the North
American market, are sold through independent and chain store retail grocery
outlets.
2. Basis of Presentation:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 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.
In the opinion of management, all adjustments consisting solely of normal
recurring items considered necessary for a fair presentation have been included.
Operating results for the year to date period ended April 23, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. Certain amounts in the financial statements for the
prior quarter have been reclassified to conform with the current period's
presentation. Those reclassifications had no effect on stockholders' equity or
net income.
For further information, refer to the audited financial statements and footnotes
thereto included in the Company's Form 10-K, filed on March 28, 2000 with the
Securities and Exchange Commission.
3. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133, as
amended by SFAS No. 137, is effective for fiscal years beginning after June 15,
2000. SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Company utilizes an interest rate
swap intended to hedge its interest rate risk associated with long-term debt.
The Company has not completed its analysis for the effect of SFAS 133, but
management does not expect adoption of the new standard on January 1, 2001 to
materially affect its financial statements.
4. Fiscal Year:
The Company has elected a 52/53 week fiscal year which ends on the Sunday
closest to December 31 and a 16-week first fiscal quarter, 12-week second and
third fiscal quarters and a 12 or 13 week fourth fiscal quarter.
5. Inventories:
Inventories are stated at the lower of first-in, first-out cost or market and
consisted of the following:
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<CAPTION>
April 23, 2000 January 2, 2000
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<S> <C> <C>
Finished Goods........................ $10,058 $ 9,226
Raw Materials...................... 9,683 9,804
Packaging Supplies.................. 2,396 3,390
------- -------
$22,137 $22,420
======= =======
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6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of the financial condition and results of
operations of Luigino's, Inc. (the "Company" or "Luigino's") should be read in
conjunction with the Company's Financial Statements and Notes thereto.
Results of Operations
The following table sets forth, for the periods indicated, the major
components of Luigino's statements of operations expressed as a percentage of
net sales:
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First Fiscal Quarter Ended
---------------------------------------
April 23, 2000 April 25, 1999
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Net Sales........................... 100.0 % 100.0 %
Cost of Goods Sold.................. 60.2 58.9
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Gross profit................... 39.8 41.1
Operating Expenses:
Selling and promotional........ 26.3 33.8
General and administrative..... 9.0 9.4
------- -------
Total operating expenses....... 35.3 43.2
Operating income (loss)........ 4.5 (2.1)
Other Income (Expense):
Interest expense............... (5.1) (4.6)
Interest income................ 0.1 0.2
Other, net..................... (0.1) 0.2
------- -------
Total other expense........ (5.1) (4.2)
------- -------
Net Loss............................ (0.6) % (6.3) %
======= =======
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First Fiscal Quarter 2000 compared to First Fiscal Quarter 1999
Net Sales. The following table sets forth Luigino's net sales by product
line and the percentage change from the prior period:
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First Fiscal Quarter Ended Percentage
April 23, 2000 April 25, 1999 Change
---------------- ---------------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Green Label....... $ 46,719 $ 43,546 7.3 %
Signature......... 11,127 8,147 36.6
Red Label......... 9,561 11,383 (16.0)
Black Label....... 9,198 8,569 7.3
Snacks............ 5,087 4,001 27.1
--------- ----------- -----
$ 81,692 $ 75,646 8.0 %
========= =========== =====
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7
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Total net sales for the first quarter of 2000 increased 8.0% or $6.0
million, to $81.7 million from $75.7 million in the first quarter of 1999. Green
Label net sales increased $3.2 million and Black Label net sales increased $0.6
million due to continued growth in both Canada and U.S. product line net sales.
Signature net sales increased $3.0 million due to a full quarter of distribution
in the U.S. and the introduction of the product line in Canada. Snack net sales
increased $1.1 million due to the introduction of pizza in Canada. Red Label net
sales decreased $1.8 million due to a change in promotion strategy.
Canadian net sales contributed 17.8%, or $14.5 million, to net sales for
the first quarter of 2000 compared to 12.9%, or $9.8 million, for the first
quarter of 1999. Canadian sales have benefited from overall growth in the frozen
entree market and new product introduction.
Volume increases were recorded in Green Label, Signature, Black Label and
Snacks. The volume increases were attributable to continued growth and
introduction of new products in Canada. A volume decrease was recorded in Red
Label due to a change in promotion strategy. The volume increases were partially
offset by price decreases related to the introduction of new products in Canada,
which have lower margins than U.S. products.
Gross Profit. Gross profit in the first quarter of 2000 increased 4.8%, or
$1.5 million, to $32.5 million from $31.0 million in the first quarter of 1999.
The increase in gross profit is a result of the increase in overall sales
levels. The gross margin in the first quarter of 2000 decreased to 39.8% of net
sales from 41.1% in the first quarter of 1999. The decrease resulted from
increased sales of Signature and increased Canadian sales which have lower
margins.
Selling and Promotional Expenses. Selling and promotional expenses for the
first quarter of 2000 decreased 16.0%, or $4.1 million, to $21.5 million from
$25.6 million in the first quarter of 1999. The decrease resulted primarily from
a $6.3 million decrease in slotting expense, a $1.5 million increase in
promotional expense and an overall increase in variable selling expenses related
primarily to increased sales.
General and Administrative Expenses. General and administrative expenses
for the first quarter of 2000 increased 4.0%, or $0.3 million, to $7.4 million
from $7.1 million in the first quarter of 1999. The increase was primarily a
result of increased consulting and professional fees of $0.2 million and
increased market research expense of $0.1 million.
Operating Income (Loss). Operating income for the first quarter of 2000
increased 326.9%, or $5.3 million, to $3.7 million as compared to operating loss
of ($1.6) million in the first quarter of 1999. As a percentage of net sales,
operating income increased to 4.5% of net sales in the first quarter of 2000
compared to a loss of (2.1%) in the first quarter of 1999. The increase resulted
from the $1.5 million increase in gross profit, the $4.1 million decrease in
selling and promotional expenses and the $0.3 million increase in general and
administrative expenses.
8
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Interest Expense. Interest expense for the first quarter of 2000 increased
20.1%, or $0.7 million, to $4.2 million from $3.5 million in the first quarter
of 1999. The increase was a result of the increase in senior debt offering
interest of $0.8 million.
Interest Income. Interest income was $0.1 million for the first quarter of
2000 and $0.2 million for the first quarter of 1999.
Other Income (Expense). Other expense was $0.1 million for the first
quarter of 2000 as compared to other income of $0.1 million for the first
quarter of 1999.
Net Loss. For the reasons stated above, net loss for the first quarter of
2000 decreased 90.3%, or $4.3 million, to ($0.5) million from ($4.8) million in
the first quarter of 1999. As a percentage of net sales, net loss decreased to
(0.6%) of net sales in the first quarter of 2000 compared to (6.3)% in the first
quarter of 1999.
Liquidity and Capital Resources
Operating activities used $7.5 million of cash for the first quarter of
2000 compared to $7.0 million for the first quarter of 1999. The increase in
cash used resulted from increased working capital requirements for the first
quarter of 2000 partially offset by decreased net loss.
Investing activities used $2.4 million of cash for the first quarter of
2000 and $10.9 million for the first quarter of 1999. The first quarter of 2000
included the purchase of $2.1 million in machinery and equipment compared to
$5.9 million of purchases of equipment under operating leases and $4.7 million
in machinery and equipment purchases in the first quarter of 1999.
Financing activities generated $10.0 million of cash for the first quarter
of 2000 compared to $16.8 million for the first quarter of 1999. The first
quarter of 2000 includes a $9.5 million increase in debt, a $0.2 million
decrease in deferred financing costs and a $0.2 million shareholder notes
receivable collection.
2000 Planned Expenditures. As a part of the Company's strategic growth
plan, the Company incurred approximately $4.3 million for slotting expenses for
the first quarter ended April 23, 2000. The Company plans to incur
approximately $5.4 million in additional slotting expenses in 2000 to introduce
new products and increase product penetration. The Company intends to finance
these expenditures through internally generated funds and borrowings under the
revolving credit agreement.
The Company anticipates continuing to elect Subchapter S treatment under
the U.S. Internal Revenue Code. Consequently, the Company will continue to make
quarterly distributions to the shareholders based upon their estimated tax
liabilities.
Luigino's ability to make scheduled payments of principal of, or to pay the
interest or premiums, if any, on, or to refinance, its indebtedness or to fund
planned capital expenditures will depend on future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond the Company's control.
Based upon the current level of operations, the Company believes that cash flow
from operations and available cash, together with available borrowings under the
credit agreement, will be adequate to meet the future liquidity needs for at
least the next several years. The Company may, however, need to refinance all
or a portion of the principal of the senior subordinated notes on or before
maturity. There can be no assurance that the business will generate sufficient
cash flow from operations, or that future borrowings will be available under the
credit agreement in an amount sufficient to enable the Company to service
indebtedness or to fund other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all.
9
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Cautionary Statement
This Form 10-Q contains forward-looking statements within the meaning of
federal securities laws. These statements include statements regarding intent,
belief or current expectations of the Company and its management. These
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties that may cause the Company's actual results
to differ materially from the results discussed in these statements. The
Company's forward-looking statements are subject to risks, uncertainties and
assumptions including, among other things: general economic and business
conditions; the Company's expectations and estimates concerning future financial
performance, financing plans and the impact of competition; anticipated trends
in the Company's industry; and other risks and uncertainties detailed from time
to time in the Company's filings with the Securities and Exchange Commission,
including Exhibit 99 to the Company's Form 10-K filed on March 28, 2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Factors. The Company is exposed to market risks from adverse
changes in interest rates, commodity prices and foreign exchange rates. The
Company enters into hedging transactions to mitigate these risks as deemed
appropriate. The Company does not use financial instruments for trading or
speculative purposes.
Interest Rate Sensitivity. The Company manages its exposure to interest
rate risk through the proportion of fixed rate debt and variable rate debt in
its total debt portfolio. To manage this mix, the Company may enter into
interest rate swap agreements, in which it exchanges periodic payments based on
a notional amount, and agreed upon fixed and variable interest rates. The
Company's percentage of fixed rate debt to total debt was 100.0% at April 23,
2000 and January 2, 2000. The Company had an interest rate swap agreement that
effectively converted $25.0 million of variable rate debt to fixed rate debt for
both periods.
Commodity Price Sensitivity. The Company is exposed to price risk related
to purchases of certain commodities used as raw materials in the Company's
products. The Company manages this risk primarily through annual purchase
agreements with vendors.
Foreign Exchange Rates. The Company has some exposure to foreign exchange
rate fluctuations in Canada, Australia and the United Kingdom. This risk is
mitigated by the fact that the Company sells its products to its Canadian and
Australian joint marketing arrangement partners in U.S. dollars. The Company's
exchange rate risk is then limited to the profit sharing portion of the joint
marketing arrangements. The foreign exchange rate risk on United Kingdom net
sales was not significant for the first fiscal quarter of 2000.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
In connection with the "safe harbor" provisions of the Private Securities
Litigation and Reform Act of 1995, the Company has filed cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in forward-looking statements of the Company
made by, or on behalf of the Company. See Exhibit 99 to the Company's Annual
Report on Form 10-K filed on March 28, 2000.
10
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
------ -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the first fiscal quarter ended
April 23, 2000.
11
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SIGNATURES
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.
LUIGINO'S, INC.
Date: May 23, 2000 By: /s/ Danette R. Bucsko
-------------------------------
Danette R. Bucsko
Chief Financial Officer (principal
financial and accounting
officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-23-2000
<CASH> 178
<SECURITIES> 0
<RECEIVABLES> 23,596
<ALLOWANCES> (146)
<INVENTORY> 22,137
<CURRENT-ASSETS> 47,756
<PP&E> 130,914
<DEPRECIATION> (37,771)
<TOTAL-ASSETS> 146,925
<CURRENT-LIABILITIES> 27,501
<BONDS> 127,292
0
0
<COMMON> 1
<OTHER-SE> (7,869)
<TOTAL-LIABILITY-AND-EQUITY> 146,925
<SALES> 81,692
<TOTAL-REVENUES> 81,692
<CGS> 49,151
<TOTAL-COSTS> 28,874
<OTHER-EXPENSES> 37
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,169
<INCOME-PRETAX> (465)
<INCOME-TAX> 0
<INCOME-CONTINUING> (465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (465)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
