UNITED STATES 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 28, 1997
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 28, 1997, the Company had 6,744,990 shares of common stock
outstanding.
GRIST MILL CO.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28,1997
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
Notes to Consolidated 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)
February 28, May 31,
Assets 1997 1996
------------ --------
(Unaudited)
Current assets:
Cash and cash equivalents .......... $ 1,247 $ 1,654
Short-term investments
Accounts receivable, less allowances 8,288 9,743
Inventories ........................ 11,453 10,293
Prepaids and other ................. 490 393
-------- --------
21,478 22,083
-------- --------
Property and equipment:
Land and building .................. 11,661 11,647
Machinery and equipment ............ 47,569 41,989
-------- --------
59,230 53,636
Less accumulated depreciation ...... (30,595) (26,897)
-------- --------
28,635 26,739
-------- --------
Deferred charges, less accumulated
amortization ....................... 974 1,364
-------- --------
$ 51,087 $ 50,186
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short term borrowings .............. $ 750
Drafts payable ..................... 1,722 $ 2,342
Accounts payable ................... 3,359 4,002
Accrued compensation and commissions 1,315 1,449
Accrued marketing expenses ......... 1,992 1,214
Other accrued expenses ............. 1,504 1,505
Current maturities of long-term debt 98 793
-------- --------
10,740 11,305
-------- --------
Long-term debt ........................... 2,291 2,371
Deferred income taxes .................... 1,193 1,143
Shareholders' equity:
Common stock ....................... 674 676
Additional paid-in capital ......... 9,343 9,466
Retained earnings .................. 26,846 25,225
-------- --------
36,863 35,367
-------- --------
$ 51,087 $ 50,186
======== ========
See notes to financial statements
<TABLE>
<CAPTION>
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
February 28 and 29, February 28 and 29,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 25,418 $ 21,275 $ 80,444 $ 65,845
Cost of products sold .......................... 18,644 15,622 61,560 48,644
-------- -------- -------- --------
Gross profit .......................... 6,774 5,653 18,884 17,201
Selling and delivery expenses .................. 4,754 3,584 12,897 9,650
General, administrative and product
development expenses ........................... 1,084 1,086 3,242 3,377
-------- -------- -------- --------
Operating profit ...................... 936 983 2,745 4,174
Interest expense ............................... 70 103 198 324
Interest income ................................ (6) (20) (28) (105)
-------- -------- -------- --------
Earnings before income taxes .......... 872 900 2,575 3,955
Income tax expense ............................. 323 333 954 1,433
-------- -------- -------- --------
Net earnings .......................... $ 549 $ 567 $ 1,621 $ 2,522
======== ======== ======== ========
Earnings per common and common equivalent share:
Primary and fully diluted ............. $ .08 $ .08 $ .24 $ .36
======== ======== ======== ========
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
February 28 & 29,
---------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from (for) operating activities:
Net earnings $ 1,621 $ 2,522
Non-cash items included in earnings:
Deprecation and amortization 4,126 3,658
Deferred taxes (26) (79)
Changes in operating assets and liabilities:
Accounts receivable 1,455 (749)
Inventories (1,160) (4,882)
Other assets 25 (95)
Drafts payable (620) 1,313
Accounts payable and other accrued expenses 76 (456)
------- -------
Net cash from operating activities 5,497 1,232
------- -------
Cash flows from (for) investing activities:
Proceeds from short term investments, net 3,539
Payments for property and equipment (5,594) (4,838)
Payments for packaging design (160) (632)
------- -------
Net cash for investing activities (5,754) (1,931)
------- -------
Cash flows from (for) financing activities:
Proceeds from short-term borrowings 750
Exercise of stock options 120 308
Payments for long-term debt obligations (775) (908)
Purchase and retirement of common stock (245) _
------- -------
Net cash for financing activities (150) (600)
------- -------
Decrease in cash and cash equivalents (407) (1,299)
Cash and cash equivalents at beginning of period 1,654 3,271
------- -------
Cash and cash equivalents at end of period $ 1,247 $ 1,972
======= =======
</TABLE>
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 third quarter of fiscal 1997 were $25.4 million, or an
increase of 19% over the same quarter of last year. Earnings for the quarter
were $549,000, or $.08 per share compared with $567,000, or $.08 per share for
the third quarter of last year. Net sales for the first nine months of the year
were $80.4 million, or 22% higher than the same period a year ago. Earnings were
$1.6 million, or $.24 per share versus $2.5 million, or $.36 per share.
The increased sales for the year were the result of a 40% increase in the
Company's core grocery sales. The Company's ready-to-eat cereal business has
increased 52% and its wholesome snack bar sales have increased 66% over the
prior year.
The Company's ready-to-eat cereal sales have increased as several customers have
added more of Grist Mill's cereal products to their store brand offerings.
Wholesome snack bar sales increased due to new product offerings, such as the
Company's crisp rice marshmallow bar, which was introduced in February, 1996.
Additionally, the Company began shipping a new line of low fat chewy granola
bars. Fruit snack sales increased 13% over the same period a year ago reflecting
successful promotional programs.
The Company expects that its ready-to-eat cereal sales in its fiscal fourth
quarter will be approximately the same level as the prior year. This reflects a
strong prior year sales period coupled with increased competition in the
ready-to-eat cereal sales category.
Partially offsetting the gains from the core grocery business was an 18% 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 of its decision to self-manufacture the products which were being
produced by Grist Mill. However, they have reversed this decision and in
January, 1997 the Company entered into a revised supply agreement with this
customer which provides in part that Grist Mill continue as the exclusive
supplier for the products it produces for this customer until December 31, 1998.
The customer may only cancel the agreement before such date if it terminates
selling such products. Since the control of these products lies with the
customer, Grist Mill's future sales from contract manufacturing are uncertain.
For the nine months ended February 28, 1997, the Company's gross profit margin
decreased to 23.5% from 26.1% last year. The introduction of new products with
profitability below the Company's other grocery products is the primary reason
for the decline. It is anticipated that profit margins on these products will
gradually improve as operating efficiencies are obtained. Additionally, the
profitability of the Company's contract manufacturing business declined
significantly from the previous year, reflecting lower pricing on contract
products.
Selling and delivery costs were $12.9 million, or 16.0% of net sales for the
first nine months of the year, compared to $9.7 million, or 14.7% of sales last
year. Core grocery products comprised a higher percentage of total sales during
the current year. These products have higher selling and delivery costs, such as
broker commissions, transportation and promotion.
General, administrative and product development costs were $3.2 million, or 4.0%
of net sales in fiscal 1997, compared to $3.4 million, or 5.1% of net sales in
the first nine months of fiscal 1996. The decline is due to lower legal expenses
than in the prior year.
The effective tax rate for the first nine months of the year was 37% compared to
36% for the same period last year. Interest from tax-exempt investments reduced
the effective tax rate in the previous year.
LIQUIDITY AND CAPITAL RESOURCES
Since May 31, 1996 the Company's key liquidity ratios have not changed
significantly. The current ratio has remained constant at 2.0. Working capital
decreased slightly from $10.8 million to $10.7 million. Net cash from operations
was $5.5 million for the first nine months of the year, compared to $1.2 million
for the same period a year ago. Inventory and receivables have remained
relatively constant since the beginning of the year, as contrasted to the
previous fiscal year, when these assets increased by $5.6 million in support of
sales growth.
Net cash used in investing activities was $5.8 million in the current year,
compared to $1.9 million for the same period of last year. Expenditures for
capital equipment during the current year now total $5.6 million, which exceeded
last year's expenditures by $800,000. In the previous year, short-term
investments were available to meet a portion of these cash flow needs. The
Company anticipates spending a total of approximately $9 million in fiscal 1997
for equipment to expand ready-to-eat cereal capacity and the expansion of the
Lakeville, MN office facility.
Net cash used by financing activities was $150,000 during the current fiscal
year, compared to $600,000 in the previous year. The Company had outstanding
borrowings on its line of credit of $750,000 at the end of the current third
quarter.
On December 19, 1996, the Board of Directors of the Company announced
authorization of the repurchase of up to 500,000 shares of its common stock. As
of February 28, 1997, 44,000 shares had been purchased at a total cost of
$244,500.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
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 February 28,
1997.
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 11, 1997 By: /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 28, 1997
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
<TABLE>
<CAPTION>
GRIST MILL CO. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(Unaudited, in thousands except per share data)
Three Months Ended Nine Months Ended
February 28 & 29, February 28 & 29,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Primary earnings per share:
Net earnings applicable to common stock $ 549 $ 567 $1,621 $2,522
====== ====== ====== ======
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 6,745 6,722 6,762 6,696
Dilutive effect of stock options 23 105 24 185
------ ------ ------ ------
6,768 6,827 6,786 6,881
====== ====== ====== ======
Primary earnings per share $ .08 $ .08 $ .24 $ .36
====== ====== ====== ======
Fully diluted earnings per share:
Earnings for fully diluted computation $ 549 $ 567 $1,621 $2,522
====== ====== ====== ======
Average number of common and common
shares outstanding:
Average common shares outstanding 6,745 6,722 6,762 6,696
Dilutive effect of stock options 26 105 25 191
------ ------ ------ ------
6,771 6,827 6,787 6,887
====== ====== ====== ======
Fully diluted earnings per share: $ .08 $ .08 $ .24 $ .36
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 1,247
<SECURITIES> 0
<RECEIVABLES> 8,288
<ALLOWANCES> 0
<INVENTORY> 11,453
<CURRENT-ASSETS> 21,478
<PP&E> 59,230
<DEPRECIATION> 30,595
<TOTAL-ASSETS> 51,087
<CURRENT-LIABILITIES> 10,740
<BONDS> 2,291
0
36,189
<COMMON> 674
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51,087
<SALES> 80,444
<TOTAL-REVENUES> 80,444
<CGS> 61,560
<TOTAL-COSTS> 61,560
<OTHER-EXPENSES> 16,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 2,575
<INCOME-TAX> 954
<INCOME-CONTINUING> 1,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,621
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
