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 November 30, 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 November 30, 1997, the Company had 6,869,772 shares of common
stock outstanding.
<PAGE>
GRIST MILL CO.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
November 30, May 31,
Assets 1997 1997
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents .......... $ 7,944 $ 2,631
Accounts receivable, less allowances 7,653 9,772
Inventories ........................ 10,695 11,646
Prepaids and other ................. 573 520
-------- --------
26,865 24,569
-------- --------
Property and equipment:
Land and building .................. 13,265 13,265
Machinery and equipment ............ 52,066 48,879
-------- --------
65,331 62,144
Less accumulated depreciation ...... (34,082) (31,612)
-------- --------
31,249 30,532
-------- --------
Deferred charges, less accumulated
amortization ....................... 715 853
-------- --------
$ 58,829 $ 55,954
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Drafts payable ..................... $ 1,523 $ 1,785
Accounts payable ................... 2,925 4,379
Accrued compensation and commissions 1,406 1,551
Accrued marketing expenses ......... 2,245 1,894
Other accrued expenses ............. 1,839 1,564
Current maturities of long-term debt 207 200
-------- --------
10,145 11,373
-------- --------
Long-term debt ........................... 5,571 5,700
Deferred income taxes .................... 1,409 1,391
Shareholders' equity:
Common stock ....................... 687 665
Additional paid-in capital ......... 10,216 8,767
Retained earnings .................. 30,801 28,058
-------- --------
41,704 37,490
-------- --------
$ 58,829 $ 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 Six Months Ended
November 30, November 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 25,896 $ 27,634 $ 54,716 $ 55,026
Cost of products sold .......................... 18,438 21,570 39,478 42,916
-------- -------- -------- --------
Gross profit .......................... 7,458 6,064 15,238 12,110
Selling and delivery expenses .................. 4,010 4,161 8,549 8,143
General, administrative and product
development expenses ........................... 1,121 1,097 2,249 2,158
-------- -------- -------- --------
Operating profit ...................... 2,327 806 4,440 1,809
Interest expense ............................... 120 57 232 128
Interest income ................................ (50) (22) (111) (22)
-------- -------- -------- --------
Earnings before income taxes .......... 2,257 771 4,319 1,703
Income tax expense ............................. 843 286 1,614 631
-------- -------- -------- --------
Net earnings .......................... $ 1,414 $ 485 $ 2,705 $ 1,072
======== ======== ======== ========
Earnings per common and common equivalent share:
Primary and fully diluted ............. $ .20 $ .07 $ .39 $ .16
======== ======== ======== ========
</TABLE>
See notes to financial statements
<PAGE>
GRIST MILL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
November 30,
1997 1996
------- -------
Cash flows from (for) operating activities:
Net earnings $ 2,705 $ 1,072
Non-cash items included in earnings:
Depreciation 2,470 2,470
Amortization 299 275
Deferred taxes 18 50
Changes in operating assets and liabilities:
Accounts receivable 2,119 1,097
Inventories 951 (1,022)
Other assets (53) (278)
Drafts payable (263) (1,220)
Accounts payable and other accrued expenses (1,042) (203)
------- -------
Net cash from operating activities 7,204 2,241
------- -------
Cash flows from (for) investing activities:
Payments for property and equipment (3,112) (3,745)
------- -------
Net cash for investing activities (3,112) (3,745)
Cash flows from (for) financing activities:
Proceeds from short-term borrowings 500
Proceeds from exercise of stock options 1,342 120
Payments for long-term debt obligations (121) (749)
------- -------
Net cash for financing activities 1,221 (129)
------- -------
Increase (Decrease) in cash and cash equivalents 5,313 (1,633)
Cash and cash equivalents at beginning of period 2,631 1,654
------- -------
Cash and cash equivalents at end of period $ 7,944 $ 21
======= =======
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 second quarter of fiscal 1998 were $25.9 million versus $27.6
million in the prior year. Earnings for the quarter were $1.4 million or $.20
per share compared with $485,000, or $.07 per share for the second quarter of
last year. Net sales for the first six months of the year were $54.7 million,
compared to $55.0 million a year ago. Earnings were $2.7 million for the first
six months, or $.39 per share versus $1.1 million, or $.16 per share for the
prior year.
Year to date, the decline in sales from the previous year was the result of a
$3.8 million decline in contract sales, nearly offset by higher core grocery
business sales. The Company's core grocery business grew 8% or $3.5 million over
the first six 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 $4.0 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 19% for the first six months of fiscal 1998 compared
to prior year. Crisp rice marshmallow bar sales increased 57% 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 grew 6%. Fruit snacks sales declined 6% from
the prior year as a result of lower sales of the Company's branded fruit snack
items.
For the six months ended November 30,1997, the Company's gross profit margin
increased to 27.8% from 22% 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 $8.5 million, or 15.6% of net sales for the
first six months of the year, compared to $8.1 million, or 14.8% for the first
half of last year. Core grocery products comprised a higher percentage of total
sales during the current year. These products have higher selling and delivery
costs associated with them, such as broker commissions, transportation and
promotion.
General, administrative and product development costs were $2.2 million, or 4.1%
of net sales in fiscal 1998, compared to $2.2 million, or 3.9% of net sales in
the first six months of fiscal 1997. Expenses have remained unchanged from prior
year.
The effective tax rate for the first six months of the year was 37.4% compared
to 37.1% for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased from $13.2 million at May 31, 1997, to $16.9
million at November 30,1997. Cash increased $5.3 million as a result of
increased earnings combined with lower inventories and receivables. The
Company's current ratio increased to 2.7 from 2.2.
<PAGE>
Primarily due to the items mentioned above, net cash from operations was $7.2
million for the first six months of the year, compared to $2.2 million for the
same period a year ago.
Net cash used in investing activities was $3.1 million in the current year,
compared to $3.7 million for the same period of last year. Expenditures for
capital equipment during the current year was $600,000 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 $1.2 million compared to
$129,000 for the first half of last year. The increase was attributable to cash
received from the exercise of stock options.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
Exhibit 4 - $4,000,000 Revolving credit agreement dated November 28, 1997.
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 November 30,
1997.
<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: January 12, 1998 By: /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 NOVEMBER 30, 1997
Exhibit 4 $4,000,000 Revolving credit agreement dated November 28,1997.
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
EXHIBIT 4
November 28, 1997
Daniel J. Kinsella
Chief Financial Officer
Grist Mill Co.
21340 Hayes Avenue
P.O. Box 430
Lakeville, MN 55044-0430
Dear Dan:
I am pleased to inform you Norwest Bank Minnesota, National Association (the
"Bank") has approved for Grist Mill Co. (the "Company") a $4,000,000.00
conditional revolving credit facility on the following terms and conditions.
Amount: $4,000,000.00
Expiration: October 31, 1998
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 any time 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: According to GAAP, the Borrower is required to
maintain: 1) a minimum Current Ratio of 1.5 to 1
measured by Current Assets divided by Current
Liabilities; and 2) a maximum Total Liabilities to
Tangible Net Worth ratio of 1.25 to 1.
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.
<PAGE>
Daniel J. Kinsella
November 28, 1997
Page 2
(b) Within forty-five (45) days following each
quarter end, the Company will provide the
Bank a copy of its interim statement.
(c) Any additional information it may, from time
to time, reasonably request.
(d) Merger and Consolidation. The company is
prohibited from merging or consolidating
with any corporation unless all of the
following are met: 1) the surviving entity
is a solvent corporation under the laws of
any State of the United States of America;
2) such corporation expressly assumes in
writing all obligations and liabilities
under this Agreement and Promissory Note,
including all covenants; and, 3) immediately
following such merger or combination, no
event of default exists.
(e) Nature of Business. Refrain from engaging in
any line of business materially different
from that presently engaged in by the
Borrower.
(f) Compliance with Laws. Comply in all material
respects with all laws applicable to its
business and the ownership of its property.
(g) Books and Records. Maintain adequate books
and records and refrain from making any
material changes in its accounting
procedures whether for tax purposes or
otherwise.
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 Co. Please
sign and return this letter to my attention to signify your agreement with its
terms.
Sincerely,
/s/ Laura S. Oberst
Laura S. Oberst
Vice President
Accepted by /s/ Daniel J. Kinsella this 5th day of December, 1997.
Authorized Signer
Vice President/Chief Financial Officer
Grist Mill Co.
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
---------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
Primary earnings per share:
Net earnings applicable to common stock $1,414 $ 485 $2,705 $1,072
====== ====== ====== ======
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 6,796 6,789 6,755 6,778
Dilutive effect of stock options 143 28 109 25
------ ------ ------ ------
6,939 6,817 6,864 6,803
====== ====== ====== ======
Primary earnings per share $ .20 $ .07 $ .39 $ .16
====== ====== ====== ======
Fully diluted earnings per share:
Earnings for fully diluted computation $1,414 $ 485 $2,705 $1,072
====== ====== ====== ======
Average number of common and common
shares outstanding:
Average common shares outstanding 6,796 6,789 6,755 6,778
Dilutive effect of stock options 156 28 115 25
------ ------ ------ ------
6,952 6,817 6,870 6,803
====== ====== ====== ======
Fully diluted earnings per share: $ .20 $ .07 $ .39 $ .16
====== ====== ====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 7,944
<SECURITIES> 0
<RECEIVABLES> 7,653
<ALLOWANCES> 0
<INVENTORY> 10,695
<CURRENT-ASSETS> 26,865
<PP&E> 65,331
<DEPRECIATION> 34,082
<TOTAL-ASSETS> 58,829
<CURRENT-LIABILITIES> 10,145
<BONDS> 0
<COMMON> 687
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 58,829
<SALES> 25,896
<TOTAL-REVENUES> 25,896
<CGS> 18,438
<TOTAL-COSTS> 18,438
<OTHER-EXPENSES> 5,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 2,257
<INCOME-TAX> 843
<INCOME-CONTINUING> 1,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,414
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
