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 August 31, 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 September 30, 1996 the Company had 6,788,988 shares of common stock
outstanding.
GRIST MILL CO.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED AUGUST 31,1996
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................. 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)
August 31, May 31,
1996 1996
----------- --------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 3,409 $ 1,654
Short-term investments
Accounts receivable, less allowances 10,039 9,743
Inventories 10,319 10,293
Prepaids and Other 657 393
-------- --------
24,424 22,083
-------- --------
Property and equipment:
Land and building 11,661 11,647
Machinery and equipment 42,913 41,989
-------- --------
54,574 53,636
Less accumulated depreciation (28,183) (26,897)
-------- --------
26,391 26,739
-------- --------
Deferred charges, less accumulated
amortization 1,099 1,364
-------- --------
$ 51,914 $ 50,186
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Drafts payable $ 2,541 $ 2,342
Accounts payable 4,571 4,002
Accrued compensation and commissions 1,213 1,449
Accrued marketing expenses 1,306 1,214
Other accrued expenses 1,976 1,505
Current maturities of long-term debt 795 793
-------- --------
12,402 11,305
-------- --------
Long-term debt 2,345 2,371
Deferred income taxes 1,093 1,143
Shareholders' equity:
Common stock 680 676
Additional paid-in capital 9,582 9,466
Retained earnings 25,812 25,225
-------- --------
36,074 35,367
-------- --------
$ 51,914 $ 50,186
======== ========
See notes to financial statements
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited, in thousands, except per share amounts)
Three Months Ended
---------------------
August 31
---------------------
1996 1995
-------- --------
Net sales $ 27,392 $ 23,031
Cost of products sold 21,346 17,059
-------- --------
Gross profit 6,046 5,972
Selling and delivery expenses 3,982 2,826
General, administrative and product
development 1,061 1,199
-------- --------
Operating profit 1,003 1,947
Interest expense (71) (119)
Interest income 60
-------- --------
Earnings before income taxes 932 1,888
Income tax expense 345 680
-------- --------
Net earnings $ 587 $ 1,208
======== ========
Earnings per common and common equivalent share:
Primary and fully diluted $ .09 $ .17
======== ========
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
-------------------
August 31
-------------------
1996 1995
------- -------
Cash Flows From Operating Activities:
Net earnings $ 587 $ 1,208
Non-cash items included in earnings:
Depreciation and amortization 1,425 1,143
Deferred taxes (50) (12)
Changes in operating assets and liabilities:
Accounts receivable (296) (2,272)
Inventories (26) (521)
Other assets (138) (372)
Drafts payable 199 (343)
Accounts payable and other accrued expenses 896 2,004
------- -------
Net Cash Provided By Operating Activities 2,597 835
------- -------
Cash Flows From Investing Activities:
Proceeds from short term investments, net 498
Payments for property and equipment (938) (2,603)
------- -------
Net Cash Used In Investing Activities (938) (2,105)
------- -------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options 120 164
Payments for long-term debt obligations (24) (67)
------- -------
Net Cash Provided By Financing Activities 96 97
------- -------
Increase (Decrease) in Cash and
Cash Equivalents 1,755 (1,173)
Cash and Cash Equivalents at Beginning
of Period 1,654 3,271
------- -------
Cash and Cash Equivalents at End of Period $ 3,409 $ 2,098
======= =======
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, 1996. 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 first quarter of fiscal 1997 were $27.4 million, which is an
increase of 19% over the same quarter of last year. Earnings for the quarter
were $587,000, or $.09 per share, compared to $1.2 million, or $.17 per share.
The increased sales in the current quarter were generated by a 40% increase in
the Company's core grocery sales. The Company's ready-to-eat cereal sales
increased 94% and wholesome snack bar sales increased 71% over the prior year.
Ready-to-eat cereal sales have increased as the Company has expanded
distribution of its products through new customers.
The dramatic increase in wholesome snack bar sales is primarily due to sales
gains from fruit filled cereal bars which have grown to become one of the
Company's most significant bar products. Additionally, the Company began to ship
two new bar products; a crisp rice marshmallow bar and a no fat fruit filled
cereal bar.
Fruit snack sales also increased by 17% over the same quarter a year ago
reflecting effective promotions with the Company's store brand customers.
Partially offsetting the gains in the core grocery area was a 34% decline in
contract manufacturing sales. The decline represents lower sales demand from the
Company's largest contract customer. This customer had previously informed the
Company that it planned to begin self-manufacturing the products Grist Mill
makes for it. However, recently this customer has asked Grist Mill to continue
to contract manufacture through at least the end of February, 1997. Currently it
is not known what level of sales, if any, will be generated from this customer
after February 1997.
Despite the increase in sales, profitability was lower than the previous year.
The Company's gross profit margin declined from 25.9% to 22.1%. In recent
quarters the Company has introduced new ready-to-eat cereal and wholesome snack
bar products. New equipment has been installed to produce these products and to
expand capacity. The Company's operating efficiencies have been lower than in
past quarters reflecting the impact the Company's growth has had on internal
capabilities; higher costs of production on new products; and inefficiencies
that can come from the start up of new equipment and processes. Another item
unfavorably impacting the Company's profitability is lower pricing on the
Company's contract manufacturing products and higher ingredient costs.
Selling and delivery expenses were $4.0 million, or 14.5% of net sales in the
first quarter of the fiscal year, compared to $2.8 million, or 12.3% of net
sales in the same quarter of last year. Grocery products have higher selling and
delivery costs associated with them, such as broker commissions and
transportation.
Therefore as the mix of sales shifts toward grocery products, selling and
delivery costs will increase proportionally.
General, administrative and product development expenses were $1.1 million, or
3.9% of net sales, during the current quarter compared to $1.2 million, or 5.2%
of net sales for the same quarter of the previous year. During the first quarter
of last year, the Company was involved with defending itself in litigation,
which resulted in higher administrative costs for that quarter.
The effective tax rate for the quarter was 37%, compared to 36% in the first
quarter of the prior year. Interest from tax-exempt investments reduced the
effective tax rate in the previous year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the quarter was $2.6 million,
versus $835,000 in the first quarter of last year. Cash flow from earnings and
non-cash items totaled $2.0 million. Despite the increase in sales, inventory
and accounts receivable remained relatively flat with year end levels. During
the previous year, cash provided by operating activities was lower because
operating assets had increased significantly with sales growth.
Net cash used in investing activities was $938,000 for the current quarter,
versus $2.1 million in the same quarter of the previous year. Expenditures for
equipment during the current quarter were lower than in the previous year.
Management anticipates that capital expenditures during fiscal 1997 will
approximate $10 million as the Company funds its expansion of ready-to-eat
cereal capacity and completes an expansion of its Lakeville, MN office
facilities.
Net cash provided by financing activities did not change significantly, totaling
$96,000 in the current quarter versus $97,000 for the same quarter of last year.
Net working capital increased from $10.8 million at May 31, 1996, to $12.0
million at the end of the current quarter. The Company's current ratio did not
change during the quarter.
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
On June 12, 1996, the Company filed a report on Form 8-K disclosing
the adoption of a Shareholder Rights Agreement between the Company
and Norwest Bank Minnesota, N.A. as Rights Agent.
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: October 15, 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 AUGUST 31, 1996
Exhibit 11 - Computation of Earnings Per Share
Filed herewith.
Exhibit 27 - Financial Data Schedule
Filed herewith.
EXHIBIT 11
GRIST MILL CO.
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE
(Unaudited, in thousands except per share data)
Three Months Ended
------------------
August 31
------------------
1996 1995
------- -------
Primary earnings per share:
Net earnings applicable
to common stock $ 587 $1,208
====== ======
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding 6,767 6,670
Dilutive effect of stock
options 12 256
------ ------
6,779 6,926
====== ======
Primary earnings per share $ .09 $ .17
====== ======
Fully diluted earnings per share:
Earnings for fully diluted
computation $ 587 $1,208
====== ======
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding: 6,767 6,670
Dilutive effect of stock
options 12 272
------ ------
6,779 6,942
====== ======
Fully diluted earnings
per share $ .09 $ .17
====== ======
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