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 November 30, 1995
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 December 31, 1995 the Company had 6,701,424 shares of common stock
outstanding.
GRIST MILL CO.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30,1995
INDEX
I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS (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 1. LEGAL PROCEEDINGS.......................................... 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 9
SIGNATURES........................................... 10
INDEX OF EXHIBITS.................................... 11
EXHIBITS............................................. 12
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
NOVEMBER 30, MAY 31,
1995 1995
(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,396 $ 3,271
SHORT-TERM INVESTMENTS 500 3,539
ACCOUNTS RECEIVABLE, LESS ALLOWANCES 6,428 6,045
INVENTORIES 10,114 6,877
OTHER 535 458
18,973 20,190
PROPERTY AND EQUIPMENT:
LAND AND BUILDING 11,220 11,145
MACHINERY AND EQUIPMENT 40,072 36,245
51,292 47,390
LESS ACCUMULATED DEPRECIATION (24,463) (22,371)
26,829 25,019
DEFERRED CHARGES, LESS ACCUMULATED
AMORTIZATION 1,364 1,050
$ 47,166 $ 46,259
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
DRAFTS PAYABLE $ 1,640 $ 984
ACCOUNTS PAYABLE 3,019 3,701
ACCRUED COMPENSATION AND COMMISSIONS 1,542 1,863
ACCRUED MARKETING EXPENSES 1,261 796
OTHER ACCRUED EXPENSES 702 1,144
CURRENT MATURITIES OF LONG-TERM DEBT 1,620 1,708
9,784 10,196
LONG-TERM DEBT 2,422 3,171
DEFERRED INCOME TAXES 1,290 1,370
SHAREHOLDERS' EQUITY:
COMMON STOCK 670 666
ADDITIONAL PAID-IN CAPITAL 9,211 9,022
RETAINED EARNINGS 23,789 21,834
33,670 31,522
$ 47,166 $ 46,259
SEE NOTES TO FINANCIAL STATEMENTS
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $ 21,539 $ 17,594 $ 44,570 $ 35,141
COST OF PRODUCTS SOLD 15,963 12,606 33,022 24,640
GROSS PROFIT 5,576 4,988 11,548 10,501
SELLING AND DELIVERY EXPENSES 3,240 2,518 6,066 5,026
GENERAL, ADMINISTRATIVE AND PRODUCT
DEVELOPMENT EXPENSES 1,092 1,178 2,291 2,305
OPERATING PROFIT 1,244 1,292 3,191 3,170
INTEREST EXPENSE 102 158 221 367
INTEREST INCOME (25) (64) (85) (132)
EARNINGS BEFORE INCOME TAXES 1,167 1,198 3,055 2,935
INCOME TAX EXPENSE 420 423 1,100 1,042
NET EARNINGS $ 747 $ 775 $ 1,955 $ 1,893
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
PRIMARY AND FULLY DILUTED $ .11 $ .11 $ .28 $ .27
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
NOVEMBER 30
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $ 1,955 $ 1,893
NON-CASH ITEMS INCLUDED IN EARNINGS:
DEPRECIATION AND AMORTIZATION 2,367 2,202
DEFERRED TAXES (80) (2)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (383) (623)
INVENTORIES (3,237) (2,494)
OTHER ASSETS (77) (1,091)
ACCOUNTS PAYABLE AND OTHER
ACCRUED EXPENSES (980) 1,890
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (435) 1,775
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM:
SHORT TERM INVESTMENTS, NET 3,039 4,294
PAYMENTS FOR:
PROPERTY AND EQUIPMENT (3,902) (2,710)
PACKAGE DESIGN (589) (434)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (1,452) 1,150
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM:
DRAFTS PAYABLE 656
EXERCISE OF STOCK OPTIONS, INCLUDING
RELATED TAX BENEFITS 193 25
PAYMENTS FOR:
DRAFTS PAYABLE (142)
LONG-TERM DEBT OBLIGATIONS (837) (2,324)
PURCHASE AND RETIREMENT OF TREASURY STOCK (2,820)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 12 (5,261)
DECREASE IN CASH AND CASH EQUIVALENTS (1,875) (2,336)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,271 3,310
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,396 $ 974
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 second quarter of fiscal 1996 were $21.5 million, or an
increase of 22% over 1995 second quarter sales of $17.6 million. For the six
months ended November 30, 1995 the Company had sales of $44.6 million, compared
to $35.1 million for the same period a year ago.
Earnings for the quarter were $747,000, or $.11 per share compared to net
earnings of $775,000, or $.11 per share in the comparable quarter a year ago.
For the six month period ended November 30, 1995, the Company earned $2.0
million or $.28 per share compared to net earnings of $1.9 million or $.27 per
share during the same period a year ago.
Sales of core grocery products were up 25% for the quarter over the same quarter
a year ago. This growth was generated by the Company's ready-to-eat cereal and
wholesome snack bar products. Year to date ready-to-eat cereal sales have
increased 68% over the prior year. Over the past year, the Company has added
several new ready-to-eat cereal customers. The number of product offerings has
also increased over the last year, allowing existing customers to purchase more
of their store brand ready-to-eat cereal offerings from the Company. In the
wholesome snack bar category, the Company has built a broad customer base for
its fruit-filled cereal bar that was introduced early in the previous fiscal
year.
Contract manufacturing sales were also higher for the quarter and first six
months of the current year than they were for the same periods a year ago.
However, sales in the current quarter were lower than in recent quarters because
of reduced demand from the Company's largest contract customer. There are no
guaranteed minimum production requirements associated with manufacturing for
this customer. The Company does expect, however, that it will have significant
sales to this customer in the coming quarters.
The gross profit margin for the first six months of the year was 26%, versus 30%
during the same period a year ago. The decline is partially attributable to
start up costs related to the Company's new ready-to-eat cereal products. While
improvement in the operating efficiencies for ready-to-eat cereal products is
expected, the Company expects 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. Additionally, a higher proportion of Company sales were generated by
contract manufacturing, which historically has lower gross profit margins.
Selling and delivery expenses for the first six months of the year totaled $6.1
million, or 13.6% of net sales, compared to $5.0 million, or 14.3% of net sales
during the first six months of last year. This is primarily due to higher
contract manufacturing sales which do not have significant selling and delivery
expenses associated with them.
General, administrative, and product development costs were $2.3 million, or
5.1% of net sales for the first six months of the year, compared to $2.3
million, or 6.6% of net sales for the same period of 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 current quarter. (See Part II, Other
Information, Item 1. Legal Proceedings).
Year to date net interest expense totaled $136,000 compared to $253,000 for the
first six months of last year. 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% for the first half of fiscal 1996 compared to
35.5% for the first half of fiscal 1995. Lower levels of tax exempt investment
income during the current year resulted in the increase in the tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Since May 31, 1995 the Company's key liquidity ratios have not changed
significantly. Working capital has decreased from $10.0 million to $9.2 million,
and the current ratio went from 2.0 to 1.9. Net cash used in operations was
$435,000 during the first half of the current fiscal year compared to cash
provided by operations of $1.8 million in the first half of the previous fiscal
year. The growth in the Company's business has increased working capital funding
needs primarily due to increased ready-to-eat cereal inventories.
Cash used in investing activities was $1.5 million for the first half of the
fiscal year, compared to cash provided of $1.2 million in the first half of last
year. Equipment additions were primarily for ready-to-eat cereal manufacturing
equipment and upgrading one of the company's snack bar manufacturing lines.
Proceeds and payments for financing activities offset each other for the first
half of the fiscal year. During the previous year's six month period the Company
made a prepayment on long-term debt and completed a capital stock acquisition
program.
The Company renewed its $4.0 million line of credit during the quarter. There
were no borrowings under this line during the first half of the year.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In its Annual Report on Form 10-K for the fiscal year ended May
31, 1995, the Company reported under Item 3 Legal Proceedings
that The Kellogg Company had filed a complaint against the
Company alleging breach of contract and misappropriation of
trade secrets. This litigation was settled during the quarter.
Neither party admitted any wrongdoing. The terms of the
settlement did not have a material adverse impact on the
Company's financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit 4 - $4,000,000 Revolving credit agreement dated October 24,
1995.
Exhibit 10 - Amendment Number 6 to the Grist Mill Co. Non-Qualified
Stock Option Plan
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended November 30,
1995.
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: January 12, 1996 By:
Daniel J. Kinsella
Vice President and
Chief Financial Officer
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: January 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 NOVEMBER 30, 1995
Exhibit 4 $4,000,000 Revolving credit agreement dated October 24, 1995
Exhibit 10 Amendment Number 6 to the Grist Mill Non-Qualified Stock Option
Plan
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
FILED HEREWITH
EXHIBIT 4
October 24, 1995
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: $4,000,000.00
Expiration: October 31, 1996
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 anytime 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: Borrowing rate options include:
(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, as always, 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.
Sincerely,
Dennis W. Johnson for Laura S. Oberst
Vice President
Accepted by_____________________________this_______day of _________, 1995.
Authorized Signer
Grist Mill Co.
EXHIBIT 10
AMENDMENT NO. 6 TO THE
GRIST MILL CO. NON-QUALIFIED STOCK OPTION PLAN
This amendment No. 6 to the Grist Mill Co. Non-Qualified Stock Option
Plan, dated as of November 1, 1986, is made by Grist Mill Co., a Delaware
corporation (the "Company").
WHEREAS, the Grist Mill Co. Non-Qualified Stock Option Plan (the
"Plan") was adopted by the Company Board of Directors on November 1, 1986.
WHEREAS, the Company's Board of Directors on September 26, 1995,
approved an amendment to the Plan providing for an increase in the number of
shares which may be awarded thereunder from 1,700,000 to 2,500,000 shares.
WHEREAS, the provisions of the Tax Reform Act of 1986 permit amendments
to plans for options, including the Plan, which amendments are favorable to
grantees under the plans.
WHEREAS, the Plan is expiring on November 1, 1996, and the Company
wishes to extend the expiration date.
NOW, THEREFORE, in consideration of the foregoing and in order to
reflect the approval of the Board of Directors of the Company:
1. The first sentence of Paragraph 2 of the Plan is hereby
amended in its entirety to read:
"There will be reserved for issue upon the exercise of options
granted under the Plan of 2,500,000 shares of the
Corporation's Common Stock $0.10 par value, subject to
adjustment as provided in Paragraph 7, which may be unissued
shares or reacquired shares."
2. The second sentence of Paragraph 9 of the Plan is hereby
amended in its entirety to read as follows:
"The Plan, unless sooner terminated, shall terminate on
November 1, 2001."
3. Except as expressly amended and supplemented by this
Amendment, the Plan is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the Company has caused its President and Secretary
to execute this Amendment No. 6 to the Plan as of the 28th day of September,
1995.
GRIST MILL CO.
By: /s/ Glen S. Bolander
Glen S. Bolander, President
ATTEST:
/s/ Charles H. Perlman
Charles H. Perlman, Assistant Secretary
EXHIBIT 11
GRIST MILL CO. AND SUBSIDIARY
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1995 1994 1995 1994
PRIMARY EARNINGS PER SHARE:
NET EARNINGS APPLICABLE
TO COMMON STOCK $ 747 $ 775 $1,955 $1,893
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING:
AVERAGE COMMON SHARES
OUTSTANDING 6,695 6,578 6,683 6,646
DILUTIVE EFFECT OF STOCK
OPTIONS 208 279 225 205
6,903 6,857 6,908 6,851
PRIMARY EARNINGS PER SHARE $ .11 $ .11 $ .28 $ .27
FULLY DILUTED EARNINGS PER SHARE:
EARNINGS FOR FULLY DILUTED
COMPUTATION $ 747 $ 775 $1,955 $1,893
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING:
AVERAGE COMMON SHARES
OUTSTANDING 6,695 6,578 6,683 6,646
DILUTIVE EFFECT OF STOCK
OPTIONS 208 342 234 265
6,903 6,920 6,917 6,911
FULLY DILUTED EARNINGS
PER SHARE: $ .11 $ .11 $ .28 $ .27
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