SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13852
GRIST MILL CO.
(Exact name of registrant as specified in charter)
Delaware 41-0974681
(State of Incorporation) (IRS Employer Identification No.)
21340 HAYES AVENUE, LAKEVILLE, MINNESOTA 55044-0430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 469-4981
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to 12(g) of the Act:
TITLE OF EACH CLASS
Common Stock par value $.10 per share
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of July 31, 1995, 6,668,003 common shares were outstanding, and the aggregate
market value of the common shares (based upon the last price of such stock as
reported by the Nasdaq National Market) of Grist Mill Co. held by non-affiliates
was approximately $59,555,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended May 31, 1995 are incorporated by reference in Parts II and IV.
Portions of the Proxy Statement of Registrant for its 1995 Annual Meeting of
Shareholders are incorporated by reference in Part III of this report.
PART I
ITEM I. BUSINESS
(a) General Development of Business.
Grist Mill Co. ("Grist Mill" or the "Company") manufactures and markets private
label, or store brand grocery products, as well as branded grocery products.
Most of the Company's products are targeted toward consumers who demand "value
pricing", the combination of high quality with low prices. In the store brand
market, the Company produces value-priced products for sales under customers'
store names. The Company's customers include virtually all of the major U.S.
grocery retailers and wholesalers.
The Company was incorporated in 1971 as a Delaware corporation at which time it
acquired two subsidiaries (i) Grist Mill, Inc., which had its origins as a sole
proprietorship formed around 1917 and was one of the oldest manufacturers of
natural food in the country; and (ii) Enright Natural Food Co., which had its
origins as a sole proprietorship in the specialty health food business.
Following incorporation, the Company's primary emphasis was as a manufacturer of
store branded granola cereals. The Company's product line broadened in the
1980's to include graham pie crusts, granola bars, and fruit snacks. In 1993 the
Company completed a manufacturing facility for the production of flaked
ready-to-eat cereals and has since broadened its ready-to-eat product line to
include a wide variety of ready-to-eat cereal products. In 1994 fruit filled
cereal bars were added to the Company's product offerings. Additionally, the
Company has developed a significant contract manufacturing business.
In January 1990, the Company acquired Grist Mill Confections, a Danville,
Illinois-based supplier of the Company's fruit snacks.
The Company's executive offices are located at 21340 Hayes Avenue, P.O. Box 430,
Lakeville, Minnesota 55044-0430. The corporate office telephone number is (612)
469-4981.
(b) Financial Information about Industry Segments
The Company operates primarily in one business segment - the development,
production, and marketing of various food products. The same production and
distribution personnel and facilities, and the same support services are
employed in the production of all products.
(c) Narrative Description of Business
Many consumers are cost-conscious in their grocery purchasing decisions, yet
still demand high quality in the food products they purchase. In response to
such demand, many food retailers, particularly grocery retailers, choose to
afford to their customers value-priced products as alternatives to higher priced
brand name products. Value-priced food products offer considerable price savings
to the consumer while providing comparable taste, texture and quality to higher
priced products, which are generally sold under a manufacturer's brand name and
are supported by advertising media. Many grocery retailers provide products
under their store names as the value-priced alternative. Grocery retailers can
purchase and sell store brand products at lower prices because such products are
not generally supported by widespread media advertising, as are their branded
counterparts. In 1994 unit market share for store brands in U.S. grocery stores
was 19.4%.
The Company's primary strategy is to identify market opportunities where
high-visibility brand name products are being sold successfully and to develop
high quality products of comparable appearance, taste, and texture for sale at
lower prices. By developing these value-priced products for existing high volume
markets, the Company avoids many of the front-end risks of product development
and the expenses associated with advertising and introducing products with
unknown demand. The Company believes it has positioned itself to take advantage
of the opportunities that the market for value-priced food products presents.
For customers offering their own label, the Company makes its products available
on a store brand basis. To the extent that grocery retailers do not offer a
store brand, the Company has provided the Grist Mill brand to be sold as a
value-priced alternative.
The Company believes that its strengths consist of superior overall product
quality, close relationships with major grocery retailers, low manufacturing
overhead, a strong national broker network, and an ability to react quickly to
changing market conditions.
CUSTOMERS
The Company's customers include national and regional supermarket retailers and
wholesalers, such as:
Acme Markets, Inc.
Albertson's, Inc.
Aldi's Nolte Co. LTD
Associated Wholesale
Grocers
Atlantic and Pacific Tea
Company
BI-LO, Inc.
Blair Distributors
Certified Grocers of
California
Dominick's Finer Foods
Edward's Super Food
Stores
Fleming Companies, Inc.
Food Lion, Inc.
Giant Food, Inc.
Grand Union Company
H.E. Butt Grocery Company
Jewel Food Store
Kroger Company
Lucky Stores, Inc.
Marsh Supermarkets, Inc.
Meijer, Inc.
Nash Finch
National Supermarkets
Preisco
Ralph's Grocery, Inc.
Roundy's, Inc.
Safeway Stores
Shaws Supermarkets
Spartan Stores, Inc.
Stop & Shop Companies
Super Valu Stores, Inc.
TOPCO Associates, Inc.
Von's Grocery Co.
Wakefern Food Corporation
Waldbaum, Inc.
Wegman's Food Markets, Inc.
Weis Markets, Inc.
Winn Dixie, Inc.
FRUIT SNACKS
The Company's most significant grocery product line in terms of sales and
profits is fruit snacks. The Company estimates that the national store brand
fruit snack market is approximately $440 million in annual retail revenues.
Since 1985, the Company has marketed fruit snacks, first on a store brand basis
and subsequently under the Grist Mill brand and other Company-owned brand names
as value-priced alternatives to brand name products. Today the Company markets
fruit snacks in several shapes including Dinosaurs, Sharks, Bears, Aladdin and
Trolls.
READY-TO-EAT CEREALS
The Company markets a line of ready-to-eat cereals consisting of various flaked,
extruded, and granola cereals. Grist Mill has been marketing granola cereal
products for over twenty years. The Company developed its business in the
granola cereal market by manufacturing and marketing granola cereals in two
varieties, honey oat and honey oat with raisins.
In 1994 the Company completed installation of a new cereal production system and
introduced a total of six new cereal items. The cereal business expanded further
in 1995 with the installation of extrusion cereal processes. The Company
introduced a variety of new cereals in fiscal 1995 as it became a full line
supplier of ready-to-eat cereals for its store brand customers. Grist Mill's
ready-to-eat cereal offerings now include 15 flaked and extruded products which
are similar to major branded ready-to-eat cereal products. The Company also
markets a line of unique premium cereals for sale to its store brand customers.
The overall U.S. ready-to-eat cereal category totals approximately $8.4 billion
in annual grocery retail sales. Store brands currently comprise approximately 6%
or $490 million of these sales. Grist Mill markets its cereal products primarily
under store brands.
WHOLESOME SNACK BARS AND PIE CRUSTS
The Company markets wholesome snack bars, including several varieties of granola
bars and fruit filled cereal bars.
The Company markets crunchy, chewy, and chocolate covered granola bars in a
variety of flavors, primarily under store brand names. Grist Mill is currently
the only significant supplier of granola bars to the store brand market.
Late in 1994 the Company made its initial shipments of Fruit & Grain bars, a
line of fruit filled cereal bars marketed exclusively under store brand names.
Grist Mill entered the preformed graham cracker pie crust market as a store
brand supplier in 1982 and, since then, the Company's sales of preformed graham
cracker pie crusts have grown to equal over 80% of the store brand market for
this product.
CONTRACT MANUFACTURING
The Company's reputation for being an efficient manufacturer of high quality
food products has led to opportunities for Grist Mill to contract manufacture
food products for other companies. During 1994, the Company established a
contract manufacturing relationship with another major branded packaged foods
company. Sales to this customer were 30% of consolidated sales for fiscal 1995.
While the Company believes its relationship with its contract manufacturing
customers is good, there is no assurance that any of its contract customers will
continue to use the Company as a supplier.
INDUSTRIAL PRODUCTS
Grist Mill specializes in adding value to grains by coating, flavoring,
toasting, extruding, sizing and combining various grains to customer
specifications. These products are marketed as value-added grains to other food
companies for use as ingredients in finished goods sold under such companies'
own brand names. Large manufacturers of food products purchase specialized
ingredients from Grist Mill because the small volume and particular nature of
such ingredients do not justify the risks and cost of in-house production.
NEW PRODUCT DEVELOPMENT
The Company's development efforts center on finding niche product opportunities
that have proven consumer market appeal and are price sensitive. The Company
also works with its store brand customers responding to their new product
development needs. As these opportunities have arisen, the Company has acted
quickly to develop a comparable product which it then markets against the higher
priced competition. This strategy allows the Company to avoid many of the
front-end risks of research and development and the expenses associated with
advertising and introducing products with unknown demand.
SALES, MARKETING AND DISTRIBUTION
The Company markets its products to virtually all of the major U.S. grocery
retailers and wholesalers. The Company believes that its ability to sell
additional grocery products is enhanced by its reputation for quality,
value-priced products and its commitment to store brand and value-priced product
manufacturing and marketing.
The Company has developed for its grocery customers more than 300 labels, many
of which it believes have gained significant recognition among consumers. Such
labels are trademarks of the customers for which they were developed. The
Company believes that its ability to develop unique and recognizable packaging
of its products is a valuable service to its store brand customers.
The Company promotes its products primarily through in-store promotions with its
customers, rather than through national advertising, and assists its customers
in positioning the Company's store brand products to compete effectively with
brand name alternatives.
The Company sells its products through food brokers with which it has developed
strong relationships. The Company has a national sales force consisting of six
grocery regional sales managers. This sales force handles the relationships with
brokers. These brokers sell the Company's products to grocery store retailers
and wholesalers. The Company also receives many inquiries from potential users
of its contract manufacturing services and its value-added grain ingredients.
RAW MATERIALS
The Company purchases grains, fruit and fruit concentrates, sweeteners,
chocolate, nutmeats and packaging materials from a variety of sources.
Typically, the Company enters into three to twelve month fixed price contracts
for these items. To the extent that purchases are made on the spot market, the
Company's profitability can be affected by commodity price changes.
MANUFACTURING OPERATIONS AND FACILITIES
All Grist Mill products are manufactured in Company-owned and operated
facilities located in Lakeville, Minnesota and Danville, Illinois. A diverse
number of processing operations are conducted at the Lakeville facility,
including: a line for baking cereal and grain-based products; recently installed
lines for the cooking, flaking, extruding, and baking of ready-to-eat cereals;
three lines for the manufacturing of bar-type products including granola bars
and confection bars (two of these lines have the capability of chocolate
enrobing, and one has caramel manufacturing capabilities); a line for producing
pie crusts; and a number of packaging machinery lines with the capability for
form, fill and seal operations, and cartoning, casing and shrink wrapping. The
Company owns ten acres of land contiguous to the Lakeville facility which could
be used for further expansion.
The Company's acquisition of Grist Mill Confections, Inc. (formerly Tempo
Confections) in January 1990 enabled the Company to bring fruit snack
manufacturing in-house, increasing the flexibility of such manufacturing. Prior
to the acquisition, the Company's fruit snack products were being manufactured
by third party suppliers. The Danville facility produces product using a starch
molding process, and also has a production system for enrobing of confection
centers with sugar or other materials. The facility's packaging equipment
consists of machinery for form, fill and seal of its products in bulk.
COMPETITION
Producers of major brand name products (mostly companies much larger than the
Company) compete for shelf space with producers of value-priced products such as
the Company. The Company operates in a highly competitive and rapidly changing
environment within which there are many manufacturers of food, snack, and
confectionery products. A large portion of the Company's revenues have been
generated by the manufacture and sale of fruit snacks. General Mills, Inc.,
Farley Candy Company and Ferrerra Pan Candy Company are the Company's primary
competitors in the fruit snack area. In the ready-to-eat cereal market Kellogg
Company and General Mills, Inc. are the overall market share leaders and Ralcorp
Holdings, Inc. and Malt-O-Meal Company are the primary competitors in store
brand ready-to-eat cereal products. Kellogg Company and The Quaker Oats Company
are the leaders in the granola cereal markets. In the granola and fruit-filled
cereal bar category Kellogg's, General Mills, Nabisco, Quaker Oats and M&M Mars
each have a significant market presence. The Company's primary competitor in the
pie crust market is Keebler Co. Other value-priced producers competing in the
Company's product lines include McKee Baking, Sovex Natural Foods, Inc. and
Brach & Brock Confections, Inc.
Contract manufacturing and grain-based ingredient sales are specialized services
which the Company provides on an order-by-order basis. The Company is aware of
other companies which have the production capabilities necessary to compete with
the Company in these areas. However, the Company believes that its flexible
production facility and production expertise will enable it to continue to
attract major food producers for contract manufacturing and grain-based
ingredient sales.
EMPLOYEES
As of May 31, 1995 the Company employed 550 permanent full-time employees and
100 full-time temporary employees, of which 110 were management, sales and
administration and 540 were production. With the exception of its collective
bargaining agreement covering approximately 50 production employees through the
Bakery Workers Union Local No. 455, Danville, Illinois, the Company does not
have collective bargaining agreements with its personnel. The Company and its
subsidiary each believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters, Lakeville production and warehousing facility, and
administrative offices are located in an industrial park 20 miles south of
Minneapolis in Lakeville, Minn. The production and distribution facility in
Lakeville is 221,000 square feet. The administrative offices occupy 11,000
square feet. The Company also utilizes four third party regional distribution
centers to store its inventory.
The Danville production facility and administrative offices are located in
Danville, Ill., which is 130 miles south of Chicago, Ill. The plant has 120,000
square feet of production and administrative office space.
The Company also owns approximately 18 acres and 10 acres of vacant land
contiguous to its Danville and Lakeville facilities, respectively. Additionally,
the Company owns 22.5 acres of vacant land in Christian County, KY.
See Note D to the financial statements regarding property pledged as collateral
against mortgages payable.
ITEM 3. LEGAL PROCEEDINGS
The Kellogg Company ("Kellogg") has filed a complaint against the Company,
Kellogg Company v. Grist Mill Company, No. 95-835-CZ, Circuit Court for Calhoun
County, Michigan, alleging breach of contract and misappropriation of trade
secrets. In its complaint, Kellogg alleges that Grist Mill violated a
Nondisclosure Agreement signed by Grist Mill on June 1, 1991, under which
Kellogg had provided certain information regarding a low fat granola cereal.
Kellogg asserts that the Company used, disclosed and/or misappropriated all or
part of this information in the manufacture of the Company's own low fat granola
cereal. Kellogg seeks the recovery of actual and punitive damages of unstated
amounts, as well as a permanent injunction enjoining Grist Mill from using,
disclosing or misappropriating the allegedly confidential information it
received from Kellogg.
Grist Mill denies that it breached the Nondisclosure Agreement or otherwise
misappropriated any information and believes that the lawsuit is without merit.
The Company intends to vigorously defend the lawsuit which is in the early
stages of litigation. In addition, Grist Mill's low fat granola cereal currently
represents less than five percent (5%) of the Company's revenues. Therefore, the
Company does not reasonably expect that an injunction, if one were to be
entered, would have a material adverse impact on the Company's revenue or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended May 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Principal Occupation and Business
Name Age Experience for Past Five Years
Ronald K. Zuckerman 53 Chairman of the Board since 1975; Chief
Executive Officer from 1975 to 1993; Chief
Financial Officer 1975 to 1992.
Glen S. Bolander 49 President and Chief Executive Officer since
1993; President and Chief Operating Officer
from 1988 to 1993; President 1987 to 1988;
Executive Vice President 1985 to 1987; Vice
President-Sales and Marketing 1982 to 1985.
Harry E. Stephens III 45 Executive Vice President and Chief Operating
Officer since 1994. Partner in the Northern
Group 1991 to 1994; President and Senior
Vice President, Dole Packaged Food Co. and
Corporate Vice President of Strategy and
Business Development, Dole Food Inc., 1986
to 1991.
Michael J. Cannon 38 Vice President-Sales since 1994; Vice
President- Core Products Group from 1993 to
1994; Vice President-Grocery 1988 to 1993;
Director of Marketing 1988; Marketing
Manager April 1987 to 1988. Marketing and
New Product Manager, The Pillsbury Company
1982 to 1987.
Daniel J. Kinsella 37 Vice President, Chief Financial Officer and
Treasurer since 1992; Director of Finance
and Treasurer 1990 to 1992; Corporate
Controller 1989 to 1990. Director of
Financial Reporting, Inter-Regional
Financial Group, Inc. 1985 to 1989.
Thomas J. Tatoian 53 Vice President-Manufacturing since 1990;
Plant Manager 1990. Employee Relations
Manager, Peter Paul Hershey 1989 to 1990;
Manager Organizational Analysis/Industrial
Engineering, Cadbury Schwepps 1987 to 1989.
All officers hold office for one year or until their successors are designated.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The information required in Item 5 is contained on page 24 of the Company's
annual report to shareholders for the year ended May 31, 1995 and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required in Item 6 is contained on page 12 of the Company's
annual report to shareholders for the year ended May 31, 1995 and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required in Item 7 is contained on pages 13 and 14 of the
Company's annual report to shareholders for the year ended May 31, 1995 and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in Item 8 is contained on pages 15 through 24 of the
Company's annual report to shareholders for the year ended May 31, 1995 and is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in Item 10 is contained in the Company's definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year for which this report is filed and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required in Item 11 is contained in the Company's definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year for which this report is filed and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in Item 12 is contained in the Company's definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year for which this report is filed and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in Item 13 is contained in the Company's definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the
close of the fiscal year for which this report is filed and is incorporated
herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
Page
1. Financial statements:
Reference is made to the table of contents to financial
statements and schedules hereinafter contained 16
2. Financial schedules:
Reference is made to the table of contents to financial
statements and schedules hereinafter contained for all
other financial statement schedules 16
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3. Exhibits:
Item No. Item Method of Filing
<S> <C> <C>
3(a) Certificates of Incorporation of Grist Mill Incorporated by reference to Exhibit
Co., as amended. 3(a) to Grist Mill Co.'s annual report
on Form 10-K for the year ended
May 31, 1989.
3(b) By-laws of Grist Mill Co., as amended. Incorporated by reference to Exhibit
3(b) to Grist Mill Co.'s annual report
on Form 10-K for the year ended
May 31, 1989.
4(a) $4,000,000 Revolving Credit Agreement Filed herewith.
dated October 29, 1994.
4(b) $7,000,000 unsecured senior notes Incorporated by reference to the
payable agreement. Company's current report on Form 8-K dated
October 23, 1989.
4(c) $4,400,000 Real Estate Mortgage and Incorporated by reference to Exhibit
Promissory Note dated August 27, 1991. 4(b) to Grist Mill Co.'s Form 10-Q for the Quarter
ended November 30, 1991.
4(d) Amendment to $4,400,000 Real Estate Incorporated by reference to Exhibit
Mortgage. 4(d) to Grist Mill Co.'s annual report on Form 10-K
for the year ended May 31, 1994.
10(a) Grist Mill Co. 1984 Incentive Stock Option Incorporated by reference to Exhibit
Plan. 28 to Grist Mill Co.'s Form 10
Registration Statement No. 0-13852
made effective November 5, 1985.
10(b) Grist Mill Co. 1986 Non-Qualified Stock Incorporated by reference to Grist
Option Plan as amended July 20, 1993, Mill Co.'s Proxy Statement for the
to increase number of options that year ended May 31, 1993.
may be granted under the plan to
1,700,000.
10(c) Grist Mill Co. Stock Appreciation Rights Incorporated by reference to
Plan. Exhibit A to Grist Mill Co.'s Proxy
Statement for the year ended May 31, 1989.
10(d) Employment Agreement with Glen S. Incorporated by reference to
Bolander. Exhibit 10(d) to Grist Mill Co.'s annual
report on Form 10-K for the year
ended May 31, 1994.
10(e) Amendment No. 1 to Employment Incorporated by reference to
Agreement with Glen S. Bolander. Exhibit 10(e) to Grist Mill Co.'s annual report
on Form 10-K for the year ended May 31, 1994.
10(f) Split Dollar Insurance Agreement: Incorporated by reference to
Glen S. Bolander Beneficiary. Exhibit 10(f) to Grist
Mill Co.'s annual report on Form 10-K for the
year ended May 31, 1994.
10(g) Employment Agreement with Incorporated by reference to
Ronald K. Zuckerman. Exhibit 10(g) to Grist Mill Co.'s
annual report on Form 10-K for the
year ended May 31, 1994.
10(h) Employment Agreement with Filed herewith.
Harry E. Stephens III.
11 Computation of earnings per share. Filed herewith.
13 Annual Report to Shareholders. Those portions of Annual Report to Shareholders
expressly incorporated by reference herein, which
shall be deemed filed with the Commission.
22 Subsidiaries of the Registrant. Filed herewith.
23 Consent of Independent Auditors. Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter ended
May 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 25, 1995 GRIST MILL CO.
/S/ GLEN S. BOLANDER
Glen S. Bolander
President, Chief Executive
Officer and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Dated
<S> <C> <C>
/s/ Ronald K. Zuckerman Chairman of the Board August 25, 1995
Ronald K. Zuckerman and a Director
/s/ Glen S. Bolander President, Chief Executive August 25, 1995
Glen S. Bolander Officer and a Director (Principal
Executive Officer)
/s/ Harry E. Stephens III Executive Vice President, Chief August 25, 1995
Harry E. Stephens III Operating Officer and a Director
/s/ Daniel J. Kinsella Vice President, Chief Financial August 25, 1995
Daniel J. Kinsella Officer, Secretary and Treasurer
(Principal Financial and Accounting
Officer)
/s/ Charles H. Perlman Director August 25, 1995
Charles H. Perlman
/s/ Roger L. Weston Director August 25, 1995
Roger L. Weston
</TABLE>
GRIST MILL CO.
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEARS ENDED MAY 31, 1995, 1994 AND 1993.
TABLE OF CONTENTS
Page
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . .(A)
Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . .(A)
Consolidated Statements of Financial Position . . . . . . . . . . . . . . . .(A)
Consolidated Statements of Changes in Shareholders' Equity . . . . . . . . . (A)
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . .(A)
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . .(A)
Schedule II - Valuation and Qualifying Accounts and Reserves . . . . . . . . 17
Exhibit 11 - Computations of Earnings Per Share . . . . . . . . . . . . . . . 18
Exhibit 22 - Grist Mill Co. List of Subsidiaries. . . . . . . . . . . . . . . 19
(A) Item is contained in the Company's annual report to shareholders for the
year ended May 31, 1995 and is incorporated herein by reference.
Schedules not listed above have been omitted because they are either not
applicable or the required information has been provided in the consolidated
financial statements or notes thereto.
Norwest Bank Minnesota, NA
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0001
612/667-1234
October 27, 1994
Daniel J. Kinsella
Chief Financial Officer
Grist Mill, Inc.
21340 Hayes Avenue
Lakeville, MN 55044
Dear Dan:
I am pleased to inform you Norwest Bank Minnesota, National Association (the
"Bank") has approved for Grist Mill, Inc. (the "Company") a $4,000,000
conditional revolving credit facility on the following terms and conditions.
Amount: $4,000,000
Expiration October 31, 1995 with an annual review to extend the
facility for an additional year.
Option to Terminate: The Bank will make a separate decision each time the
Company requests an advance and is not obligated to
make an advance under the facility. The Bank may
terminate the facility at any time at its own
discretion. However, the Bank must give the Company
90 days written notice of its intent to terminate
the facility in the event any advances are
outstanding at the time the Bank exercises its
option to terminate.
Interest Rate: (A) Bank's Base Rate less 1/2 percent p.a., or
(B) 3 month CD rate (adjusted for reserves and
other regulatory fees, including FDIC
insurance) plus 1.50 percent p.a., or
(C) 3 month LIBOR (Adjusted for reserves and
other regulatory fees, including FDIC
insurance) plus 1.50 percent p.a.
Repayment: Interest on the advances will be payable on the
first day of each month and payment will be made by
debiting the Company's checking account # 1094483 on
the day the payment is due.
Financial Covenants: This facility is cross defaulted with the Note
Purchase Agreement dated October 15, 1989 between
the Company and various insurance company lenders. A
default under said agreement will be considered a
default under the Bank's facility to the Company and
will trigger repayment, on demand, of all balances
outstanding.
Other Conditions: The Company must maintain all its bank accounts with
the Bank. The company agrees to provide financial
information to the Bank as follows:
(a) Within one hundred twenty (120) days following
the end of its fiscal year, the Company will provide
the Bank a copy of its annual audited report, with
the unqualified opinion of an independent Certified
Public Accountant satisfactory to the Bank.
(b) Within forty-five (45) days following each
quarter end, the Company will provide the Bank a
copy of its interim statement.
(c) The Company agrees to supply the Bank with any
additional information it may, from time to time,
reasonably request.
Dan, we are pleased to provide this extension of your facility with Norwest and
look forward to a growing relationship with Grist Mill. Please sign and return
this letter to my attention to signify your agreement with its terms and provide
me with an updated certified resolution and incumbency certificate authorizing
the acknowledging signature on this letter.
Sincerely,
s/Laura Schmaltz Oberst
Laura Schmaltz Oberst
Vice President
/djs
Accepted by s/Daniel J. Kinsella this 31st day of October, 1994.
Daniel J. Kinsella
Authorized Signer
Grist Mill. Co.
EMPLOYMENT AGREEMENT
AGREEMENT MADE AS OF THIS 15th day of August, 1994, (hereinafter the
"effective date") by and between Grist Mill Co., a Delaware corporation with a
principal place of business in Lakeville, Minnesota (hereinafter "Grist Mill")
and Harry E. Stephens III of Minneapolis, Minnesota (hereinafter "Executive").
WHEREAS, Grist Mill desires to employ Executive and Executive desires
to accept such employment upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained, the parties covenant and agree as follows:
1. Employment.
Grist Mill hereby employs Executive and Executive hereby accepts
employment as the Executive Vice President and Chief Operating Officer of Grist
Mill to perform such executive and managerial services as may be assigned to him
by or under the authority of the Board of Directors of Grist Mill (the "Board of
Directors"), consistent with such status as an Executive Vice President.
Executive agrees to use his best efforts, skills and abilities faithfully to
promote the interests of Grist Mill and to perform such services as may be
required of him by Grist Mill from time to time consistent with his status, to
the reasonable satisfaction of the Board of Directors. Without limiting the
generality of the foregoing, Executive agrees to serve as Executive Vice
President and Chief Operating Officer of Grist Mill (if and so long as he is
elected to that office by the Board of Directors) and to serve (without
additional compensation) as a director, senior executive officer or senior
executive employee of such Affiliates of Grist Mill as Grist Mill may from time
to time reasonably request. Executive agrees to devote his full business time
and energies to the business and affairs of Grist Mill and to work exclusively
for Grist Mill (and such Affiliates) during the term of this Agreement, except
as Grist Mill and Executive may otherwise agree in writing from time to time;
provided; however, that nothing contained in this Section 1 shall be deemed to
prevent or limit the right of Executive to: (i) make passive investments in the
securities of any publicly-owned corporation, and (ii) make any other passive
investments with respect to which Executive is not obligated or required to, and
does not in fact, devote any substantial managerial efforts which interfere with
Executive's fulfillment of his duties hereunder. In the event the Board of
Directors shall at any time reasonably determine that Executive's attention to
any investments is interfering with Executive's fulfillment of his duties
hereunder, the Board of Directors shall give Executive written notice of such
determination. If Executive shall not within thirty (30) days of such notice (a)
have ceased the activities which were interfering with Executive's fulfillment
of his duties hereunder as so determined by the Board of Directors, and (b)
covenanted not to engage in such specific activities thereafter, then such
failure by Executive shall be deemed "good cause" within the definition of such
term as set forth in Section 7 below and Grist Mill shall be entitled to
terminate Executive for good cause as provided in Section 7 below.
2. Term
The term of this Agreement and Executive's employment
hereunder shall commence on the effective date of this Agreement and continue at
will until August 15, 1997.
3. Principal Location
Executive shall perform the duties of his office generally in,
and shall not be obligated to maintain his office in any place other than,
Lakeville, Minnesota or within the metropolitan Minneapolis area, provided,
however, that he shall be obligated to take such trips outside of such area as
shall be reasonably necessary in connection with his duties and Grist Mill will
pay all reasonable costs of travel and living expenses incurred in connection
therewith. Executive recognizes that his duties hereunder may require travel.
4. Compensation
4.1 Except as otherwise provided in Sections 5 and 6 hereof,
for his services hereunder Executive shall receive from Grist Mill the following
compensation:
4.1.1 Salary ("Salary") at the annual rate of
$220,000 (the "Base Salary Rate"), payable in equal installments in
accordance with Grist Mill's pay policy and in any event not less
frequently than monthly, subject to adjustment pursuant to the
provisions of Section 4.2;
4.1.2 Such other monetary compensation by way of
bonus or otherwise, if any, as may be determined from time to time by
the Board of Directors in its sole discretion;
4.1.3 Such fringe benefits (including, without
limitation, vacation time, group life, medical, dental and other
insurance, retirement, pension, profit-sharing and similar plans) as
Grist Mill may provide from time to time for its executive employees;
and
4.1.4 Such other compensation pursuant to such
executive bonus plans, restricted stock purchase plans, stock option
plans or other stock plans, available to employees of Grist Mill from
time to time, as the Board of Directors may in its sole discretion
determine.
4.2 The Base Salary Rate shall be subject to increase from
time to time on a fiscal year basis (June 1 - May 31) as determined by the Board
of Directors in its sole discretion pursuant to a review of Executive's
performance by the Board of Directors, which review shall be conducted at such
time as the Board of Directors shall determine, but in any event at least once
during each twelve (12) months of the term of this Agreement. The Base Salary
Rate as from time to time increased is referred to herein as the "Adjusted
Salary Rate."
5. Reimbursement of Expenses
Grist Mill shall reimburse Executive for travel, entertainment
and other business expenses reasonably incurred by him in connection with the
business of Grist Mill and its Affiliates to the extent and in a manner
consistent with then company policy.
6. Termination upon Death or Disability
6.1 Executive's employment by Grist Mill shall terminate upon
the death of Executive, or if, by virtue of disability, Executive is unable to
perform his duties hereunder.
6.2 In the event of such a termination of employment as a
result of Executive's death or disability, all compensation hereunder shall
terminate and Grist Mill shall have no further obligations hereunder.
7. Termination by Grist Mill
7.1 Executive's employment may be terminated at any time by
Grist Mill for any reason or for no reason, with or without good cause (as
defined below), by written notice to Executive, effective immediately unless
otherwise stated in such notice.
7.1.1 In the event Executive's employment hereunder
is terminated by Grist Mill prior to August 15, 1997 and after a Change
of Control as defined herein but without "good cause," then Executive
(or his estate) shall be entitled to payments equal to one times the
Adjusted Salary Rate in effect on the date of such termination divided
by twelve, multiplied by the number of months remaining between the
effective date of termination and August 15, 1997. Such payment shall
be paid monthly until August 15, 1997. In addition Executive shall
continue to be entitled to the continuation of such medical, dental,
and life insurance coverage as he shall be receiving pursuant to
Section 4.1.3 as of the date of notice of termination in accordance
with Grist Mill's current policy then in effect.
7.1.2 In the event Grist Mill shall terminate
Executive's employment for good cause (as defined herein) or if
Executive shall voluntarily terminate his employment with Grist Mill or
if Grist Mill shall terminate Executive as an employee for any reason
or for no reason, but without the happening of a Change of Control,
then Executive shall be entitled as of the date of termination to no
compensation under this Agreement (including, without limitation,
Section 4 or 6 above), except as provided in Section 7.2.
7.2 In the event of any termination pursuant to Section 7.1,
Executive shall be paid such portion of his Salary as has accrued by virtue of
Executive's employment during the period prior to termination and has not yet
been paid, together with any amounts for expense reimbursement and similar items
which have been properly incurred in accordance with the provisions of Section 5
prior to termination and have not yet been paid.
7.3 As used herein, a "Change of Control" shall be deemed to
have occurred (i) if any "person" (as such term is used in Sections 13(d) and
14(d)2 of the Securities Exchange Act of 1934, as amended), is or becomes the
beneficial owner, directly or indirectly, of securities of Grist Mill
representing twenty-five percent (25%) or more of the combined voting power of
Grist Mill's then outstanding securities, or (ii) if during any consecutive
twelve (12) month period beginning or after the date on which this Agreement is
executed individuals who at the beginning of such period were directors of Grist
Mill cease, for any reason other than death or health related reasons, to
constitute at least a majority of the Board of Directors of Grist Mill;
or (iii) if a merger of, or consolidation involving, Grist Mill in which Grist
Mill's stock is converted into securities of another corporation or into cash
shall be consummated, or a plan of complete liquidation of Grist Mill (whether
or not in connection with a sale of all or substantially all of Grist Mill's
assets) shall be adopted and consummated, excluding in each case a transaction
solely for the purpose of reincorporating Grist Mill in a different jurisdiction
or recapitalizing Grist Mill stock.
7.4 As used herein, "good cause" shall mean and be limited to
a material breach of any of Executive's obligations under Section 1 or 8 hereof,
or any action by Executive during the term of this Agreement involving willful
malfeasance or gross negligence on the part of Executive.
7.5 Grist Mill, in its sole discretion, may apply for and
procure in its own name (whether or not for its own benefit) policies of
insurance insuring the life of Executive in such amounts as Grist Mill may deem
advisable. Executive shall have no right, title, or interest in any such
policies of insurance, except to the extent his estate or other persons are
specifically named as beneficiaries thereof. Executive agrees to submit to any
medical or other examination and to execute and deliver any applications or
other instrument in writing, reasonably necessary to effectuate such insurance.
8. Confidentiality and Non-Competition
8.1 Executive's agreements set forth in this Section 8 shall
survive the expiration or termination of this Agreement and the termination of
his employment with Grist Mill for any reason.
8.2 Executive acknowledges that irreparable injury would be
caused to Grist Mill by his breach of any of the provisions of this Section 8,
and agrees that in the event of any such breach, Grist Mill and any of its
Affiliates, in addition to such other rights and remedies as may exist in its
favor, may apply to any court of law or equity having jurisdiction to enforce
the specific performance of the provisions of this Section 8 and may apply for
injunctive relief against any act which would violate any such provisions. The
covenants of Executive contained in this Section 8 shall be construed as
independent of all other provisions contained in this Agreement and shall be
enforceable, notwithstanding the existence of any claim or cause of action of
Executive against Grist Mill or any of its Affiliates, whether predicated on
this Agreement or otherwise.
8.3 Executive recognizes that he now has knowledge of and/or
may hereafter gain knowledge of, confidential information, trade secrets,
confidential processes, confidential patentable or unpatentable inventions or
confidential "know how", including, without limitation, techniques, formulae,
designs, developments, projects, technical information and manufacturing process
and distribution methods, relating to, or concerned with the business of Grist
Mill and its Affiliates during the term of this Agreement and their respective
suppliers, customers, stockholders, licensors, licensees, and other persons or
entities with which Grist Mill or its Affiliates has, has had, or may in the
future have any commercial, scientific or technical relationship, and which
information has not previously been made public or thereafter made public.
During the term of this Agreement and at all times following the termination of
Executive's employment for any reason, Executive will not, directly or
indirectly, divulge, furnish or make accessible to anyone (other than as
required in the regular course of his employment by Grist Mill or with the
consent of the Board of Directors of Grist Mill) such information. As used in
the first sentence hereof, the phrase "made public" shall apply to information
(a) within the domain of the general public; (b) generally known within the
industry or industries in which Grist Mill or its Affiliates is involved; or (c)
is independently developed by Executive without utilization of confidential
information gained while in the employ of Grist Mill; provided that no
information shall be deemed to have been made public if it is within the domain
of the general public or generally known within the industry or industries in
which Grist Mill or its Affiliates is involved by virtue of the disclosure of
such information by Executive in violation of this Agreement. All documents,
records, apparatus, equipment and other physical property furnished to Executive
by Grist Mill or any Affiliate of Grist Mill or produced by Executive or others
in connection with his services to Grist Mill or any such Affiliate shall be and
remain the sole property of Grist Mill. Executive will return and deliver such
property to Grist Mill as and when requested by Grist Mill. Copies of documents
and records may be kept, but shall be kept completely confidential to the same
extent as other confidential information of Grist Mill. Executive shall return
and deliver all such property upon termination of his employment for any reason,
and Executive will not take with him any such property or any reproduction of
such property upon such termination.
8.4 Any work or research or the results thereof, made or
developed by Executive, alone or in conjunction with others during the term of
his employment, including but without limitation, any designs, patents,
inventions, processes, know-how or formulae created, invented or conceived
during the period of his employment by Grist Mill, whether during or out of the
usual hours of work, which arise out of or are related to the business,
research, or development work or field of operation of Grist Mill, or any of its
Affiliates, shall to the extent of Executive's interest therein be the sole and
exclusive property of Grist Mill, shall be disclosed in writing to Grist Mill
and to no other person, unless so directed in writing by the Board of Directors,
and Executive hereby assigns to Grist Mill all and any rights which he has or
may acquire in the same. To this end, both during the period of Executive's
employment and at all times thereafter, Executive agrees to execute all
necessary papers, instruments and documents properly required to effect such
assignment to Grist Mill or its nominee, to make application through Grist
Mill's patent attorney or general counsel at the expense of Grist Mill, for such
United States and foreign patents as may be specified from time to time by Grist
Mill on inventions, processes, or formulae which are or become the property of
Grist Mill hereunder, and to execute assignments upon Grist Mill's request, for
Executive's entire interest in all such applications to Grist Mill or to its
nominee without compensation (other than his usual compensation as an employee
of Grist Mill) and Executive agrees to give Grist Mill and its patent attorney
or general counsel all reasonable assistance in preparing such applications,
descriptions, and illustrations of each such invention, process, or formula and
in connection with proceedings relating thereto or to such other applications or
patents resulting therefrom; and further agrees to execute all lawful papers
considered necessary by Grist Mill and do all that Grist Mill reasonably
requests in order to protect Grist Mill's rights in said inventions, processes,
and formulae or to obtain patents thereon, including, without limitation,
continuations, reissues, renewals, and extensions. It is further agreed that
Executive's obligations specified hereunder shall not expire with the
termination of his employment, but Grist Mill agrees to pay Executive a
reasonable amount for any time that Executive spends in such work at Grist
Mill's request after the termination of his employment hereunder and agrees to
reimburse Executive for expenses reasonably or necessarily incurred in
connection with such work.
8.5 In addition to any other rights or remedies available to
the Company at law or in equity for breach of the agreement contained in this
paragraph 8, the Company shall be entitled to affirmative or negative injunctive
relief from a court of competent jurisdiction, without the necessity of posting
bond, to restrain Executive from any continued or threatened breach of the
agreement contained in such paragraph 8.
9. General
9.1 This Agreement is personal and shall in no way be subject
to assignment by Executive.
9.2 This Agreement shall be binding upon and shall inure to
the benefits of Grist Mill and its successors and assigns either by merger,
operation of law, consolidation, assignment, purchase or otherwise of a
controlling interest in the business of Grist Mill and Executive, his heirs,
executors, administrators, legal representatives and permitted assigns. Grist
Mill agrees that a successor in interest by merger, operation of law,
consolidation, assignment, purchase or otherwise of a controlling interest in
the business of Grist Mill will be informed prior to such event of the existence
of this Agreement. Grist Mill will require any successor (whether direct or
indirect, by purchase, merger, operation of law, consolidation, assignment or
otherwise of a controlling interest in the business, stock or other assets of
Grist Mill) to assume expressly and agree to perform this Agreement. Failure of
Grist Mill to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Executive to such compensation and benefits in the same amount and on the same
terms as he would be entitled hereunder in the event of a termination without
"good cause", except that, for the purposes of implementation hereof, the date
of which any such succession becomes effective shall be deemed to be the date on
which Executive becomes entitled to such compensation and benefits from Grist
Mill. As used in this Agreement, "Grist Mill" shall mean Grist Mill as
hereinbefore defined and any successor as aforesaid.
9.3 The parties intend this Agreement to be enforced as
written. However, (i) if any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a duly authorized court of
competent jurisdiction, then the remainder of this Agreement, or the application
of such portion or provision in circumstances other than those as to which it is
so declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and be enforceable to the
fullest extent permitted by law; and (ii) if any provision, or any part thereof,
is held to be unenforceable because of the duration of such provision or the
area covered thereby, Grist Mill and Executive agree that the court making such
determination shall have the power to reduce the duration and/or area of such
provision, and/or to delete specific words and phrases ("blue-pencilling") and
in its reduced or blue-pencilled form such provision shall then be enforceable
and shall be enforced.
9.4 All notices and communications required or permitted to be
given hereunder shall be duly given by delivering the same in hand or by
depositing such notice or communication in the mail, sent by certified or
registered mail, return receipt requested, postage prepaid, as follows:
If sent to Grist Mill Co:
P.O. Box 430
21340 Hayes Avenue
Lakeville, MN 55044
If sent to Executive:
Harry E. Stephens III
2128 Wind Song Circle
Wayzata, MN 55391
or such other address as either party furnishes to the other
by like notice.
9.5 This Agreement constitutes the entire agreement and
understanding between the parties in relation to the subject matter hereof and
there are no promises, representations, conditions, provisions or terms related
thereto other than those set forth in this Agreement. This Agreement supersedes
all previous understandings, agreements and representations between Grist Mill
and Executive regarding Executive's employment by Grist Mill, written or oral.
9.6 All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
9.7 No failure of Grist Mill or Executive to exercise any
power reserved to it or him, respectively, by this Agreement, or to insist upon
strict compliance by Executive or Grist Mill, respectively, with any obligation
or condition hereunder, and no custom or practice of the parties at variance
with the terms hereof, shall constitute a waiver of Grist Mill or Executive's
right, as the case may be, to demand exact compliance with any of the terms
hereof. Waiver by either party of any particular default by the other party
hereto shall not affect or impair the waiving party's rights with respect to any
subsequent default of the same, similar or different nature, nor shall any
delay, forbearance or omission of either party to exercise any power or right
arising out of any breach or default by the other party of any of the terms,
provisions or covenants hereof, affect or impair its or his right to exercise
the same, nor shall such constitute a waiver by Grist Mill or Executive, as the
case may be, of any right hereunder, or the right to declare any subsequent
breach or default and to terminate this Agreement prior to the expiration of its
term.
9.8 As used herein, the term "Affiliate" shall be deemed to
include any corporation, joint venture, or other business enterprise, whether
incorporated or unincorporated, which Grist Mill directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with.
9.9 This is a Minnesota contract and shall be construed under
and be governed in all respects by the law of the State of Minnesota.
9.10 Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for herein be reduced by
any compensation earned by Executive as the result of employment by another
employer or by retirement benefits after the date of termination or otherwise,
except as specifically set forth herein.
9.11 No amendment or modification to this Agreement shall be effective
unless in writing and signed by both parties hereto. This Agreement may be
executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement.
IN WITNESS WHEREOF, Grist Mill has caused this Agreement to be executed and
delivered by its duly authorized officer and its corporate seal to be hereunto
affixed and Executive has hereunto set his hand and seal as of the day and year
first written above in duplicate originals.
GRIST MILL CO.
By:________________________________
ATTEST:
______________________________
___________________________________
HARRY E. STEPHENS III
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
Year ended May 31, 1995 1994 1993
Net sales ............................. $78,916 $56,179 $66,478
Net earnings .......................... $ 4,563 $ 1,208 $ 4,001
Earnings per share .................... $ .66 $ .16 $ .54
Working capital ....................... $ 9,994 $14,934 $16,848
Current ratio ......................... 2.0 2.8 3.0
Total assets .......................... $46,259 $45,600 $48,101
Shareholders' equity .................. $31,522 $29,381 $29,216
Net return on average equity .......... 15.0% 4.1% 15.3%
Book value per common share outstanding $ 4.74 $ 4.17 $ 4.05
Bar Charts:
NET SALES
(IN MILLIONS)
91 $61.4
92 $65.9
93 $66.5
94 $56.2
95 $78.9
BOOK VALUE PER
COMMON SHARE
OUTSTANDING
91 $2.92
92 $3.43
93 $4.05
94 $4.17
95 $4.74
NET EARNINGS
(IN MILLIONS)
91 $1.8
92 $3.7
93 $4.0
94 $1.2
95 $4.6
PAGE 1
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Dollars and shares in thousands, except per-share data)
Year ended May 31, 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net sales ................................. $78,916 $56,179 $66,478 $65,917 $61,358 $60,020
Earnings before income taxes .............. $ 7,130 $ 1,886 $ 6,350 $ 5,900 $ 2,847 $ 1,894
Net earnings .............................. $ 4,563 $ 1,208 $ 4,001 $ 3,717 $ 1,779 $ 1,140
Earnings per share ........................ $ .66 $ .16 $ .54 $ .51 $ .25 $ .16
Working capital ........................... $ 9,994 $14,934 $16,848 $14,330 $12,318 $12,602
Total assets .............................. $46,259 $45,600 $48,101 $46,882 $40,630 $39,347
Long-term debt, including current portion . $ 4,879 $ 8,033 $10,366 $12,607 $12,673 $12,242
Shareholders' equity ...................... $31,522 $29,381 $29,216 $23,052 $19,202 $18,092
OTHER INFORMATION:
Gross profit as a percentage of net sales . 28.2% 28.4% 38.5% 37.8% 30.6% 26.9%
Operating profit as a percentage of
net sales ............................... 9.6% 4.5% 11.1% 10.9% 6.3% 4.4%
Net earnings as a percentage of net sales . 5.8% 2.2% 6.0% 5.6% 2.9% 1.9%
Net return on average shareholders' equity 15.0% 4.1% 15.3% 17.6% 9.5% 6.7%
Common shares outstanding at year-end ..... 6,663 7,049 7,210 6,722 6,566 6,750
Book value per common share
outstanding ............................. $ 4.74 $ 4.17 $ 4.05 $ 3.43 $ 2.92 $ 2.68
Current ratio ............................. 2.0 2.8 3.0 2.2 2.5 2.5
Number of employees at year-end ........... 646 446 413 424 445 437
</TABLE>
Share and per share amounts for 1992 and prior have been restated to reflect the
3-for-2 stock split as of October 26, 1992.
Totals include the impact of Grist Mill Confections, Inc. (formerly Tempo
Confections, Inc.) which the Company purchased in January 1990.
PAGE 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Overview: Fiscal year 1995 represents a year of record sales and profitability
for the Company. Net sales increased by 40%, from $56.2 million to $78.9
million, and earnings rose by 277% over fiscal 1994, to $4.6 million, or $.66
per share. Sales increases are attributable to higher sales from contract
manufacturing, ready-to-eat cereals and wholesome snack bars.
The gains in profitability reflect the higher sales levels and the favorable
impact of increased utilization of manufacturing capacity.
Sales: The Company's focus in 1995 was to grow its ready-
to-eat cereal and wholesome snack bar businesses through its store brand
customers. Since fiscal 1994, the Company has been expanding its ready-to-eat
cereal product offerings. During fiscal 1995, the Company was able to add new
customers and expand distribution for its ready-to-eat cereals. The Company's
wholesome snack business also grew significantly due to sales of its new
fruit-filled cereal bar and expanded distribution for its chewy granola bar
products. Fruit snacks represent the Company's largest grocery product category
in terms of sales. In 1995, fruit snack sales increased slightly from the
previous year.
Contract manufacturing sales grew significantly during fiscal 1995 due to a
product the Company manufactures for a large branded packaged foods customer.
While the Company expects to continue to generate significant sales in fiscal
1996 from this relationship, there are no specific volume guarantees.
Sales in fiscal 1994 were $56.2 million, compared to $66.5 million in fiscal
1993. Early in fiscal 1994 the Company reduced its prices on fruit snack
products to be more competitive with other producers of fruit snacks who were
aggressively pricing their products. Also contributing to the decline in sales
between 1993 and 1994 was lower contract sales to SlimFast Foods Company in
fiscal 1994.
Gross profit: Gross profit declined slightly from 28.4% of net sales in 1994
to 28.2% in 1995. In 1995, a higher portion of the Company's sales came from
contract manu facturing products, which have lower gross profit margins
Bar Charts:
OPERATING PROFIT
AS A PERCENTAGE
OF NET SALES
91 6.3%
92 10.9%
93 11.1%
94 4.5%
95 9.6%
QUARTERLY SALES
(in millions)
1st Quarter:
94 $13.6
95 $17.5
2nd Quarter:
94 $13.8
95 $17.6
3rd Quarter:
94 $14.0
95 $21.1
4th Quarter:
94 $14.8
95 $22.7
TOTAL CAPITALIZATION
(in millions)
91 $31.9
92 $35.7
93 $39.6
94 $37.4
95 $36.4
PAGE 13
<PAGE>
than the Company's grocery products. The lower margins on contract manufacturing
were offset by productivity gains and increased capacity utilization. The
decline in gross profit in fiscal 1994 to 28.4% from 38.5%, was due principally
to lower fruit snack pricing.
Selling and delivery expenses: Selling and delivery expenses decreased from
17.1% of net sales in 1994 to 12.5% in 1995. This decrease reflects the higher
proportion of sales of contract manufacturing products, which generate few of
these costs. Selling and delivery costs declined from 21.8% in 1993 to 17.1% in
1994. The lower pricing on fruit snacks in 1994 lessened the need for
promotional spending. Additionally, variable selling costs declined as more of
the Company's sales shifted to store brand labels from the Company's own name
brands.
General, administrative and product development expenses: General,
administrative and product development expenses increased by $981,000 but
decreased as a percent of sales from 6.9% in 1994 to 6.1% in 1995. The overall
increase in general, administrative and development costs reflects higher levels
of incentive compensation, increased resources dedicated to the development of
new products, and costs associated with hiring of new personnel. Expenses
increased in 1994 to 6.9% of net sales, from 5.6% of sales in 1993. Product
development expenses rose significantly in 1994 as spending for salaries and
research related to identifying and developing new products increased.
Interest income and expense: Net interest expense has declined over each of
the last three years, from $1.0 million in 1993 to $629,000 in 1994, to $419,000
in the current fiscal year. Long-term debt levels have been declining over the
same timeframe because of scheduled principal repayments. Additionally, in each
of the last three years the Company elected to pre-pay portions of its long-term
debt. Interest income decreased to $219,000 in 1995 from $374,000 in 1994. The
Company liquidated $5.8 million of interest bearing investments during the year
to meet capital equipment and financing needs.
LIQUIDITY AND CAPITAL INVESTMENTS
Cash and short-term investments decreased during the year from $12.6 million to
$6.8 million. Net cash provided by operating activities totaled $7.1 million for
the year, compared to $8.6 million in fiscal 1994. Cash from earnings and
non-cash items totaled $8.6 million. However, this was partially offset by
working capital needs, principally from inventory and accounts receivable.
Net cash used in investing activities was $1.4 million compared to $8.2
million in 1994. In 1995, the Company liquidated $5.8 million of short-term
investments and spent a total of $7.2 million on property and equipment
additions. In 1994, property and equipment expenditures were $3.0 million, with
$5.2 million placed into short-term investments during that same year. The
Company anticipates that additional capital expenditures will be made in fiscal
1996 for new ready-to-eat cereal and snack bar equipment.
Net cash used in financing activities was $5.7 million com-
pared with $3.6 million in 1994. In addition to scheduled debt payments, the
Company prepaid a portion of its long-term debt. Additionally, in June 1994, a
stock repurchase program was completed with the purchase of 473,500 shares of
common stock at a cost of $2.8 million.
Working capital declined from $14.9 million in 1994 to $10.0 million in 1995.
The current ratio decreased from 2.8 to 2.0 during the same period. Cash used to
pay down debt and repurchase capital stock was the cause of these declines.
Besides cash and short-term investments, the Company has available a line of
credit for $4.0 million. The Company has financed its growth principally from
internally generated funds, issuance of unsecured senior notes, bank borrowing,
and sales of its common stock. The Company believes that through these financing
alternatives, it will continue to meet its capital needs.
PAGE 14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended May 31, 1995 1994 1993
<S> <C> <C> <C>
Net sales .............................................. $ 78,916,000 $ 56,179,000 $ 66,478,000
Cost of products sold .................................. 56,632,000 40,217,000 40,861,000
Gross profit ........................................ 22,284,000 15,962,000 25,617,000
Selling and delivery expenses .......................... 9,899,000 9,592,000 14,495,000
General, administrative and product development expenses 4,836,000 3,855,000 3,735,000
Operating profit .................................... 7,549,000 2,515,000 7,387,000
Interest expense ....................................... 638,000 1,003,000 1,321,000
Interest income ........................................ (219,000) (374,000) (284,000)
Earnings before income taxes ........................ 7,130,000 1,886,000 6,350,000
Income tax expense ..................................... 2,567,000 678,000 2,349,000
Net earnings ........................................ $ 4,563,000 $ 1,208,000 $ 4,001,000
Earnings per share ..................................... $ .66 $ .16 $ .54
Weighted average common shares outstanding ............. 6,907,000 7,367,000 7,442,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At May 31, 1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .............................................. $ 3,271,000 $ 3,310,000
Short-term investments ................................................. 3,539,000 9,299,000
Accounts receivable, less allowance .................................... 6,045,000 4,804,000
Inventories ............................................................ 6,877,000 5,204,000
Prepaids and other ..................................................... 458,000 506,000
20,190,000 23,123,000
Property and equipment:
Land and building ...................................................... 11,145,000 10,770,000
Machinery and equipment ................................................ 36,245,000 29,455,000
47,390,000 40,225,000
Less accumulated depreciation .......................................... (22,371,000) (18,550,000)
25,019,000 21,675,000
Deferred charges, less accumulated amortization of $1,453,000 and
$973,000 at May 31, 1995 and 1994, respectively ........................ 1,050,000 802,000
$ 46,259,000 $ 45,600,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Drafts payable ......................................................... $ 984,000 $ 807,000
Accounts payable ....................................................... 3,701,000 2,219,000
Accrued compensation and commissions ................................... 1,863,000 972,000
Accrued marketing expenses ............................................. 796,000 849,000
Other accrued expenses ................................................. 1,144,000 1,664,000
Current maturities of long-term debt ................................... 1,708,000 1,678,000
10,196,000 8,189,000
Long-term debt ............................................................ 3,171,000 6,355,000
Deferred income taxes ..................................................... 1,370,000 1,675,000
Shareholders' equity:
Common stock, par value $.10 per share -- authorized 12,000,000 shares,
issued and outstanding 6,663,000 and 7,049,000 shares at May 31, 1995
and 1994, respectively .............................................. 666,000 705,000
Additional paid-in capital ............................................. 9,022,000 11,405,000
Retained earnings ...................................................... 21,834,000 17,271,000
31,522,000 29,381,000
$ 46,259,000 $ 45,600,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended May 31, 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................... $ 4,563,000 $ 1,208,000 $ 4,001,000
Non-cash items included in earnings:
Depreciation and amortization ............... 4,301,000 3,867,000 3,537,000
Deferred income taxes ....................... (249,000) (40,000) (41,000)
Common stock grants ......................... 94,000 55,000
Changes in operating assets and liabilities:
Accounts receivable ......................... (1,241,000) 1,467,000 (881,000)
Inventories ................................. (1,673,000) 2,397,000 487,000
Other assets ................................ (680,000) (376,000) 270,000
Accounts payable and other accrued expenses . 2,059,000 (642,000)
Net cash provided by operating activities 7,080,000 8,617,000 6,786,000
Cash flows used in investing activities:
Proceeds from short-term investments ........... 5,760,000 2,457,000 3,118,000
Payments for:
Short-term investments ...................... (7,660,000) (6,090,000)
Property and equipment ...................... (7,165,000) (2,980,000) (5,184,000)
Net cash used in investing activities .... (1,405,000) (8,183,000) (8,156,000)
Cash flows used in financing activities:
Proceeds from:
Drafts payable .............................. 177,000
Exercise of stock options, net .............. 83,000 35,000 413,000
Payments for:
Short-term borrowings and drafts payable, net (159,000) (860,000)
Long-term obligations ....................... (3,154,000) (2,333,000) (2,241,000)
Purchase and retirement of common stock ..... (2,820,000) (1,172,000)
Net cash used in financing activities .... (5,714,000) (3,629,000) (2,688,000)
Decrease in cash and cash equivalents ............. (39,000) (3,195,000) (4,058,000)
Cash and cash equivalents at beginning of year .... 3,310,000 6,505,000 10,563,000
Cash and cash equivalents at end of year .......... $ 3,271,000 $ 3,310,000 $ 6,505,000
</TABLE>
Income tax payments totaled $2,869,000 in 1995, $519,000 in 1994 and $1,818,000
in 1993. Interest payments totaled $666,000 in 1995, $1,011,000 in 1994 and
$1,231,000 in 1993.
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 17
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock
Number of Additional Retained
Shares Amount Paid-In Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balances at May 31, 1992 ................. 4,481,000 $ 448,000 $ 10,542,000 $ 12,062,000 $ 23,052,000
Stock options exercised and stock
grants awarded ..................... 515,000 51,000 1,261,000 1,312,000
Shares surrendered for exercise and
tax payments ....................... (83,000) (8,000) (836,000) (844,000)
Tax benefits related to stock options . 1,695,000 1,695,000
3-for-2 stock split ................... 2,297,000 230,000 (230,000)
Net earnings .......................... 4,001,000 4,001,000
Balances at May 31, 1993 ................. 7,210,000 721,000 12,432,000 16,063,000 29,216,000
Stock options exercised and stock
grants awarded ..................... 38,000 4,000 125,000 129,000
Purchase and retirement of common
stock .............................. (199,000) (20,000) (1,152,000) (1,172,000)
Net earnings .......................... 1,208,000 1,208,000
Balances at May 31, 1994 ................. 7,049,000 705,000 11,405,000 17,271,000 29,381,000
Stock options exercised ............... 113,000 11,000 342,000 353,000
Shares surrendered for exercise and
tax payments ....................... (25,000) (3,000) (267,000) (270,000)
Tax benefits related to stock options . 315,000 315,000
Purchase and retirement of common
stock .............................. (474,000) (47,000) (2,773,000) (2,820,000)
Net earnings .......................... 4,563,000 4,563,000
BALANCES AT MAY 31, 1995 ................. 6,663,000 $ 666,000 $ 9,022,000 $ 21,834,000 $ 31,522,000
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1995, 1994 and 1993
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company is in the business of manufacturing and
distributing store brand and value priced products and industrial food
ingredients and products. Principal products are fruit snacks, ready-to-eat
cereals, wholesome snack bars and graham cracker pie crusts.
Basis of Presentation: The consolidated financial state ments include the
Company and its subsidiary, which is wholly-owned. All material intercompany
balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of less than 90 days when purchased to be cash
equivalents.
Short-Term Investments: Short-term investments consist of income-producing
securities with original maturities of 90 days to two years. On June 1, 1994,
the Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities." In
accordance with this Statement, short-term investments are classified as
available-for-sale and stated at market value. At May 31, 1995, market value
approximated cost. Prior to the adoption of this Statement, short-term
investments were stated at cost, which approximated market.
Inventories: Inventories are stated at lower of cost, first-in, first-out
(FIFO) method, or market.
Property, Plant and Equipment and Depreciation: Property, plant and equipment
are stated at cost and are depreciated using the straight-line method over their
estimated useful life ranging from three to 25 years. Accelerated depreciation
is used by the Company for tax accounting purposes. Depreciation expense
includes the amortization of capital lease assets.
Deferred Charges: Expenditures for packaging design are recorded at cost and
amortized over an estimated useful life of up to three years. Certain
expenditures to obtain initial distribution of products, typically referred to
as slotting, are recorded at cost and amortized over a period of up to six
months.
Income Taxes: The provision for income taxes is based on earnings reported in
the financial statements. Deferred income taxes are provided for the tax effects
of differences in the timing of revenue and expense for income tax and financial
reporting purposes.
Earnings Per Share: Earnings per share are based on weighted average number
of common shares outstanding and the dilutive effect of common stock options
during the year.
NOTE B INVENTORIES
At May 31, 1995 1994
Finished goods................. $1,594,000 $1,594,000
Raw material and packaging..... 3,795,000 2,976,000
Work-in-process................ 1,488,000 634,000
$6,877,000 $5,204,000
Note C CREDIT ARRANGEMENTS
The Company has a $4,000,000 line of credit arrangement with a bank which
expires October 31, 1995. Loans under the agreement bear interest at a floating
rate approximately equal to the bank's reference rate less 1 1/42%. There were
no balances outstanding at May 31, 1995 and 1994.
PAGE 19
<PAGE>
NOTE D LONG-TERM DEBT
At May 31, 1995 1994
9.8% unsecured senior notes
payable in semi-annual
installments of $700,000
through September 1996....... $2,100,000 $3,500,000
Mortgage payable in monthly
installments of $26,000 through
November 2000. Interest at 8.75%
adjusted every three years... 2,557,000 4,143,000
4,657,000 7,643,000
Capitalized leases (Note E).... 222,000 390,000
4,879,000 8,033,000
Less current maturities........ (1,708,000) (1,678,000)
$3,171,000 $6,355,000
The terms of the unsecured senior notes contain requirements for maintaining
defined levels of net worth and certain financial ratios, and place limits on
total debt allowable.
The mortgage payable is collateralized by the Company's land and production
facilities with a net book value of $5,748,000.
Maturities of long-term debt, exclusive of capitalized leases, during the
next five fiscal years are as follows: 1996 - $1,486,000; 1997 - $800,000; 1998
- - $111,000; 1999 - $123,000; 2000 and after - $2,137,000.
NOTE E LEASES
The Company leases various equipment under non-cancelable leases. Future minimum
payments under capital and operating leases as of May 31, 1995 are as follows:
Capital Operating
Fiscal years ending May 31, Leases Leases
1996........................... $257,000 $72,000
1997........................... 71,000
Total minimum lease payments... 257,000 $143,000
Amount representing interest... (35,000)
Present value of minimum
lease payments............... $222,000
Machinery and equipment includes the following amounts for leases which have
been capitalized:
At May 31, 1995 1994
Cost............................. $841,000 $841,000
Less accumulated depreciation.... (473,000) (368,000)
$368,000 $473,000
NOTE F STOCK SPLIT
The Company effected a 3-for-2 stock split for shareholders of record as of
October 26, 1992, in the form of a stock dividend. All references to the number
of common shares and per common share amounts have been restated to reflect the
split.
NOTE G INCOME TAXES
Effective June 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." As
permitted under the new rule, prior years' financial statements have not been
restated. The cumulative effect of adopting this Statement as of June 1, 1993,
was not material to net earnings.
The components of income tax expense follow:
Year ended May 31, 1995 1994 1993
Current:
Federal............. $2,465,000 $619,000 $2,084,000
State............... 351,000 99,000 306,000
Deferred.............. (249,000) (40,000) (41,000)
$2,567,000 $678,000 $2,349,000
PAGE 20
<PAGE>
The following is a summary of the Company's deferred tax assets and
liabilities:
Deferred Tax
Assets (Liabilities)
At May 31, 1995 1994
Depreciation and amortization ... $(1,394,000) $(1,689,000)
Asset reserves .................. 200,000 153,000
Vacation not currently deductible 121,000 110,000
Medical self insurance .......... 128,000 139,000
Other ........................... (81,000) 12,000
$(1,026,000) $(1,275,000)
Deferred income taxes resulting from differences between accounting for
financial statement purposes and accounting for tax purposes were as follows:
Deferred
Method
Year ended May 31, 1993
Depreciation and amortization................. $(136,000)
Compensation and other accruals............... 78,000
Other......................................... 17,000
$ (41,000)
A reconciliation of statutory federal income taxes to the actual income tax
expense provided on earnings is as follows:
1995 1994 1993
Income tax at statutory
rate .................... $ 2,424,000 $ 641,000 $ 2,159,000
State income taxes net of
federal benefit ......... 218,000 60,000 197,000
Interest income not subject
to tax .................. (79,000) (77,000) (45,000)
Other ..................... 4,000 54,000 38,000
$ 2,567,000 $ 678,000 $ 2,349,000
NOTE H STOCK OPTION PLANS
Under the 1986 Non-Qualified Stock Option Plan, the Company may grant options to
purchase up to 1,700,000 shares of common stock to officers, key employees,
directors and consultants. The option price and terms of exercise are determined
by the Company's board of directors. Of the options outstanding under the
Non-Qualified Plan, 443,000 and 409,000 were exercisable at May 31, 1995 and
1994, respectively.
Under the 1984 Incentive Stock Option Plan, the Company may grant options to
purchase up to 200,000 shares of common stock to officers and key employees at
not less than 100% of fair market value of the shares at the date of grant. No
options were outstanding under this plan at May 31, 1995.
The Company also has a Stock Appreciation Rights Plan under which the Company
may grant Stock Appreciation Rights ("SARs") to eligible participants of its
stock option plans. Such rights allow the stock option holder the right to
receive a cash settlement that will approximate the appreciation in the value of
the stock option through the exercise of the SAR. SARs are only exercisable
following certain defined "acceleration events." At May 31, 1995, no SARs had
been granted.
Non-Qualified
Stock Options Price per Share
Balance at May 31, 1993.......... 410,000 $2.33 to $7.58
Granted........................ 167,000 $5.00 to $7.88
Exercised...................... (11,000) $2.33 to $5.58
Canceled or expired............ (29,000) $2.33 to $7.00
Balance at May 31, 1994.......... 537,000 $2.33 to $7.88
Granted........................ 222,000 $6.25 to $9.75
Exercised...................... (113,000) $2.33 to $7.00
Canceled or expired............ (7,000) $2.92 to $7.00
BALANCE AT MAY 31, 1995.......... 639,000 $2.33 to $9.75
PAGE 21
<PAGE>
NOTE I EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan ("Savings Plan")
that qualifies as a deferred salary arrangement under Section 401(K) of the
Internal Revenue Service Code. Under the Savings Plan, qualifying employees may
defer a portion of their pretax earnings, up to 15%, or the Internal Revenue
Service limits, whichever is less. The Company matches 30% of each employee's
contributions up to a maximum of 7% of the employee's earnings.
The Company's matching contributions to the Savings Plan in 1995, 1994 and
1993 were $127,000, $112,000 and $113,000, respectively.
Union employees of the Company's subsidiary participate in a multi-employer
defined benefit pension plan administered by the employees' union. Contributions
by the Company's subsidiary to this plan totaled $61,000, $64,000 and $68,000
for 1995, 1994 and 1993, respectively.
NOTE J POSTRETIREMENT HEALTH BENEFITS
The Company's subsidiary provides self-insured supplemental postretirement
health care coverage to substantially all union employees and their dependent
spouses. Effective June 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106 "Employer's Accounting for Postretirement
Benefits Other than Pensions." SFAS No. 106 requires the accrual of the expected
costs of providing these benefits during the active service period of the
employee. Previously, these costs were recognized as an expense when claims were
paid. As permitted by the Statement, the Company has elected to amortize the
transition obligation over 20 years.
Employees become eligible for the benefits on retirement if they have reached
the age of 55 and have 15 years of service. In determining benefits, the plan
takes into consideration payments by Medicare and other coverages. Benefits for
existing retirees who have reached the age of 65, as well as all employees who
retire after December 31, 1992, are subject to a $10,000 lifetime benefit cap.
Employees retiring after December 31, 1992, share in the cost of the benefits.
The Company does not fund the retiree health care plan.
The amount of retiree health expenses in 1993 could not be readily separated
from the cost of providing similar benefits to active employees. The total
amount of expenses in 1993 for health care coverage of all employees and
retirees of the subsidiary was $317,000.
The components of retiree health costs are shown below:
1995 1994
Service cost of benefits earned . $ 4,000 $ 7,000
Interest cost on liability ...... 47,000 52,000
Amortization of transition amount 33,000 34,000
$84,000 $93,000
The accumulated postretirement benefit obligation (APBO) at May 31, 1995 and
1994, respectively, was:
1995 1994
Current retirees .................. $ 476,000 $ 456,000
Fully eligible active employees ... 76,000 55,000
All other employees ............... 103,000 106,000
Total ........................... 655,000 617,000
Fair value of assets .............. -- --
APBO .............................. 655,000 617,000
Unrecognized prior service cost ... -- --
Unrecognized net gain ............. 62,000 74,000
Unrecognized transition obligation (615,000) (650,000)
Accrued postretirement benefit cost $ 102,000 $ 41,000
PAGE 22
<PAGE>
The accumulated postretirement benefit obligation was determined using an 8%
discount rate. The health care cost trend rates were assumed to be 12% and 10%
in 1995 for pre-65 and post-65 benefits, respectively, gradually declining to
6.5% after 14 years, and remaining at that level thereafter. A 1% increase in
health care trend rate would have an insignificant effect on the accumulated
postretirement benefit obligation and the net periodic cost for the year.
NOTE K RELATED PARTY TRANSACTIONS
A director and principal shareholder of the Company is a partner in a law firm
retained by the Company for its legal counsel. The Company incurred charges of
approximately $264,000, $274,000 and $334,000 in 1995, 1994 and 1993,
respectively, for services provided.
NOTE L MAJOR CUSTOMERS
In 1995 and 1993, sales to a major customer exceeded 10% of total net sales.
Sales to customer A were 30% of total sales in 1995 and sales to customer B were
15% of total sales in 1993.
NOTE M QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly data for 1995 and 1994 is as follows:
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1995
Net sales .............................. $17,547 $17,594 $21,112 $22,663
Gross profit ........................... $ 5,513 $ 4,988 $ 5,340 $ 6,443
Net income ............................. $ 1,118 $ 775 $ 1,314 $ 1,356
Earnings per share ..................... $ .16 $ .11 $ .19 $ .20
1994
Net sales .............................. $13,555 $13,821 $14,035 $14,768
Gross profit ........................... $ 4,225 $ 3,938 $ 3,635 $ 4,164
Net income ............................. $ 431 $ 249 $ 170 $ 358
Earnings per share ..................... $ .06 $ .03 $ .02 $ .05
</TABLE>
PAGE 23
<PAGE>
REPORT OF
INDEPENDENT AUDITORS
Shareholders and Board of Directors
Grist Mill Co. and Subsidiary
We have audited the accompanying consolidated statements of financial position
of Grist Mill Co. and subsidiary as of May 31, 1995 and 1994, and the related
consolidated statements of earnings, changes in shareholders' equity and cash
flows for each of the three years in the period ended May 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Grist Mill Co. and subsidiary at May 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 10, 1995
STOCK PRICES AND
TRADING DATA
The Company's common stock trades in the Nasdaq National Market under the symbol
GRST. The following table sets forth the high and low bid prices as reported by
the Nasdaq National Market.
Fiscal 1995 High Bid Low Bid
First quarter.................... $ 7.83 $4.83
Second quarter................... $11.25 $7.38
Third quarter.................... $11.13 $7.75
Fourth quarter................... $13.38 $8.38
Fiscal 1994 High Bid Low Bid
First quarter.................... $9.25 $5.63
Second quarter................... $7.25 $4.88
Third quarter.................... $5.63 $4.38
Fourth quarter................... $6.13 $4.50
As of July 31, 1995, there were approximately 1,400 shareholders of record of
the Company's common stock and an estimated 5,000 additional beneficial holders
whose stock was held in street name by brokerage houses.
The Company has never paid dividends on its common stock and does not
anticipate a change in this policy in the foreseeable future. The board of
directors currently intends to retain earnings to finance the Company's growth.
PAGE 24
<TABLE>
<CAPTION>
SHCEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
GRIST MILL CO.
BALANCE AT
BEGINNING CHARGED TO CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD EXPENSES EXPENSES DEDUCTIONS END OF PERIOD
Accumulated amortization of
deferred charges, principally
package design:
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1995 $ 988,000 $ 479,000 ($ 14,000)(1) $1,453,000
Year ended May 31, 1994 610,000 378,000 988,000
Year ended May 31, 1993 1,101,000 345,000 (836,000)(2) 610,000
</TABLE>
(1) Write-off of fully amortized trademark.
(2) Write-off of fully amortized package design.
GRIST MILL CO.
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED MAY 31
1995 1994 1993
(In thousands, except per share data)
Primary earnings per share:
Net earnings applicable to common stock $4,563 $1,208 $4,001
Average number of common and common equivalent
shares outstanding:
Average common shares outstanding 6,621 7,233 6,940
Dilutive effect of stock options 252 134 469
6,873 7,367 7,409
Primary earnings per share $ 0.66 $ 0.16 $ 0.54
Fully diluted earnings per share:
Earnings for fully diluted computation $4,563 $1,208 $4,001
Average number of common and common equivalent
shares outstanding:
Average common shares outstanding 6,621 7,233 6,940
Dilutive effect of stock options 286 134 502
6,907 7,367 7,442
Fully diluted earnings per share $ 0.66 $ 0.16 $ 0.54
EXHIBIT 22
GRIST MILL CO.
LIST OF SUBSIDIARIES
MAY 31, 1995
Percentage
of Voting
State in Which Securities
Incorporated Owned
Grist Mill Confections, Inc.. . . . . . . . Illinois 100%
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Grist Mill Company of our report dated July 10, 1995, included in the 1995
Annual Report to Shareholders of Grist Mill Company.
Our audits also included the financial statement schedule of Grist Mill Company
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-17317) pertaining to the Grist Mill Company Employees
Retirement Savings Plan and Trust and in the related Prospectus of our report
dated July 10, 1995, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of Grist Mill Company.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
August 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
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0
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</TABLE>
