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, 1998
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, 1998, the Company had 6,856,492 shares of common
stock outstanding.
<PAGE>
GRIST MILL CO.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28, 1998
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
<PAGE>
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 1998 1997
-------- --------
(Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents .......... $ 8,365 $ 2,631
Accounts receivable, less allowances 10,331 9,772
Inventories ........................ 9,725 11,646
Prepaids and other ................. 525 520
-------- --------
28,946 24,569
-------- --------
Property and equipment:
Land and building .................. 13,265 13,265
Machinery and equipment ............ 53,082 48,879
-------- --------
66,347 62,144
Less accumulated depreciation ...... (35,355) (31,612)
-------- --------
30,992 30,532
-------- --------
Deferred charges, less accumulated
amortization ....................... 663 853
-------- --------
$ 60,601 $ 55,954
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Drafts payable ..................... $ 1,300 $ 1,785
Accounts payable ................... 3,578 4,379
Accrued compensation and commissions 1,905 1,551
Accrued marketing expenses ......... 2,086 1,894
Other accrued expenses ............. 1,712 1,564
Current maturities of long-term debt 191 200
-------- --------
10,772 11,373
-------- --------
Long-term debt ........................... 5,560 5,700
Deferred income taxes .................... 1,418 1,391
Shareholders' equity:
Common stock ....................... 686 665
Additional paid-in capital ......... 10,093 8,767
Retained earnings .................. 32,072 28,058
-------- --------
42,851 37,490
-------- --------
$ 60,601 $ 55,954
======== ========
See notes to financial statements
<PAGE>
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ........................... $ 25,195 $ 25,418 $ 79,911 $ 80,444
Cost of products sold ............... 17,681 18,644 57,159 61,560
-------- -------- -------- --------
Gross profit ............... 7,514 6,774 22,752 18,884
Selling and delivery expenses ....... 4,172 4,754 12,721 12,897
General, administrative and product
development expenses ................ 1,201 1,084 3,450 3,242
-------- -------- -------- --------
Operating profit ........... 2,141 936 6,581 2,745
Interest expense .................... 153 70 385 198
Interest income ..................... (101) (6) (211) (28)
-------- -------- -------- --------
Earnings before income taxes 2,089 872 6,407 2,575
Income tax expense .................. 779 323 2,393 954
-------- -------- -------- --------
Net earnings ............... $ 1,310 $ 549 $ 4,014 $ 1,621
======== ======== ======== ========
Earnings per share:
Basic ...................... $ .19 $ .08 $ .59 $ .24
Diluted .................... $ .19 $ .08 $ .58 $ .24
</TABLE>
<PAGE>
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
February 28,
------------------
1998 1997
------- -------
Cash flows from (for) operating activities:
Net earnings $ 4,014 $ 1,621
Non-cash items included in earnings:
Depreciation 3,743 3,698
Amortization 359 428
Deferred taxes 27 (26)
Changes in operating assets and liabilities:
Accounts receivable (559) 1,455
Inventories 1,921 (1,160)
Other assets (142) 25
Drafts payable (485) (780)
Accounts payable and other accrued expenses (107) 76
------- -------
Net cash from operating activities 8,771 5,337
------- -------
Cash flows used in investing activities:
Payments for property and equipment (4,105) (5,594)
------- -------
Net cash for investing activities (4,105) (5,594)
------- -------
Cash flows from (for) financing activities:
Proceeds from:
Short-term borrowings 750
Exercise of stock options, net 1,456 120
Payments for:
Long-term debt obligations (149) (775)
Purchase and retirement of common stock (239) (245)
------- -------
Net cash from (for) financing activities 1,068 (150)
------- -------
Increase (Decrease) in cash and cash equivalents 5,734 (407)
Cash and cash equivalents at beginning of period 2,631 1,654
------- -------
Cash and cash equivalents at end of period $ 8,365 $ 1,247
======= =======
See notes to financial statements
<PAGE>
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, 1997. 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.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Net sales for the third quarter of fiscal 1998 were $25.2 million versus $25.4
million in the prior year. Earnings for the quarter were $1.3 million or $.19
per share compared with $549,000, or $.08 per share for the third quarter of
last year. Net sales for the first nine months of the year were $79.9 million,
compared to $80.4 million a year ago. Earnings were $4.0 million for the first
nine months, or $.58 diluted earnings per share versus $1.6 million, or $.24 per
share for the prior year.
Year to date, the decline in sales from the previous year was the result of a
$5.9 million decline in contract sales, nearly offset by higher core grocery
business sales. The Company's core grocery business grew 8% or $5.4 million over
the first nine months of fiscal 1998 compared to the prior year.
As expected, contract manufacturing business declined significantly during the
quarter. Contract sales during the quarter were $2.0 million below year ago
levels. The decline represents lower sales demand from the Company's largest
contract customer. The Company expects the contract manufacturing business to
decline further below year ago levels during the remainder of fiscal 1998.
The growth of the Company's core grocery business was lead by wholesome snack
bar sales which increased 22% for the first nine months of fiscal 1998 compared
to prior year. Crisp rice marshmallow bar sales increased 38% as a result of
increased account acceptance. The Company recently announced the introduction of
a chocolate chip crisp rice marshmallow bar, which should begin shipping in late
fiscal 1998. Ready-to-eat cereal and fruit snack sales both declined 2% from the
prior year.
For the nine months ended February 28,1998, the Company's gross profit margin
increased to 28.5% from 23.5% last year. The significant improvement from last
year was the result of both a shift in product mix, and improved manufacturing
productivity. During fiscal 1998, sales have shifted from contract sales to
higher margin core grocery business products. Improved manufacturing
efficiencies primarily in the Company's snack bar products added to the increase
in margin from last year.
Selling and delivery costs were $12.7 million, or 15.9% of net sales for the
first nine months of the year, compared to $12.9 million, or 16.0% for the prior
year. Promotional expenses were lower in the first nine months of fiscal 1998
compared to the prior year.
General, administrative and product development costs were $3.4 million, or 4.3%
of net sales in fiscal 1998, compared to $3.2 million, or 4.0% of net sales in
the first nine months of fiscal 1997. Expenses have increased primarily due to
expense for information systems.
The effective tax rate for the first nine months of the year was 37.3% compared
to 37.0% for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased from $13.2 million at May 31, 1997, to $18.0
million at February 28, 1998. Cash increased $5.7 million as a result of
increased earnings combined with lower inventories. The Company's current ratio
increased to 2.7 from 2.2.
Primarily due to the items mentioned above, net cash from operations was $8.8
million for the first nine months of the year, compared to $5.3 million for the
same period a year ago.
<PAGE>
Net cash used in investing activities was $4.1 million in the current year,
compared to $5.6 million for the same period of last year. Expenditures for
capital equipment during the current year was $1.3 million lower than for the
same period last year reflecting decreased purchases of equipment for
ready-to-eat cereal production.
Net cash provided by financing activities increased to $1.1 million compared to
net cash used for financing of $150,000 for the first nine months of last year.
The increase was attributable to cash received from the exercise of stock
options.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by Item 1 regarding legal proceedings of the Company is
contained in Item 8 - "Litigation" of the Schedule 14D-9 filed by the Company
with the Securities and Exchange Commission (the "SEC") on March 18, 1998 and
Item 8 - "Settlement of Litigation" of the Amendment No. 1 to Schedule 14D-9 of
the Company filed with the SEC on April 2, 1998. Item 8 - "Litigation" of the
Schedule 14D-9 and Item 8 - "Settlement of Litigation" of the Amendment No. 1 to
Schedule 14D-9 are incorporated herein by reference and are attached as Exhibit
99 to this Report.
Exhibit 99 Item 8 - `Litigation" of Schedule 14D-9 of the Company filed
with the SEC on March 18, 1998 and Item 8 "Settlement of
Litigation" of Amendment No. 1 to Schedule 14D-9 of the Company
filed with the SEC on April 2, 1998
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
On March 18, 1998 the Company filed a report of Form 8-K, reporting under Item
5, disclosing that the Company entered into an Agreement and Plan of Merger with
IHF/GM Acquisition Corporation, IHF/GM Holding Corporation and International
Home Foods, Inc.
<PAGE>
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 13, 1998 By: /s/ Daniel J. Kinsella
----------------------------
Daniel J. Kinsella
Vice President and
Chief Financial Officer
<PAGE>
GRIST MILL CO.
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED FEBRUARY 28, 1998
Exhibit 11 Computation of Earnings Per Share
Exhibit 27.1-27.3 Financial Data Schedules
Exhibit 99 Item 8. Schedule 14D-9 Litigation
Item 8. Schedule 14D-9 Settlement of Litigation
GRIST MILL CO. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(Unaudited, in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28 February 28
--------------- ---------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net earnings applicable to common stock $1,310 $ 549 $4,014 $1,621
====== ====== ====== ======
Average number of common and common
equivalent shares outstanding: 6,859 6,760 6,790 6,772
====== ====== ====== ======
Basic earnings per share $ .19 $ .08 $ .59 $ .24
====== ====== ====== ======
Diluted earnings per share:
Earnings for diluted computation $1,310 $ 549 $4,014 $1,621
====== ====== ====== ======
Average number of common and common shares outstanding:
Average common shares outstanding 6,859 6,760 6,790 6,772
Dilutive effect of stock options 144 12 124 14
------ ------ ------ ------
7,003 6,772 6,914 6,786
====== ====== ====== ======
Fully diluted earnings per share: $ .19 $ .08 $ .58 $ .24
====== ====== ====== ======
</TABLE>
GRIST MILL CO. AND SUBSIDIARY
EXHIBIT 99 - ITEM 8. SCHEDULE 14D-9
LITIGATION. On March 12, 1998, a complaint alleging a class action on
behalf of persons who own Common Stock was filed in the Delaware Court of
Chancery by attorneys for The Great Neck Capital Appreciation Investment
Partnership, L.P. ("Plaintiff"), against the individuals serving as directors of
the Company, the Company and IHF (the "Defendants"). In substance, the complaint
alleges that the Defendants possess material non-public information regarding
the fair value of the Company and that the Company's Directors breached their
fiduciary duties to the public stockholders of the Company by, among other
things, failing to take adequate steps to determine the fair value of the
Company, failing to investigate other potential transactions and failing to take
adequate steps to maximize stockholder value. The relief sought by the Plaintiff
includes an injunction against the acquisition of Shares by Purchaser; an
injunction requiring that certain steps be taken to evaluate the value of the
Company; an accounting for damages; and an award of costs of suit and attorneys'
and experts' fees in unspecified amounts.
<PAGE>
GRIST MILL CO. AND SUBSIDIARY
EXHIBIT 99 - ITEM 8. SCHEDULE 14D-9
Item 8. Amendment No. 1 to Schedule 14D-9
SETTLEMENT OF LITIGATION. On March 12, 1998, a complaint alleging a
class action on behalf of persons who own Common Stock was filed in the Delaware
Court of Chancery by attorneys for The Great Neck Capital Appreciation
Investment Partnership, L.P. ( "Plaintiff"), against the individuals serving as
directors of the Company, the Company and IHF (the "Initial Defendants"). In
substance, the complaint alleges that the Initial Defendants possess material
non-public information regarding the fair value of the Company and that the
Company's directors breached their fiduciary duties to the public stockholders
of the Company by, among other things, failing to take adequate steps to
maximize stockholder value. The relief sought by the Plaintiff includes an
injunction against the acquisition of Shares by Purchaser, an injunction
requiring that certain steps be taken to evaluate the value of the Company, an
accounting for damages, and an award of costs of suit and attorneys' and
experts' fees in unspecified amounts.
On March 20, 1998, Plaintiff filed an amended complaint with the Court
(the "Amended Complaint") and added Purchaser as a defendant (together with the
Initial Defendants, the "Defendants"). The Amended Complaint repeats the claim
that the Company's directors breached their fiduciary duties in connection with
their recommendation of the transaction and alleges new claims which include,
among others, the lack of certain disclosures in the Schedule 14D-9. The Amended
Compalint seeks as relief, among other things, an order enjoining consummation
of the proposed transaction and requiring the Company to make additional
disclosures to the Company's stockholders concerning the proposed transaction.
The Company and the Company's directors believe the allegations in the
Amended Complaint are without merit. However, they also believe that this
litigation could delay and cause uncertainty with respect to the acquisition of
Shares in connection with the Offer and consummation of the Merger and that such
delay and uncertainty are not in the best interests of the Company and the
Company's stockholders. Accordingly, representatives of the Defendants entered
into discussions with counsel for Plaintiff concerning a potential settlement of
the action.
The Defendants entered into an agreement in principle of March 31, 1998
with Plaintiff to settle the action. Pursuant to the agreement in principle, the
Company has agreed to make the disclosures in this Amendment No. 1 to Schedule
14D-9 regarding certain financial information, the ABN AMRO Opinion, previous
interest in the acquisition of the Company and the amendment to the Company's
bylaws required by the Merger Agreement. In connection with the agreement in
principle, Plaintiff agreed that it will refrain from further proceedings and
withdraw its motion for a preliminary injunction pending approval of a final
settlement agreement by the Court. Finally, pursuant to the agreement in
principle, the defendants agreed not to oppose an application by plaintiff's
counsel for an award of counsel fees and expenses not to exceed $200,000 in the
aggregate. If the fee application is approved, such amount will be payable by
the Company.
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