<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the sixteen weeks ended September 20, 1996 Commission file
number 0-6566
Thorn Apple Valley, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Michigan 38-1964066
- ------------------------------ -------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
26999 Central Park Blvd., Suite 300, Southfield, Michigan 48076
- --------------------------------------------------------- -----
(Address of principal executive offices) (zip Code)
Registrant's telephone number, including area code (810) 213-1000
- -------------------------------------------------- --------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
At September 20, 1996, there were 6,070,687 shares of Common Stock outstanding.
<PAGE> 2
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 20, May 31,
1996 1996
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,048,872 $ 5,809,559
Short-term investments 507,036 627,560
Accounts receivable, less allowance for doubtful accounts
(Sept. 20, 1996, $715,800; May 31, 1996, $621,800) 65,788,194 62,371,990
Inventories (Note 2) 65,770,171 56,263,210
Refundable income taxes 1,579,899 11,490,330
Deferred income taxes (Note 7) 2,199,000 2,199,000
Prepaid expenses and other current assets 5,081,136 5,732,537
------------- ------------
Total current assets 146,974,308 144,494,186
------------- ------------
Property, plant and equipment:
Land 1,406,349 1,519,976
Buildings and improvements 62,299,177 61,640,117
Machinery and equipment 157,407,736 155,911,312
Transportation equipment 7,593,328 7,498,075
Property under capital leases 10,788,953 10,301,819
Construction in progress 4,518,580 4,475,987
------------- ------------
244,014,123 241,347,286
Less accumulated depreciation 103,974,680 98,938,159
------------- ------------
140,039,443 142,409,127
------------- ------------
Other assets:
Intangible assets, net of accumulated amortization of $258,246 and $839,300 at
Sept. 20, 1996 and May 31, 1996, respectively (Note 8) 32,474,454 32,732,700
Other 6,190,814 5,980,190
------------- ------------
Total other assets 38,665,268 38,712,890
------------- ------------
$ 325,679,019 $325,616,203
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 48,751,052 $ 46,970,024
Notes payable, banks (Note 3) 14,700,000
Notes payable, officer 25,186 121,366
Accrued liabilities 26,791,678 20,840,961
Current portion of long-term debt 4,834,111 2,818,444
------------- ------------
Total current liabilities 80,402,027 85,450,795
------------- ------------
Long-term debt (Note 4) 162,060,089 159,808,923
------------- ------------
Deferred income taxes (Note 7) 5,159,000 3,631,000
------------- ------------
Shareholders' equity:
Preferred stock: $1 par value; authorized 200,000 shares; issued none
Common nonvoting stock: $.10 par value; authorized 20,000,000 shares;
issued none Common voting stock: $.10 par value; authorized 20,000,000
shares; issued 6,070,687 shares Sept. 20, 1996 and 5,786,129 shares
May 31, 1996 607,069 578,613
Capital in excess of par value 10,027,946 7,011,361
Retained earnings 67,422,888 69,135,511
------------- ------------
78,057,903 76,725,485
------------- ------------
$ 325,679,019 $325,616,203
============= ============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
--------------------------
September 20, September 15,
1996 1995
------------- --------------
<S> <C> <C>
Net sales $286,882,228 $263,661,697
------------ ------------
Operating costs and expenses:
Cost of goods sold, including delivery costs 261,692,746 244,958,739
Selling 9,878,581 12,384,315
General and administrative 8,971,139 7,789,464
Depreciation and amortization 5,358,581 4,174,389
------------ ------------
285,901,047 269,306,907
------------ ------------
Income (loss) from operations 981,181 (5,645,210)
------------ ------------
Other expenses (income):
Interest 4,041,081 2,279,538
Other, net (417,277) (84,437)
------------ ------------
3,623,804 2,195,101
------------ ------------
Income (loss) from operations before income taxes (2,642,623) (7,840,311)
Provision (benefit) for income taxes (Note 7) (930,000) (2,675,000)
------------ ------------
Net income (loss) $ (1,712,623) $ (5,165,311)
============ ============
Earnings (loss) per share of common stock: (Note 5) ($0.29) ($0.89)
============ ============
Weighted average number of shares outstanding (Note 5) 5,812,042 5,772,897
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common stock Capital in
------------------- excess of Retained
Shares Amount par value earnings
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Balance, May 26, 1995 5,770,647 $577,065 $ 6,771,071 $91,247,429
Net income (loss) (5,165,311)
Cash dividends, $.07 per share (404,174)
Shares issued under employee stock
purchase plan 3,273 327 58,100
--------- -------- ----------- -----------
Balance, September 15, 1995 5,773,920 $577,392 $ 6,829,171 $85,677,944
========= ======== =========== ===========
Balance, May 31, 1996 5,786,129 $578,613 $ 7,011,361 $69,135,511
Net income (loss) (1,712,623)
Shares issued under employee stock
purchase plan 4,675 468 44,227
Newly issued shares of common stock
(Note 9) 279,883 27,988 2,972,358
--------- -------- ----------- -----------
Balance, September 20, 1996 6,070,687 $607,069 $10,027,946 $67,422,888
========= ======== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
---------------------------
September 20, September 15,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,712,623) $ (5,165,311)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 5,100,335 4,174,389
Amortization 258,246 258,246
Deferred income taxes 1,528,000 223,000
(Gain) loss on disposition of property,
plant and equipment 148,751 (8,032)
Provision for losses on accounts receivable 94,000 194,900
(Increase) decrease in assets:
Accounts receivable (3,510,204) (12,524,074)
Inventories (9,506,961) (8,829,342)
Prepaid expenses and other assets 561,301 16,969
Refundable income taxes 9,910,431 (2,991,913)
Increase (decrease) in liabilities:
Accounts payable 1,781,028 10,848,365
Accrued liabilities and compensation 5,950,717 2,068,830
------------ ------------
Total adjustments 12,315,644 (6,568,662)
------------ ------------
Net cash provided by (used in) operating activities 10,603,021 (11,733,973)
------------ ------------
Cash flows from investing activities:
Acquisition of a business, net of cash acquired (Note 8) (65,749,414)
Capital expenditures (2,146,013) (18,582,051)
Proceeds from sale of property, plant and equipment 122,975 20,520
------------ ------------
Net cash used in investing activities (2,023,038) (84,310,945)
------------ ------------
Cash flows from financing activities:
Proceeds from common stock sold to company officer (Note 9) 3,000,346
Proceeds from long-term debt 4,400,000 105,725,005
Principal payments on long-term debt (989,531) (997,279)
Net borrowings (payments) under lines of credit (14,700,000) (5,960,000)
Net borrowings from (payments to) officers (96,180) (1,260,298)
Dividends paid (404,174)
Proceeds from employee stock purchase plan 44,695 58,427
------------ ------------
Net cash provided by (used in) financing activities (8,340,670) 97,161,681
------------ ------------
Net increase in cash and cash equivalents 239,313 1,116,763
Cash and cash equivalents at beginning of quarter 5,809,559 4,730,637
------------ ------------
Cash and cash equivalents at end of quarter $ 6,048,872 $ 5,847,400
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $ 3,633,319 $ 1,251,546
============ ============
Income taxes
============ ============
Noncash investing activities:
Capital lease obligations $ 856,364 $ 84,740
============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 6
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ACCOUNTING POLICIES:
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and reflect, in the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position as of
September 20, 1996 and May 31, 1996, and the results of operations and cash
flows for the periods presented. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes contained in Thorn Apple Valley, Inc.'s Annual Report on
Form 10-K for the fiscal year ended May 31, 1996. Certain amounts from prior
years have been reclassified to conform with the current year presentation.
The results for the sixteen weeks ended September 20, 1996 are not
necessarily indicative of the results to be expected for the fiscal year
ending May 30, 1997.
NOTE 2 - INVENTORIES:
Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. Inventories would have been approximately $16,684,000 higher at
September 20, 1996 and May 31, 1996 if they had been stated at the lower
of first-in, first-out (FIFO) cost or market. The following is a breakdown
of inventories by classifications:
<TABLE>
September 20, May 31,
1996 1996
----------- ---------------
<S> <C> <C>
Supplies $10,342,397 $9,559,537
Raw Materials 15,961,252 23,518,145
Work in progress 4,359,862 3,588,512
Finished goods 51,790,660 36,281,016
----------- ---------------
82,454,171 72,947,210
Less LIFO reserve 16,684,000 16,684,000
----------- ---------------
Inventory balance $65,770,171 $56,263,210
=========== ===============
</TABLE>
NOTE 3 - LINE OF CREDIT:
On September 11, 1996, the Company was provided a $20 million seasonal
line of credit, by its existing four participating banks, that expires on
January 31, 1997, and bears interest at an interest rate equal to prime plus
two percent. The seasonal line is secured by a first lien on substantially
all of the Company's assets. At September 20, 1996, none of the seasonal
line of credit was drawn upon.
NOTE 4 - LONG-TERM DEBT:
On September 11, 1996, the Company entered into agreements with its
existing lenders to restructure its long-term revolving credit and note
agreement facilities and the Company's limited obligation revenue bond
agreement. As part of the restructuring, the lenders waived
non-compliance with financial covenants occurring on or before September 10,
1996 and those covenants were modified on a going-forward basis. The
following is a description of the significant changes in the terms of the
Company's borrowing agreements:
1. Under the revolving credit agreement the $80 million credit
limit has been increased to $90 million and the interest
under such agreement will be payable on a monthly basis at
an interest rate equal to prime plus one quarter percent.
2. The interest rate on the private placement note agreements
has been increased by two percentage points and accrued
interest is now required to be paid on a monthly basis.
3. A $20 million seasonal line of credit has been provided,
which expires on January 31, 1997, and bears interest at an
interest rate equal to prime plus two percent and which is
secured by a first lien on substantially all of the
Company's assets.
4. The Company has granted a second lien on substantially all
of the Company's assets which is shared on a pro-rata basis
by the $90 million revolving credit lenders, the $65.5
million private placement note lenders and the $5.5 million
limited obligation lender.
5. The Chairman of the Board of Directors of the Company, who
is also a significant shareholder of the Company, has
purchased approximately $3.0 million of the Company's
newly-issued common stock from the Company at a price per
share determined by the average closing price of the
Company's common stock for the 20 trading days preceding the
stock purchase. The proceeds of such stock purchase will be
used for working capital needs.
6. Under the agreements, the Company is obligated to pursue and
obtain by April 30, 1997 a minimum of $15 million in
subordinated debt financing through private placement. If
such financing is obtained, of which there can be no
assurance, the proceeds from the subordinated debt issue
will be used to reduce the outstanding balance of the
private placement notes, revolving credit notes and limited
obligation revenue bonds.
7. The agreements contain financial covenants with respect to
consolidated net worth and consolidated earnings available
for interest expense (as defined therein). In addition,
among other things, the agreements limit borrowings,
capital expenditures and investments, and do not allow the
payment of cash dividends or repurchase of the Company's
common stock.
The Company's two other revenue bond agreements contain restrictive
covenants that include the maintenance of a minimum level of consolidated
net worth (as defined therein) and of certain financial ratios.
5
<PAGE> 7
NOTE 4 - LONG-TERM DEBT (CONTINUED):
NOTE 5 - EARNINGS PER SHARE OF COMMON STOCK:
Earnings per share of common stock are based on the weighted average number
of common shares outstanding during each quarter. The potential dilution from
shares issuable under employee stock option plans is excluded from the
computation of the weighted average number of common shares outstanding since
it is not material.
6
<PAGE> 8
NOTE 6 - STOCK OPTION PLANS:
The Company's 1990 Employee Stock Option Plan and the Company's 1996 Employee
Stock Option Plan authorize the Company's Stock Option Committee to grant
options for up to 787,500 shares and 600,000 shares, respectively, of the
Company's common stock to present or prospective employees. At September 20,
1996, 718,300 options were granted but not exercised at prices of $10.25,
$17.00, $23.00 and $26.00 per share and no shares remain to be granted under
the 1990 Plan. At September 20, 1996, there were 49,500 options granted but
not exercised at $10.25 per share and 550,500 shares remained to be granted
under the 1996 Plan. At September 20, 1996, there were 141,000 options granted
but not exercised at prices of $2.56 and $19.67 per share under the 1982
Employee Stock Option Plan. The Company's Stock Option Committee may designate
any requirements regarding option price, waiting period or an exercise date for
options granted under the Plans, except that incentive stock options may not be
exercised at less than the fair market value of the stock on the date of grant,
and no option may remain outstanding for more than 10 years.
NOTE 7 - INCOME TAXES:
Deferred income taxes, on a SFAS No. 109 basis, reflect the estimated future
tax effect of temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations.
The Company's effective tax rate, was (35.0) percent and (34.1) percent
for the sixteen weeks ended September 20, 1996 and September 15, 1995,
respectively.
NOTE 8 - ACQUISITION:
On May 30, 1995, the Company purchased certain assets from Foodbrands
America, Inc. and its subsidiaries ("Foodbrands"). The Company
acquired substantially all of Foodbrands' Retail Division ("Wilson") assets
used by Wilson in its business of producing and marketing retail meat
products. The aggregate purchase price for the assets acquired and the
assumption of certain liabilities was approximately $64.6 million. During
the next five years, Foodbrands has the right to receive from the Company up
to an additional $10 million in accordance with what is being referred to as
an Earnout Agreement. The acquisition has been accounted for by the
purchase method. The acquired assets included three manufacturing
facilities, machinery and equipment, current assets, certain trademarks and
tradenames. The trademarks and tradenames acquired will be amortized to
expense over their estimated useful lives, determined to be 40 years. The
Company has not paid any amount to Foodbrands under the Earnout Agreement
NOTE 9 - COMMON STOCK ISSUED:
The Company sold to its Chairman of the Board of Directors, who is also a
significant shareholder of the Company, 279,883 newly issued shares of
the Company's common stock for an approximate purchase price of $3.0
million. This sale was in accordance with the amended long-term debt
agreements entered into on September 11, 1996, as discussed in Note 6 of the
Consolidated Financial Statements contained in the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1996.
7
<PAGE> 9
THORN APPLE VALLEY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Thorn Apple Valley, Inc., referred to hereinafter collectively with
its predecessors and subsidiaries as the ("Company") is a major producer of
consumer packaged meat and poultry products and is one of the largest
slaughterers of hogs in the United States. The Company is engaged in a
single segment business with two principal product categories; processed
meat and poultry products and fresh pork. The processed meat products
operations of the Company's business involve the production and sale of
consumer-brand labeled, packaged meat and poultry products, such as bacon,
hot dogs and lunch meats, hams, smoked sausages and turkey products. The
Company's fresh pork operation is engaged in the slaughtering and cutting of
hogs and the related sale of primal cuts of fresh pork products. The
Company markets its products under premium and other proprietary brand
labels including "Thorn Apple Valley," "Wilson Certified", "Corn King",
"Colonial," "Triple M," "Herrud," "Royal Crown," "Bar H," "Olde Virginie,"
and "Cavanaugh Lakeview Farms," and under customer-owned private labels.
The Company sells its products principally to wholesalers, supermarkets and
other manufacturers throughout the United States and in selected
international markets. The Company is the largest purchaser of hogs in the
Michigan, Indiana and Ohio markets.
The Company was originally incorporated in 1959 as a Michigan
corporation. It reincorporated in Delaware in 1971 and reincorporated in
Michigan in 1977.
In early fiscal 1996 the Company purchased certain assets from
Foodbrands America, Inc. and its subsidiaries ("Foodbrands"). The Company
acquired substantially all of Foodbrands' Retail Division ("Wilson") assets
used by Wilson in its business of producing and marketing retail meat
products. The acquired assets included three manufacturing facilities,
machinery and equipment, current assets and certain trademarks and tradenames.
The aggregate purchase price for the assets acquired and the assumption of
certain liabilities was approximately $64.6 million. During the next five
years, Foodbrands has the right to receive from the Company up to an additional
$10 million in accordance with what is being referred to as an Earnout
Agreement. The Company has not paid any amount to Foodbrands under the
Earnout Agreement.
The Wilson acquisition was accounted for using the purchase method. The
tradenames and trademarks acquired are being amortized over their estimated
useful lives, which was determined to be 40 years. During fiscal 1996, the
Company closed two of the acquired facilities that did not fit with the
Company's strategic objectives.
The Company's principal executive offices are located at 26999 Central
Park Blvd., Suite 300, Southfield, Michigan 48076 (telephone number: (810)
213-1000).
RESULTS OF OPERATIONS
As consumers have become more health conscious, hog slaughterers and
meat and poultry processors have focused on providing healthier and more
convenient fresh pork and processed meat products to successfully compete
against other protein sources, particularly poultry and seafood. In
addition, increased amounts of poultry are being used in processed meat
products which were traditionally made with only beef and pork. Per capita
pork consumption has remained relatively stable in the United States in
recent years.
Profitability in the hog slaughter industry is affected by the cost and
supply of hogs and fresh pork product selling prices. The slaughtering
industry has generally been characterized by relatively narrow profit
margins and a trend toward larger, higher volume plants in order to reduce
per unit costs. Consumer packaged meat and poultry processors generally
receive higher profit margins on premium labeled items than on fresh pork
and by-products.
Hog prices represent the principal production cost of pork slaughterers
and are an important element in the cost of certain processed meat products
as well. Hog prices and hog supply are determined by constantly changing
market forces of supply and demand. The ability of hog slaughterers and
processors to maintain satisfactory margins may be affected by a multitude
of market factors over which such industry participants have limited
control, including industry-wide slaughter levels, competition, the relative
price of substitute products, overall domestic retail demand and the level
of exports.
The first quarter of each fiscal year consists of sixteen weeks, and
each subsequent quarter consists of twelve weeks, except that the fourth
quarter consists of thirteen weeks in the case of a 53-week fiscal year.
The following discussion analyzes material changes in the financial
information on a period to period basis.
8
<PAGE> 10
Sixteen weeks ended September 20, 1996 compared to sixteen weeks ended
September 15, 1995.
The Company's net loss for the first quarter ended September 20, 1996,
was $1.7 million compared with a net loss of $5.2 million for the comparable
period of the prior year. The improvement in net earnings is primarily
attributable to higher margins in both the processed meat and fresh pork
operations. The Company has solidified its recently acquired Wilson
business into its processed meat operations. Additionally, the Company has
upgraded its processed meat product mix, fully implemented its new
distribution network, and improved production performance at all of its
facilities. The improved first-quarter results reflect these operational
improvements.
Margins in the processed meat division were higher as a result of
improved plant operations and increased selling prices. Fresh pork margins
were also improved as a result of plant operational efficiency gains and
increased selling prices. The Company is beginning to realize the targeted
benefits associated with the completion of its renovated hog slaughter
facility. Unfortunately, industry-wide fresh pork margins remained
depressed, and the improved operating efficiencies only served to reduce
resulting losses in this operation. The Company is unable to predict when
industry-wide fresh pork margins will return to more profitable levels.
Net sales in the first quarter of fiscal 1997 increased by $23.2
million, or 8.8%. The increase in net sales dollars was the result of an
increase in processed meat and fresh pork sales of 4.3% and 16.1%,
respectively. The increase in processed meat product sales was primarily
attributable to an overall increase in average selling prices of 23.1%,
offset in part by a decrease in units shipped of 15.3%. The increase in
fresh pork sales was principally due to an increase in average selling
prices of 15.5%, primarily the result of an increase of approximately 22%
in the cost of live hogs, the Company's primary raw material. Fresh pork
tonnage shipped remained relatively unchanged from the previous comparable
quarter.
The Company's processed meat operations sales volume decreased as a
result of the Company's focus on establishing a proper product mix to
maintain and improve sufficient margins. The Company is currently
coordinating its holiday ham sales programs and expects to fully utilize its
ham capacity through December 1996.
Cost of goods sold (including delivery costs) increased by $16.7
million, or 6.8%, as a result of the increased cost of live hogs referred to
above, which was partially offset by the reduction in processed meat sales
volume. As a percentage of net sales, cost of goods sold decreased to 91.2%
from 92.9%, primarily as a result of increased plant operational
efficiencies in both the Company's processed meat and fresh pork divisions.
Selling expenses decreased $2.5 million, or 20.2%, principally as a
result of lower promotional expenses and a reduction in the operating costs
associated with the sales department resulting from the completion of the
integration of the acquired Wilson sales function into the Company's
business. As a percentage of net sales, selling expenses decreased to 3.4%
from 4.7%, mainly due to the factors discussed above.
General and administrative expenses increased $1.2 million, or 15.2%.
This increase is primarily the result of a prior years expense that included
a one-time reduction in the Company's provision for the Michigan Single
Business tax (a non corporate income tax expense). As a percentage of net
sales, general and administrative expenses increased to 3.1% from 3.0%.
Interest expense increased $1.8 million, or 77.3%. The increase is
attributable to an increase in borrowings under the Company's revolving
credit agreement that primarily was the result of the Company's Fiscal 1996
operating losses and increased interest rates related to the restructuring
of the Company's long-term debt agreements.
The benefit for income taxes, as a result of the net loss, decreased by
$1.7 million, primarily due to the improvement in pre-tax earnings from
operations from a loss of $7.8 million in the first quarter of fiscal 1996
to a loss of $2.6 million in the first quarter of fiscal 1997, resulting
from the factors discussed above. The Company's effective tax rate
increased to (35.0%) from (34.1%).
Earnings per share of common stock increased by $.60 per share to a net
loss of $.29 per share, due to improved profitability resulting from the
factors discussed above.
The results for the sixteen weeks ended September 20, 1996 are not
necessarily indicative of the results to be expected for fiscal 1997.
9
<PAGE> 11
FINANCIAL CONDITION
The Company's business is characterized by high unit sales volume and
rapid turnover of inventories and accounts receivable. Because of the rapid
turnover rate, the Company considers its inventories and accounts receivable
to be highly liquid and readily convertible into cash. Borrowings under the
revolving credit agreement are used when needed to finance increases in the
levels of inventories and accounts receivable resulting from seasonal and
other market-related fluctuations in raw material costs and quantities. The
demand for seasonal borrowings usually peaks in early December when ham
inventories and accounts receivable are at their highest levels, and these
borrowings are generally repaid in January when the accounts receivable
generated by the sales of these hams are collected.
The Company has historically maintained lines of credit in excess of
the cash needs of its business. At September 20, 1996, the Company had
total lines of credit under its amended revolving credit agreement from four
financial institutions aggregating $90.0 million, of which $5.6 million was
unused. On September 11, 1996, the Company entered into agreements with its
existing lenders to restructure the Company's revolving credit and note
agreement facilities and the Company's limited obligation revenue bond
agreement. As part of that restructuring, the lenders waived past
non-compliance with financial covenants occurring on or before September 10,
1996 and those covenants were modified on a going-forward basis. The following
is a description of the significant changes in the terms of the Company's
borrowing agreements:
1. Under the revolving credit agreement the $80 million credit limit
has been increased to $90 million and the interest under such
agreement will be payable on a monthly basis at an interest rate
equal to prime plus one-quarter percent.
2. The interest rate on the private placement note agreements has
been increased by two percentage points and accrued interest is now
required to be paid on a monthly basis.
3. A $20 million seasonal line of credit has been provided, which
expires on January 31, 1997, and bears interest at an interest rate
equal to prime plus two percent and which is secured by a first lien
on substantially all of the Company's assets.
4. The Company has granted a second lien on substantially all of the
Company's assets which is shared on a pro-rata basis by the $90
million revolving credit lenders, the $65.5 million private placement
note lenders and the $5.5 million limited obligation lender.
5. The Chairman of the Board of Directors of the Company, who is also
a significant shareholder of the Company, has purchased approximately
$3.0 million of the Company's newly-issued common stock from the
Company at a price per share determined by the average closing price of
the Company's common stock for the 20 trading days preceding the stock
purchase. The proceeds of such stock purchase will be used for
working capital needs.
6. Under the agreements, the Company is obligated to pursue and
obtain by April 30, 1997 a minimum of $15 million in subordinated
debt financing through private placement. If such financing is
obtained, of which there can be no assurance, the proceeds from the
subordinated debt issue will be used to reduce the outstanding
balance of the private placement notes, revolving credit notes and
limited obligation revenue bonds.
7. The agreements contain financial covenants with respect to
consolidated net worth and consolidated earnings available for interest
expense (as defined therein). In addition, among other things, the
agreements limit borrowings, capital expenditures and investment, and do
not allow the payment of cash dividends or repurchase of the Company's
common stock.
The Company's two other revenue bond agreements contain restrictive
covenants that include the maintenance of a minimum level of consolidated
net worth (as defined therein) and of certain financial ratios.
Management believes that funds provided from operations and borrowings
under available lines of credit will permit it to continue to finance its
current operations and to further develop its business in accordance with
its operating strategies. Additionally, management believes that it will be
able to obtain the additional $15 million of subordinated debt by April 30,
1997.
EXHIBITS AND REPORTS ON FORM 8-K
There were no reports filed on form 8-K for the period ending September
20, 1996.
10
<PAGE> 12
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.
THORN APPLE VALLEY, INC.
(Registrant)
Date: October 29, 1996 By: /s/ Louis Glazier
- ----------------------- ---------------------------
Louis Glazier
Executive Vice President of
Finance and Administration
Chief Financial Officer
11
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 20, 1996 CONSOLIDATED STATEMENTS OF
OPERATION FOR THE 16 WEEKS ENDED SEPTEMBER 20, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q, QUARTERLY REPORT UNDER SECTION 13
OR 15 (d) OF THE SECURITES EXCHANGE ACT OF 1934.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-30-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> SEP-20-1996
<CASH> 6,048,872
<SECURITIES> 507,036
<RECEIVABLES> 66,503,994
<ALLOWANCES> 715,800
<INVENTORY> 65,770,171
<CURRENT-ASSETS> 146,974,308
<PP&E> 244,014,123
<DEPRECIATION> 103,974,680
<TOTAL-ASSETS> 325,679,019
<CURRENT-LIABILITIES> 80,402,027
<BONDS> 162,060,089
0
0
<COMMON> 607,069
<OTHER-SE> 77,450,834
<TOTAL-LIABILITY-AND-EQUITY> 325,679,019
<SALES> 286,882,228
<TOTAL-REVENUES> 286,882,228
<CGS> 261,692,746
<TOTAL-COSTS> 261,692,746
<OTHER-EXPENSES> 24,208,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,041,081
<INCOME-PRETAX> (2,642,623)
<INCOME-TAX> (930,000)
<INCOME-CONTINUING> (1,712,623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,712,623)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> 0
</TABLE>
