SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 29, 1996
Commission file number 0-13852
Grist Mill Co.
Delaware 41-0974681
(State of incorporation) (IRS Employer ID No.)
21340 Hayes Avenue, Lakeville, MN 55044-0430
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (612) 469-4981
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
As of February 29, 1996 the Company had 6,764,950 shares of common stock
outstanding.
GRIST MILL CO.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 29, 1996
INDEX
I. FINANCIAL INFORMATION:
Item 1. Financial Statement (Unaudited) Page
Consolidated Statements of Financial Position ....... 3
Consolidated Statements of Earnings.................. 4
Consolidated Statements of Cash Flows................ 5
Consolidated Notes to Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K..................... 10
Signatures........................................... 11
Index of Exhibits.................................... 12
Exhibits............................................. 13
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
February 29, May 31,
1996 1995
------------ -------
Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,972 $ 3,271
Short-term investments 3,539
Accounts receivable, less allowances 6,794 6,045
Inventories 11,759 6,877
Other 553 458
-------- --------
21,078 20,190
-------- --------
Property and equipment:
Land and building 11,220 11,145
Machinery and equipment 41,008 36,245
-------- --------
52,228 47,390
Less accumulated depreciation (25,606) (22,371)
-------- --------
26,622 25,019
-------- --------
Deferred charges, less accumulated
amortization 1,259 1,050
-------- --------
$ 48,959 $ 46,259
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Drafts payable $ 2,297 $ 984
Accounts payable 2,893 3,701
Accrued compensation and commissions 1,508 1,863
Accrued marketing expenses 1,360 796
Other accrued expenses 1,287 1,144
Current maturities of long-term debt 1,575 1,708
-------- --------
10,920 10,196
-------- --------
Long-term debt 2,396 3,171
Deferred income taxes 1,291 1,370
Shareholders' equity:
Common stock 677 666
Additional paid-in capital 9,319 9,022
Retained earnings 24,356 21,834
-------- --------
34,352 31,522
-------- --------
$ 48,959 $ 46,259
======== ========
See notes to financial statements
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
February 29 & 28 February 29 & 28
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $ 21,275 $ 21,112 $ 65,845 $ 56,253
Cost of products sold 15,622 15,772 48,644 40,412
-------- -------- -------- --------
Gross profit 5,653 5,340 17,201 15,841
Selling and delivery expenses 3,584 2,149 9,650 7,175
General, administrative and
product development expenses 1,086 1,028 3,377 3,333
-------- -------- -------- --------
Operating profit 983 2,163 4,174 5,333
Interest expense 103 143 324 510
Interest income (20) (40) (105) (172)
-------- -------- -------- --------
Earnings before income taxes 900 2,060 3,955 4,995
Income tax expense 333 746 1,433 1,788
-------- -------- -------- --------
Net earnings $ 567 $ 1,314 $ 2,522 $ 3,207
======== ======== ======== ========
Earnings per common and common
equivalent share:
Primary and fully diluted $ .08 $ .19 $ .36 $ .47
======== ======== ======== ========
See notes to financial statements
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
-----------------
February 29 & 28
-----------------
1996 1995
------- ------
Cash Flows From Operating Activities:
Net earnings $ 2,522 $ 3,206
Non-cash items included in earnings:
Depreciation and amortization 3,658 3,262
Deferred income taxes (79) 66
Changes in operating assets and liabilities:
Accounts receivable (749) (3,370)
Inventories (4,882) (1,547)
Other assets (95) (196)
Accounts payable and other
accrued expenses (456) 1,793
------- -------
Net Cash Provided By (Used In)
Operating Activities (81) 3,214
------- -------
Cash Flows From Investing Activities:
Proceeds from:
Short term investments, net 3,539 5,306
Payments for:
Property and equipment (4,838) (5,267)
Package design (632) (480)
------- -------
Net Cash Used In
Investing Activities (1,931) (441)
------- -------
Cash Flows From Financing Activities:
Proceeds from:
Drafts payable 1,313 806
Exercise of stock options, net 308 50
Payments for:
Long-term debt obligations (908) (2,389)
Purchase and retirement of treasury stock (2,820)
------- -------
Net Cash Provided By (Used In)
Financing Activities 713 (4,353)
------- -------
Decrease in Cash and Cash Equivalents (1,299) (1,580)
Cash and Cash Equivalents at Beginning of Period 3,271 3,310
------- -------
Cash and Cash Equivalents at End of Period $ 1,972 $ 1,730
======= =======
See notes to financial statements
GRIST MILL CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Condensed Consolidated Financial Statements
The accompanying unaudited interim financial statements have been prepared
in accordance with the instructions for Form 10- Q and do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended May
31, 1995. In the opinion of management, all adjustments necessary for a
fair presentation of such interim consolidated financial statements have
been included. All such adjustments are of a normal recurring nature.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 1996 were $21.3 million compared to
sales of $21.1 million for the same quarter a year ago. For the nine months
ended February 29, 1996, net sales were $65.8 million, or an increase of 17%
over prior year's sales of $56.3 million.
Earnings for the quarter were $567,000, or $.08 per share compared to net
earnings of $1.3 million, or $.19 per share in the comparable quarter a year
ago. For the nine months ended February 29, 1996, the Company earned $2.5
million, or $.36 per share compared to net earnings of $3.2 million, or $.48 per
share during the same period a year ago. The lower earnings in the current
quarter are primarily due to lower sales and profitability from the Company's
contract manufacturing business and costs related to ready-to-eat cereal
operations.
Sales of the Company's grocery products increased 27% over the first nine months
of last year. The growth is attributable to increased sales of ready-to-eat
cereal and wholesome snack bar products. Ready-to-eat cereal sales during the
first nine months of the year are up 90% over prior year's levels. The increases
in cereal sales reflect an expanding customer base and increased distribution.
Sales of wholesome snack bars have grown by 30% over the prior year's levels.
This sales growth is due to increased sales of the Company's fruit-filled cereal
bar. Introduced early in fiscal 1995, this product has gained wide acceptance
with the Company's store brand customers. During the fourth fiscal quarter, the
Company will begin shipping two new wholesome snack bars; a crisp rice
marshmallow bar and a fat free fruit-filled cereal bar.
During the current quarter, the Company's contract manufacturing sales declined
49% or $4.5 million compared to the same quarter a year ago. The decline
principally reflects lower demand from the Company's largest contract
manufacturing customer. The Company's contract manufacturing business has been
subject to significant fluctuations in volume due to changes in demand from the
Company's contract manufacturing customers. The Company expects that in its
fiscal fourth quarter contract manufacturing sales will be higher than in the
current quarter. However, current indications from the Company's largest
contract customer are, that by November 1996, the customer plans to begin
self-manufacturing the products Grist Mill currently produces for them. Grist
Mill expects to continue to be a supplier of products for the customer. Once
this customer has established its own manufacturing capabilities, it is expected
that demand for production from Grist Mill will be significantly reduced and
possibly eliminated. Contract manufacturing sales in fiscal 1995 were
approximately $30 million and are expected to be approximately $27 to $29
million in fiscal 1996.
The gross profit margin for the first nine months of the current fiscal year was
26% compared to a gross profit margin of 28% for the same period of last year.
The decline is partially attributable to costs related to the Company's fast
growing ready-to-eat cereal business. While improvement in the operating
efficiencies for these products is expected, the Company anticipates that the
improvement will occur gradually over future quarters. Another factor
contributing to the decline in the Company's gross profit margin was lower
pricing for the Company's contract manufacturing products.
Selling and delivery expenses for the first nine months of the year totaled $9.7
million, or 14.7% of net sales, compared to $7.2 million, or 12.8% of net sales
for the first nine months of the previous fiscal year. A greater proportion of
the Company's sales are attributable to grocery products in the current fiscal
year and these products have selling and delivery expenses associated with them
which do not exist with contract products.
General, administrative, and product development costs were $3.4 million, or
5.1% of net sales for the first nine months of fiscal 1996, versus $3.3 million,
or 5.9% of net sales for the same period last year. Resources directed at new
product development have declined from a year ago as the emphasis has shifted to
increasing production efficiencies on new products. Offsetting this decline was
an increase in litigation costs related to a lawsuit, which was settled during
the previous quarter.
Net interest expense for the nine months totaled $219,000 compared to $338,000
for the same period a year ago. Scheduled payments on the Company's unsecured
senior notes resulted in lower average levels of debt for the year when compared
to a year ago.
The effective tax rate was 36.2% for the first nine months of the year, compared
to 35.8% for the previous nine month period. Lower levels of tax exempt
investment income during the current year resulted in the increase in the tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's key liquidity ratios have not changed significantly since the
beginning of the current fiscal year. Working capital has increased from $10.0
million at May 31, 1995 to $10.2 million at February 29, 1996, and the current
ratio decreased slightly over the same time period, from 2.0 to 1.9.
Cash used in operating activities was $81,000 during the first nine months of
the year, versus cash generated from such activities of $3.2 million in the
first nine months of last year. Reduced earnings and higher inventory levels in
support of increased ready-to-eat cereal business were the primary reasons for
the change.
Cash used in investing activities was $1.9 million during the first three
quarters, compared to cash used of $441,000 in the same period of the previous
year. Equipment additions were primarily for ready-to-eat cereal manufacturing
equipment and upgrading one of the Company's snack bar manufacturing lines.
Cash provided from financing activities was $713,000 for the first nine months
of the year compared to cash used in financing activities during the previous
year of $4.4 million. During the previous fiscal year the Company made a
prepayment on long-term debt and completed a capital stock acquisition program.
The Company has a $4.0 million line of credit, however there were no borrowings
outstanding on this line at the end of the third quarter ended February 29,
1996.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended February 29,
1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRIST MILL CO.
Registrant
Date: April 12, 1996 By: /S/ Daniel J. Kinsella
Daniel J. Kinsella
Vice President and
Chief Financial Officer
GRIST MILL CO.
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED FEBRUARY 29, 1996
Exhibit 11 - Computation of Earnings Per Share
Filed herewith.
EXHIBIT 11
GRIST MILL CO.
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE
(Unaudited, in thousands except per share data)
Three Months Ended Nine Months Ended
February 29 & 28 February 29 & 28
------------------ ----------------
1996 1995 1996 1995
------ ------ ------ ------
Primary earnings per share:
Net earnings applicable
to common stock $ 567 $1,314 $2,522 $3,207
====== ====== ====== ======
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding 6,722 6,714 6,696 6,625
Dilutive effect of stock
options 105 131 185 220
------ ------ ------ ------
6,827 6,845 6,881 6,845
====== ====== ====== ======
Primary earnings per share $ .08 $ .19 $ .36 $ .47
====== ====== ====== ======
Fully diluted earnings per share:
Earnings for fully diluted
computation $ 567 $1,314 $2,522 $3,207
====== ====== ====== ======
Average number of common and
common equivalent shares outstanding:
Average common shares outstanding 6,722 6,714 6,696 6,625
Dilutive effect of stock options 105 189 191 262
------ ------ ------ ------
6,827 6,903 6,887 6,887
====== ====== ====== ======
Fully diluted earnings
per share: $ .08 $ .19 $ .36 $ .47
====== ====== ====== ======
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