<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the twenty-eight weeks ended December 8, 1995 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., 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 II 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 December 8, 1995 , there were 5,777,957 shares of Common
stock outstanding.
<PAGE> 2
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
December 8, May 26,
1995 1995
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $7,136,080 $4,730,637
Short-term investments 627,560 531,064
Accounts receivable, less allowance for doubtful
accounts (Dec. 8, 1995, $1,063,800;
May 26, 1995, $789,100) 75,672,510 40,083,861
Inventories (Note 2) 57,672,658 44,800,792
Refundable income taxes 5,849,573 1,366,231
Deferred income taxes (Note 6) 2,523,000 2,499,000
Prepaid expenses and other current assets 5,799,666 4,073,817
------------ -------------
Total current assets 155,281,047 98,085,402
------------ -------------
Property, plant and equipment :
Land 1,519,606 1,139,439
Buildings and improvements 70,082,936 37,694,988
Machinery and equipment 145,105,988 117,712,476
Transportation equipment 7,536,593 7,529,516
Property under capital leases 9,708,544 7,428,634
Construction in progress 7,893,690 22,206,233
------------ -------------
241,847,357 193,711,286
Less accumulated depreciation 100,506,585 95,643,621
------------ -------------
141,340,772 98,067,665
------------ -------------
Other assets:
Goodwill, net of accumulated amortization
of $452,000 (Note 7) 33,120,069
Other 8,556,878 8,143,298
------------ -------------
Total other assets 41,676,947 8,143,298
------------ -------------
$338,298,766 $204,296,365
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $44,154,003 $32,474,150
Notes payable, banks (Note 3) 5,960,000
Notes payable, officer 705,974 1,415,241
Accrued liabilities 31,610,745 23,378,430
Current portion of long-term debt 3,219,745 3,100,310
------------ -------------
Total current liabilities 79,690,467 66,328,131
------------ -------------
Long-term debt (Note 3) 162,484,974 35,464,669
------------ -------------
Deferred income taxes (Note 6) 4,724,000 3,908,000
------------ -------------
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 5,777,957 shares
Dec. 8, 1995 and 5,770,647 shares May 26, 1995 577,796 577,065
Capital in excess of par value 6,900,390 6,771,071
Retained earnings 83,921,139 91,247,429
------------- -------------
91,399,325 98,595,565
------------- -------------
$338,298,766 $204,296,365
============= =============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Eight Weeks Ended
---------------------------- -----------------------------
December 8, December 9, December 8, December 9,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $251,245,993 $186,151,970 $514,907,690 $422,270,525
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of goods sold, including
delivery costs 230,996,037 159,410,811 474,510,781 373,329,562
Selling 8,877,819 5,897,833 21,262,134 13,290,534
General and administrative 8,427,878 6,046,040 17,661,337 13,111,686
Depreciation 3,419,336 2,514,921 7,593,725 5,755,648
------------ ------------ ------------ ------------
251,721,070 173,869,605 521,027,977 405,487,430
------------ ------------ ------------ ------------
Income (Loss) from operations (475,077) 12,282,365 (6,120,287) 16,783,095
------------ ------------ ------------ ------------
Other expenses (income):
Interest 2,267,245 530,182 4,546,783 1,179,710
Other, net (96,517) (348,186) (180,954) (599,136)
------------ ------------ ------------ ------------
2,170,728 181,996 4,365,829 580,574
------------ ------------ ------------ ------------
Income (Loss) from operations before (2,645,805) 12,100,369 (10,486,116) 16,202,521
income taxes ------------ ------------ ------------ ------------
Provision for income taxes (Note 6) (889,000) 4,439,000 (3,564,000) 5,965,000
------------ ------------ ------------ ------------
Net income (loss) ($1,756,805) $7,661,369 ($6,922,116) $10,237,521
------------ ------------ ------------ ------------
Earnings (Loss) per share of common ($0.30) $1.34 ($1.20) $1.78
stock: (Note 4) ============ ============ ============ ============
Weighted average number of shares 5,777,188 5,735,255 5,774,736 5,760,228
outstanding (Note 4) ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Capital in
Common stock excess of Retained
Shares Amount par value earnings
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, May 27, 1994 5,803,073 $580,307 $4,778,498 $90,811,265
Net income 10,237,521
Cash dividends, $.14 per share (802,620)
Exercise of stock options including
related tax benefits 24,250 2,425 446,477
Purchase and retirement of common stock (127,071) (12,707) (3,111,997)
------------ ------------ ------------- -------------
Balance, December 9, 1994 5,700,252 $570,025 $2,112,978 $100,246,166
============ ============ ============= =============
Balance, May 26, 1995 5,770,647 $577,065 $6,771,071 $91,247,429
Net income (loss) (6,922,116)
Cash dividends, $.07 per share (404,174)
Employee stock plan purchases 7,310 731 129,319
------------ ------------ ------------- -------------
Balance, December 8, 1995 5,777,957 $577,796 $6,900,390 $83,921,139
============ ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Eight Weeks Ended
---------------------------------------
December 8, December 9
1995 1994
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($6,922,116) $10,237,521
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 7,593,725 5,755,648
Amortization of Intangibles 498,785
Deferred income taxes 792,000 165,100
(Gain) loss on disposition of property,
plant and equipment 438,885 (120,590)
Provision for losses on accounts receivable 332,000 168,000
(Increase) decrease in assets:
Accounts receivable (25,713,941) (15,099,103)
Inventories (4,337,133) (3,687,703)
Prepaid expenses and other assets (1,214,478) (3,152,995)
Refundable income taxes (4,483,342)
Increase (decrease) in liabilities:
Accounts payable 11,679,853 1,064,309
Accrued liabilities and compensation 5,393,046 1,010,207
Income taxes 3,261,283
------------- ------------
Total adjustments (9,020,600) (10,635,844)
------------- ------------
Net cash used in operating activities (15,942,716) (398,323)
------------- ------------
Cash flows from investing activities:
Acquisition of a business, net of cash acquired (Note 7) (65,749,414)
Proceeds from sale of property, plant and equipment 494,110 146,857
Capital Expenditures (28,987,088) (20,866,827)
------------- ------------
Net cash used in investing activities (94,242,392) (20,719,970)
------------- ------------
Cash flows from financing activities:
Proceeds from long-term debt borrowings 122,500,000 8,000,000
Proceeds from employee stock plan
purchases 130,050 448,902
Principal payments on long-term debt (2,966,058) (837,040)
Purchase of common stock (3,124,704)
Net borowings under lines of credit (5,960,000) 5,875,000
Net borrowings from officers (709,267) 1,520,923
Dividends paid (404,174) (802,620)
------------- ------------
Net cash provided by financing activities 112,590,551 11,080,461
------------- ------------
Net increase (decrease) in cash and cash equivalents 2,405,443 (10,037,832)
Cash and cash equivalents at beginning of year 4,730,637 17,441,675
------------- ------------
Cash and cash equivalents at end of quarter $7,136,080 $7,403,843
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest $5,465,522 $1,179,712
============= ============
Income taxes $33,429 $2,514,286
============= ============
Noncash investing activities:
Capital lease obligations $84,740 $2,765,400
============= ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 6
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - 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
December 8, 1995 and May 26, 1995, 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 26, 1995. The results for the twenty-eight weeks
ended December 8, 1995 are not necessarily indicative of the results to be
expected for the fiscal year ending May 31, 1996.
NOTE 2 - Inventories are stated at the lower of last-in, first-out (LIFO) cost
or market. Inventories would have been approximately $2,950,000 higher at
December 8, 1995 and May 26,1995 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>
<CAPTION>
December 8, May 26,
1995 1995
---------------- ---------------
<S> <C> <C>
Supplies $ 9,820,085 $ 6,824,152
Raw materials 12,181,180 11,389,564
Work in progress 3,972,566 4,914,163
Finished goods 34,648,827 24,622,913
-------------- --------------
60,622,658 47,750,792
Less LIFO reserve 2,950,000 2,950,000
-------------- --------------
Inventory balance
$57,672,658 $44,800,792
============== ==============
</TABLE>
NOTE 3 - Concurrent with the previously announced acquisition, on May 30,
1995, the Company replaced its existing lines of credit with an $80 million
revolving credit agreement. (See Note 7 to the Notes to the Consolidated
Financial Statements for further discussion related to the acquisition). The
unsecured revolving credit agreement is with four financial institutions at
variable interest rates no higher than the prime rate or its equivalent. The
commitments under the revolving credit agreement expire on May 30, 1998, but
may be extended annually for successive one-year periods with the consent of
the financial institutions. The commitment fee on the unused portion of the
facility is .25% per annum. The Company is required under the revolving credit
agreement to maintain a minimum level of consolidated net worth. At December
8, 1995, the Company had $80 million in lines of credit, of which all was
drawn. Borrowings under the three year revolving credit agreement are
classified as long-term debt.
The Company's various loan agreements contain restrictive covenants that
include the maintenance of a minimum level of consolidated tangible net worth,
as defined, and of certain financial ratios. At December 8, 1995, the Company
was not in compliance with certain covenants contained in its industrial
revenue bond and limited obligation revenue bond agreements; however, the
Company has obtained waivers on the covenants from the various lenders. At
December 8, 1995, the Company has not met its funded debt and fixed charge
ratios on its various long-term fixed debt agreements. The Company is
currently in the process of negotiating, with its various long-term lenders,
revisions to amend its funded debt and fixed charge ratios.
NOTE 4 - 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.
5
<PAGE> 7
NOTE 5 - At December 8, 1995, under the Company's 1982 Employee Stock Option
Plan, 145,500 options exercisable at prices of $2.56 and $19.67 per share were
outstanding. The Company's 1990 Employee Stock Option Plan authorizes the
Company's Stock Option Committee to grant options up to 787,500 shares of the
Company's common stock to present or prospective employees. At December 8,
1995, there were 339,050 options granted but not exercised at prices of $17.00,
$23.00 and $26.00 per share under the 1990 Plan.
NOTE 6 - 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 (34.0) percent and 36.8 percent for the
twenty-eight weeks ended December 8, 1995 and December 9, 1994, respectively.
NOTE 7 - On May 30, 1995, the Company completed the acquisition of certain
assets of the retail division of Foodbrands America, Inc. formerly the Doskocil
Companies. The aggregate purchase price for the assets acquired and the
assumption of certain liabilities was approximately $65.8 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 include three manufacturing facilities, machinery
and equipment, current assets, certain trademarks and trade names and goodwill.
The goodwill acquired will be amortized to expense over 40 years.
Concurrent with the acquisition the Company issued $42.5 million of long-term
unsecured notes in a private placement and replaced its existing lines of
credit with an $80 million revolving credit agreement. The long-term unsecured
debt is at a fixed rate of 7.58% per annum, having a maturity of ten years,
interest is payable semi-annually on May 15 and November 15 of each year. The
principal on the notes is due in equal annual installments of $6,071,429
beginning May 15, 1999, and ending May 15, 2004, with the remaining principal
payable at maturity on May 15, 2005. The Company is required, pursuant to the
terms and covenants of the unsecured notes agreement, to maintain a minimum
level of consolidated net worth.
6
<PAGE> 8
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 the
manufacture and sale of bacon, hot dogs, lunch meats, hams, smoked sausages and
turkey products, as well as the slaughtering of hogs and the related sale 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.
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
acquired assets include three manufacturing facilities, machinery and
equipment, certain trademarks and trade names, certain other assets and
goodwill. The aggregate purchase price for the assets acquired and the
assumption of certain liabilities was approximately $65.8 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 (see Note 7 to the Notes to the Consolidated Financial
Statements for further discussion related to the acquisition). Because the
Wilson acquisition occurred during the first week of fiscal 1996 and was
accounted for as a purchase, the Wilson acquisition had no effect (other than
the description set forth in Note 7 to the Notes to Consolidated Financial
Statements) on the Company's financial statement for fiscal 1995 or for earlier
periods.
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 manufacturers have focused on providing healthier and more
convenient fresh pork and manufactured products to successfully compete against
other protein sources, particularly poultry and seafood. In addition,
increased amounts of poultry are being used in manufactured 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 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 manufacturers 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 manufactured
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 manufacturers 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.
7
<PAGE> 9
TWELVE WEEKS ENDED DECEMBER 8, 1995 COMPARED TO TWELVE WEEKS ENDED
DECEMBER 9, 1994
For the quarter ended December 8, 1995 net income decreased by $9.4
million to a loss of $1.8 million from income of $7.7 million in the
year-earlier period. The decrease is primarily attributable to reduced
processed meat margins, lower volumes and margins in the fresh pork operation
and start-up costs at the Company's newly opened Ponca City facility.
Operating profits for the processed meats division were reduced by several
factors which included higher than expected overhead costs associated with
the integrated Wilson business, new facility start-up costs along with very
competitive market conditions in the Company's existing business resulting in
lower volumes and margins.
Margins in the fresh meat division were also lower than the previous
year. Additionally, overhead costs increased, particularly depreciation and
interest, as result of the recently completed pork slaughtering facility
expansion resulting in higher hog slaughter operating costs.
Net sales in the second quarter of fiscal 1996 increased by $65.1
million, or 35%. The increase in net sales dollars was the result of an
increase in processed meat and fresh pork sales of 54.7% and 8.9%,
respectively. The increase in processed meat sales was primarily attributable
to increases in tonnage shipped and average selling prices of 29.4% and 19.6%,
respectively. The increase in fresh pork sales was primarily due to an
increase in average selling prices of 23.3%, offset in part by a decrease in
tonnage shipped of 11.7%.
The Company's processed meat operations sales volume increased as a
result of the Wilson acquisition. Sales at previously existing accounts
decreased by approximately 8% primarily as a result of increased competitive
pressures. The Company's fresh pork sales volume was down primarily due to the
closing of the Company's Tri-Miller facility and a large increase in hams being
retained for use in the Company's processed meats operations. The increase in
average selling prices primarily reflects an increase of approximately 39% in
the cost of live hogs, the Company's primary raw material.
Cost of goods sold (including delivery costs) increased by $71.6
million, or 44.9%, mainly as the result of the increase in sales volume related
to the Wilson business and as a result of the increased cost of live hogs
referred to above. As a percentage of net sales, cost of goods sold increased
from 85.6% to 91.9%, primarily as a result of overhead costs associated with
the integrated Wilson business and higher overhead costs related to the
recently completed fresh pork slaughter facility expansion along with
additional overhead costs resulting from the start-up of the Company's Ponca
City facility. The higher than expected fresh pork slaughter overhead costs
are the result of operating at less than targeted capacity levels. The Company
is beginning to see progress in achieving some of the expected volume and yield
improvements at its renovated slaughter facility.
Selling expenses increased $3.0 million, or 50.5%, principally as a
result of the additional employees, sales offices, and promotional programs
associated with the integrated Wilson business. As a percentage of net sales,
selling expenses increased to 3.5% from 3.2%, mainly due to the factors
discussed above.
General and administrative expenses increased $2.4 million, or 39.4%.
The increase is primarily due to additional costs associated with the
integrated Wilson business. As a percentage of net sales, general and
administrative expenses increased to 3.4% from 3.2%.
Interest expense increased $1.7 million, or 327.6%. The increase is
attributable to the significant increase in long-term debt associated with the
Wilson acquisition.
The provision for income taxes decreased by $5.3 million, primarily
due to the decrease in pre-tax income from operations of $14.7 million to a
loss of $2.6 million from income of $12.1 million in the comparable prior
period, resulting from the factors discussed above. The Company's effective
tax rate decreased to (33.6%) from 36.8%.
Earnings per share of common stock decreased by $1.64 per share to a
net loss of $.30 per share, due to decreased profitability resulting from the
factors discussed above.
The results for the twelve weeks ended December 8, 1995 are not
necessarily indicative of the results to be expected for fiscal 1996.
8
<PAGE> 10
TWENTY-EIGHT WEEKS ENDED DECEMBER 8, 1995 COMPARED TO TWENTY-EIGHT WEEKS ENDED
DECEMBER 9, 1994
The Company's net income in the twenty-eight weeks ended December 8,
1995 decreased by $17.2 million to a loss of $6.9 million from income of $10.2
million for the prior-year period. The decrease in profits through the first
two quarters of fiscal 1996 is attributable to reduced processed meat margins
and lower volume and margins in the fresh pork operation.
Net sales for the first two quarters of fiscal 1996 increased by $92.6
million, or 21.9%. The increase in net sales dollars was principally the
result of increased volume and average selling prices in the Company's
processed meats division of 32.8% and 8.4%, respectively. Partially offsetting
the processed meats net sales increase was a reduction in fresh meat net sales
of 4.2%. The reduction of fresh meat net sales was primarily due to lower
sales tonnage of 18.3%, offset in part by a 17.3% increase in average selling
prices.
The Company's processed meat operations sales volume increased as a
result of the Wilson acquisition. Sales at previously existing accounts
decreased by approximately 6% primarily as a result of increased competitive
pressures. The Company's fresh pork sales volume was down primarily due to the
closing of the Company's Tri-Miller facility and a large increase in hams being
retained for use in the Company's processed meat operations. The increase in
average selling prices primarily reflects an increase of approximately 23% in
the cost of live hogs, the Company's primary raw material.
Cost of goods sold (including delivery costs) increased by $101.2
million, or 27.1%, mainly as the result of the increase in sales volume related
to the Wilson business and as a result of the increased cost of live hogs
referred to above. As a percentage of net sales, costs of goods sold increased
from 88.4% to 92.2%, primarily as a result of overhead costs associated with
the integrated Wilson business and higher overhead costs associated with the
recently completed fresh pork slaughter facility renovation. Beginning with
the second quarter, the Company started seeing some progress in achieving some
long awaited volume and yield improvements at its renovated slaughter facility.
Selling expenses increased $8.0 million, or 60.0%, principally as a
result of the additional sales employees, sales offices, and promotional
programs associated with the integrated Wilson business. As a percentage of
net sales, selling expenses increased to 4.1% from 3.1%, mainly due to the
factors discussed above.
General and administrative expenses increased $4.5 million, or 34.7%.
The increase is primarily due to additional costs associated with the
integrated Wilson business. As a percentage of net sales, general and
administrative expenses increased to 3.4% from 3.1%.
Interest expense increased $3.4 million, or 285.4%. The increase is
attributable to the significant increase in long-term debt associated with the
Wilson acquisition.
The provision for income taxes decreased by $9.5 million, primarily
due to the decrease in pre-tax income from operations of $26.7 million to a
loss of $10.5 million from income of $16.2 million in the comparable prior
period, resulting from the factors discussed above. The Company's effective
tax rate decreased to (34.0%) from 36.8%.
Earnings per share of common stock decreased by $2.98 per share to a
net loss of $1.20 per share, due to decreased profitability resulting from the
factors discussed above.
The results for the twenty-eight weeks ended December 8, 1995 are not
necessarily indicative of the results to be expected for fiscal 1996.
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 December 8, 1995, the Company had total
lines of credit under its revolving credit agreement from four financial
institutions aggregating $80.0 million, of which all was drawn. Subsequent to
September 15, 1995, the Company had obtained an additional $25.0 million of
temporary short-term lines of credit to be used for seasonal ham inventory
buildup, the temporary lines expired on January 15, 1996. At December 8, 1995
all of the additional temporary short-term lines were unused.
The Company's various loan agreements contain restrictive covenants
that include the maintenance of a minimum level of consolidated net worth, as
defined, and of certain financial ratios. At December 8, 1995, the Company was
not in compliance with certain covenants contained in an industrial revenue
bond and a limited obligation revenue bond agreement: however, the Company has
obtained waivers on the covenants from the various lenders. At December 8,
1995, the Company has not met its funded debt and fixed charge ratios on its
various long-term fixed debt agreements. The Company is currently in the
process of negotiating, with its various long-term lenders, revisions to amend
its funded debt and fixed charge ratios.
In addition to the approximately $22 million of capital expenditures
related to the Wilson acquisition, the Company anticipates capital expenditures
during fiscal 1996 of approximately $37 million, primarily to complete the
construction of its new manufacturing facility in Ponca City, Oklahoma, and to
complete the planned modernization of its various manufacturing and slaughter
facilities. The Company's Ponca City facility was fully completed in November,
1995. The Company began limited operations in mid October and have adopted a
very aggressive schedule to bring production up to its planned capacity.
With the opening of the Company's Ponca City plant during the second
quarter, and some limited reconfiguring of some other facilities, the Company
will be closing two of the former Wilson operating facilities. Notification of
the plant closures was done in compliance with the federal Worker Adjustment
and Retraining Notification ("WARN") Act. The Company is unable at this time
to determine whether a charge will result from these plant closings.
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.
EXHIBITS AND REPORTS ON FORM 8-K
There were no reports filed on form 8-K for the period ending December
8, 1995.
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: January 19, 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 Page
- ------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AT DECEMBER 8, 1995, CONSOLIDATED STATEMENTS OF
INCOME FOR THE 28 WEEKS ENDED DECEMBER 8, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q, QUARTERLY REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> MAY-27-1995
<PERIOD-END> DEC-8-1995
<CASH> 7,763,640
<SECURITIES> 0
<RECEIVABLES> 76,736,310
<ALLOWANCES> 1,063,800
<INVENTORY> 57,672,658
<CURRENT-ASSETS> 155,281,047
<PP&E> 241,847,357
<DEPRECIATION> 100,506,585
<TOTAL-ASSETS> 338,298,766
<CURRENT-LIABILITIES> 79,690,467
<BONDS> 162,484,974
<COMMON> 577,796
0
0
<OTHER-SE> 90,821,529
<TOTAL-LIABILITY-AND-EQUITY> 338,298,766
<SALES> 514,907,690
<TOTAL-REVENUES> 514,907,690
<CGS> 474,510,781
<TOTAL-COSTS> 474,510,781
<OTHER-EXPENSES> 46,517,196
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,546,783
<INCOME-PRETAX> (10,486,116)
<INCOME-TAX> (3,564,000)
<INCOME-CONTINUING> (6,922,116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,922,116)
<EPS-PRIMARY> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
