<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 16, 2000
----------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ --------------
Commission File Number 0-12800
---------------
CUISINE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-0948383
-------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
85 S BRAGG STREET, SUITE 600, ALEXANDRIA, VA 22312
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (703) 750-9600
--------------
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 24, 2000.
<TABLE>
<CAPTION>
COMMON STOCK 0.01 PAR VALUE NUMBER OF SHARES
--------------------------- ----------------
<S> <C>
CLASS A 14,755,838
CLASS B NONE
</TABLE>
1
<PAGE> 2
CUISINE SOLUTIONS, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments necessary
for the fair presentation of the Company's results of operations, financial
position and changes therein for the periods presented have been included.
2
<PAGE> 3
CUISINE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------
Sep. 16, June 24,
2000 2000
------------------- ------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ - $ 948,000
Accounts receivable, trade 5,227,000 5,861,000
Inventory 6,284,000 5,183,000
Prepaid expenses and other assets 846,000 59,000
Current portion of notes receivable, related party 12,000 236,000
Other current assets 681,000 640,000
------------------- ------------------
TOTAL CURRENT ASSETS 13,050,000 12,927,000
Investments, noncurrent 4,333,000 4,715,000
Fixed assets, net 5,299,000 5,362,000
Note receivable, officer and related party, including accrued interest, less current
portion 463,000 463,000
Other assets 889,000 890,000
------------------- ------------------
TOTAL ASSETS $ 24,034,000 $ 24,357,000
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Cash Overdraft $ 184,000 $ -
Current portion of long-term debt 1,377,000 1,313,000
Accounts payable and accrued expenses 3,189,000 3,385,000
Accrued payroll and related liabilities 909,000 1,100,000
Other accrued taxes 3,000 9,000
------------------- ------------------
Total current liabilities 5,662,000 5,807,000
Long-term debt, less current portion 1,359,000 1,136,000
Other liabilities 19,000 22,000
------------------- ------------------
Total liabilities 7,040,000 6,965,000
------------------- ------------------
Stockholders' equity
Common stock - $.01 par value, 20,000,000 shares authorized, 15,578,620 shares
issued and 14,755,838
outstanding at September 16, 2000 and June 24, 2000 respectively. 156,000 156,000
Class B Stock - $.01 par value, 175,000 shares authorized,
none issued - -
Additional paid-in capital 28,276,000 28,276,000
Accumulated deficit (8,677,000) (8,506,000)
Accumulated Other Comprehensive Income
Unrealized losses on debt and equity investments (307,000) (453,000)
Cumulative translation adjustment (407,000) (34,000)
Treasury stock, at cost (822,782
at Sep 16, 2000 and June 24, 2000 respectively) (2,047,000) (2,047,000)
------------------- ------------------
Total stockholders' equity 16,994,000 17,392,000
------------------- ------------------
Commitments and contingencies
------------------- ------------------
Total liabilities and stockholders' equity $ 24,034,000 $ 24,357,000
=================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 4
CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------
FIRST QUARTER
------------------------------------------
TWELVE WEEKS ENDED
------------------------------------------
Sep 16, Sep 18,
2000 1999
------------------ ------------------
<S> <C> <C>
NET SALES $8,343,000 $7,730,000
COST OF GOODS SOLD 6,363,000 5,721,000
------------------------------------------
GROSS MARGIN 1,980,000 2,009,000
SELLING AND ADMINISTRATION 2,046,000 1,984,000
DEPRECIATION AND AMORTIZATION 95,000 109,000
------------------------------------------
LOSS FROM OPERATIONS (161,000) (84,000)
------------------------------------------
NONOPERATING INCOME (EXPENSE)
INVESTMENT INCOME 62,000 142,000
INTEREST EXPENSE (40,000) (47,000)
OTHER INCOME (32,000) (10,000)
------------------------------------------
TOTAL NONOPERATING (EXPENSE) INCOME (10,000) 85,000
------------------------------------------
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAX (171,000) 1,000
PROVISION FOR INCOME TAX BENEFIT (EXPENSE) - -
------------------------------------------
------------------------------------------
NET (LOSS) INCOME (171,000) 1,000
==========================================
BASIC AND DILUTED NET (LOSS) INCOME PER SHARE ($0.01) $0.00
WEIGHTED AVERAGE SHARES OUTSTANDING 14,762,761 15,125,430
==========================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 5
CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Additional Earnings Cumulative
Common Paid-In (Accumulated Translation
Stock Capital Deficit) Adjustment
------------------ ----------------- ------------------- ---------------
------------------ ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, JUNE 24, 2000 $ 156,000 $ 28,276,000 $ (8,506,000) $ (34,000)
================== ================= =================== ===============
FIRST QUARTER 2000 NET LOSS (171,000)
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS ON DEBT AND
EQUITY INVESTMENTS
TRANSLATION ADJUSTMENT - (373,000)
OTHER COMPREHENSIVE INCOME/(LOSS)
COMPREHENSIVE INCOME/(LOSS)
TREASURY SHARES PURCHASES
------------------ ----------------- ------------------- ---------------
BALANCE, SEPTEMBER 16, 2000 $ 156,000 $ 28,276,000 $ (8,677,000) $ (407,000)
================== ================= =================== ===============
<CAPTION>
Note Receivable
Unrealized Gains From Majority
(Losses) on Debt Shareholder, Total
and Equity Treasury Including Stockholders'
Investments Stock Accrued Interest Equity
-------------------- ----------------- ------------------ -----------------
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
BALANCE, JUNE 24, 2000 $ (453,000) $ (2,047,000) $ - $ 17,392,000
================== ================= ================== =================
FIRST QUARTER 2000 NET LOSS (171,000)
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS ON DEBT AND - -
EQUITY INVESTMENTS 146,000 146,000
TRANSLATION ADJUSTMENT (373,000)
OTHER COMPREHENSIVE INCOME/(LOSS) (227,000)
-----------------
COMPREHENSIVE INCOME/(LOSS) (398,000)
-
TREASURY SHARES PURCHASES -
------------------ ----------------- ------------------ -----------------
BALANCE, SEPTEMBER 16, 2000 $ (307,000) $ (2,047,000) $ - $ 16,994,000
================== ================= ================== =================
</TABLE>
F-6
<PAGE> 6
CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Additional Earnings Cumulative
Common Paid-In (Accumulated Translation
Stock Capital Deficit) Adjustment
------------------ ----------------- ------------------- ---------------
------------------ ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, JUNE 26,1999 $ 156,000 $ 28,276,000 $ (6,526,000) $ (34,000)
================== ================= =================== ===============
FIRST QUARTER 1999 NET LOSS 1,000
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS ON DEBT AND
EQUITY INVESTMENTS
TRANSLATION ADJUSTMENT - 24,000
OTHER COMPREHENSIVE INCOME/(LOSS)
COMPREHENSIVE INCOME/(LOSS)
TREASURY SHARES PURCHASES
------------------ ----------------- ------------------- ---------------
BALANCE, SEPTEMBER 18, 1999 $ 156,000 $ 28,276,000 $ (6,525,000) $ (10,000)
================== ================= =================== ===============
<CAPTION>
Note Receivable
Unrealized Gains From Majority
(Losses) on Debt Shareholder, Total
and Equity Treasury Including Stockholders'
Investments Stock Accrued Interest Equity
-------------------- ----------------- ------------------ -----------------
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
BALANCE, JUNE 26,1999 $ (513,000) $ (2,017,000) $ - $ 19,342,000
================== ================= ================== =================
FIRST QUARTER 1999 NET LOSS 1,000
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS ON DEBT AND - -
EQUITY INVESTMENTS 33,000 33,000
TRANSLATION ADJUSTMENT 24,000
OTHER COMPREHENSIVE INCOME/(LOSS) 57,000
-----------------
COMPREHENSIVE INCOME/(LOSS) 58,000
-
TREASURY SHARES PURCHASES (30,000) (30,000)
------------------ ----------------- ------------------ -----------------
BALANCE, SEPTEMBER 18, 1999 $ (480,000) $ (2,047,000) $ - $ 19,370,000
================== ================= ================== =================
</TABLE>
F-6 (2)
<PAGE> 7
CUISINE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------
Year to date
Twelve weeks ended
Sep. 16, Sep 18,
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income $ (171,000) $ 1,000
Adjustments to reconcile net loss to
net cash (used in ) provided by operating activities
Depreciation and amortization 293,000 255,000
Loss on sale of investments 37,000 -
Change in cumulative translation adjustment (373,000) 24,000
Changes in assets and liabilities, net of
effects of discontinued operations and non-cash transactions:
Decrease (Increase) in accounts receivable trade, net 634,000 (479,000)
Increase in inventory (1,101,000) (930,000)
Increase in prepaid expenses and other assets (787,000) (30,000)
Decrease in notes receivable, related party 224,000 -
Increase in other assets (40,000) (456,000)
Increase (Decrease) in accounts payable and accrued expenses (196,000) 174,000
Decrease in accrued payroll and related liabilities (191,000) (13,000)
(Decrease) Increase in other liabilities (3,000) 18,000
Decrease in other accrued taxes (6,000) (32,000)
---------------- ----------------
Net cash used in operating activities (1,680,000) (1,468,000)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments 491,000 481,000
Capital expenditures (230,000) (163,000)
Purchase of Treasury Stock - (30,000)
---------------- ----------------
Net cash provided by investing activities 261,000 288,000
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to debt 287,000 134,000
Reductions of debt - (584,000)
---------------- ----------------
Net cash used in financing activities 287,000 (450,000)
---------------- ----------------
Net decrease (1,132,000) (1,630,000)
Cash and cash equivalents, beginning of period 948,000 1,866,000
---------------- ----------------
CASH AND CASH EQUIVALENTS,(OVERDRAFT) END OF PERIOD $ (184,000) $ 236,000
================ ================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 8
Cuisine Solutions, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments necessary
for the fair presentation of the Company's results of operations, financial
position and changes therein for the periods presented have been included.
2) Fiscal Periods
The Company utilizes a 52/53 week fiscal year which ends on the last
Saturday in June. The first, second and fourth quarters, of fiscal years 2001
and 2000 contain 12 weeks, and the third quarter contains 16 weeks. Cuisine
Solutions France, acquired by Cuisine Solutions during fiscal year 2000, used
twelve-month calendar accounting periods during fiscal year 1999 and changed to
Cuisine Solutions accounting periods effective with period 8 of fiscal year
2000. Cuisine Solutions consolidated statements for fiscal year 2001 included
three four week periods of activity for the first quarter for each of the
subsidiaries, while fiscal year 2000 included three months, July-September, of
activity for Cuisine Solutions France and three four week periods for the other
subsidiaries.
3) Inventory
Inventories are valued at the lower of cost, determined by the first-in,
first-out method (FIFO), or market. Included in inventory costs are raw
materials, labor and manufacturing overhead.
Inventory consists of:
<TABLE>
<CAPTION>
Sept 16, Jun. 24,
2000 2000
------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 1,179,000 $ 1,424,000
Frozen product & other finished goods 5,086,000 3,575,000
Packing materials & supplies 288,000 372,000
---------------------------
6,553,000 5,439,000
Less obsolescence reserve (269,000) (188,000)
---------------------------
$ 6,284,000 $ 5,183,000
===========================
</TABLE>
4) Dividends - None.
5) Commitments and Contingencies
The Company is engaged in ordinary and routine litigation incidental to
its business. Management does not anticipate that any amounts that it may be
required to pay by reason thereof will have a material effect on the Company's
financial position or results of operations.
3
<PAGE> 9
6) Transaction with Related Party
Effective December 16, 1999, in connection with the acquisition of
Nouvelle Carte, a manufacturer of prepared food products located in Louviers,
France, the Company issued 1,500,000 unregistered shares of the Company's Common
Stock to Food Research Corporation, the majority shareholder of the Company. The
shares were issued in exchange for all the issued and outstanding equity
interest in NOUVELLE CARTE FRANCE pursuant to agreements dated as of October 29,
1999. Pursuant to the Agreement, the Company also agreed to issue additional
Common Stock in an amount to be determined based upon Nouvelle Carte's operating
performance for the two years ending June 30, 2001. The additional consideration
to be paid will be determined as follows: if Nouvelle Carte's operating income
is less than FFr 1,500,000 for the year ended June 30, 2000, no additional
shares will be issued in respect of such year; if operating income is more than
FFr 1,500,000, but less than FFr 2,000,000 for such year, 375,000 shares of
Common Stock will be issued; if operating income exceeds FFr 2,000,000 for such
year, 500,000 shares of Common Stock will be issued; if Nouvelle Carte's
operating income is less than FFr 2,000,000 for the year ended June 30, 2001, no
additional shares will be issued in respect of such year; if operating income is
more than FFr 2,000,000, but less than FFr 2,500,000 for such year, 375,000
shares of Common Stock will be issued; and if operating income exceeds FFr
2,500,000 for such year, 500,000 shares of Common Stock will be issued.
Accordingly, an aggregate additional 1,000,000 shares of Common Stock are
issuable if the maximum performance targets are achieved for both years. The
purchase price was negotiated between a committee of independent directors of
the Company who are not affiliated with the Company's majority stockholder, and
such majority stockholder, and was intended to approximate the book value of the
net assets acquired.
The Board of Directors of the Company approved extending the earn-out
target to a combined two-year objective rather than a year by year objective.
The subsidiary DID NOT REACH THE EARN-OUT OBJECTIVE FOR FISCAL YEAR 2000 due to
increased product costs for salmon items. The Board agreed that since Cuisine
Solutions mandated that the French subsidiary use product exclusively from the
Norwegian subsidiary, it affected the operating costs of the French subsidiary.
Therefore, the consolidated target will remain the same but for a consolidated
two-year period.
7) Restatements
During fiscal year 2000, the Company acquired the French sous vide
manufacturer Nouvelle Carte France. Nouvelle Carte was owned by the majority
shareholder, Food Research Corporation, and therefore, the acquisition was
accounted for in a manner similar to the pooling of interest method. All
financial statements have been restated to include the operating results of
Nouvelle Carte France according to the rules for pooling of interest.
8) Statement Re Computation of Per Share Earnings
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("Statement 128").
Statement 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share exclude any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share are
very similar to the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods have been presented and, where
necessary, restated to conform to the Statement 128 requirements and SEC Staff
Accounting Bulletin No. 98.
The calculation of adjusted weighted-average shares outstanding for
purposes of computing diluted earnings per share includes the effect of all
outstanding stock options for the three periods ended September 16, 2000 and
September 18, 1999. The calculation uses the treasury stock method in
determining the resulting incremental average equivalent shares outstanding when
they are dilutive. The Company's common equivalent shares consists of stock
options. The weighted average number of shares outstanding related to stock
options for fiscal 2000 were 1,520,000. These options were not included in the
calculation because they are anti-diluted.
4
<PAGE> 10
The following table sets forth the computation of basic and diluted
earnings (loss) per common share:
<TABLE>
<CAPTION>
Three Periods Ended September 16, 2000 and September 18, 1999:
SEP.16, SEP 18,
BASIC EARNINGS PER SHARE COMPUTATION: 2000 1999
-------------------------------------- ---- ----
<S> <C> <C>
Numerator:
Net (loss) income $(171,000) $1,000
Denominator:
Weighted-average common shares 14,762,761 15,125,430
Basic earnings per share $(0.01) $(0.00)
DILUTED EARNINGS PER SHARE COMPUTATION:
---------------------------------------
Numerator:
Net income $(171,000) $1,000
Denominator:
Weighted-average common shares 14,762,761 15,125,430
Diluted earnings per share $(0.01) $(0.00)
</TABLE>
5
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This filing contains forward-looking statements within the meaning of
Section 27A of The Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. Those statements reflect the
intent, belief or current expectations of the Company and members of the
management team. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risk and uncertainties and that actual results may differ materially from those
contemplated by such forward-looking statements reflecting changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
RESULTS OF OPERATIONS
Cuisine Solutions, Inc. reported a net loss of $171,000 for the first
quarter of fiscal 2001 compared to a net income of $1,000 a year ago. The
increase in the loss was due to increased cost of salmon products from the
previous year and decreased non-operating income due to realized losses from the
sale of investments and lower interest income due to decreased investment
balances. The increase in salmon costs were off-set by higher sales resulting in
loss from operations for the first quarter of fiscal 2001 of $161,000 compared
to previous years first quarter loss of $84,000. Management anticipates
decreases in the cost of salmon for the second quarter of fiscal 2001.
NET SALES
First quarter 2001 revenue of $8,343,000 increased by 7.9% compared to
previous years' first quarter revenue of $7,730,000. The increase is due to
continued strong demand from the airlines and growing demand from the
hotel/banquet channel and European retail sales.
<TABLE>
<CAPTION>
Q1 FISCAL 2001 Q1 FISCAL 2000 $CHANGE %CHANGE
--------------- ---------------- -------- --------
<S> <C> <C> <C> <C>
USA $ 5,899,000 $ 4,870,000 $ 1,029,000 21.1%
Norway 479,000 1,135,000 (656,000) (57.8%)
France 1,965,000 1,725,000 240,000 13.9%
------------------------------------------------------------------------
Total Product Sales Revenue $ 8,343,000 $ 7,730,000 $ 613,000 7.9%
========================================================================
</TABLE>
USA SALES
First quarter fiscal 2001 sales to the Lodging / Food service channel
totaled $1,650,000 versus previous years total of $1,475,000 an increase of $
175,000 or 11.9%. The lodging/food service sales channel has a wide customer
base with many banquet /meal providers. The increase in lodging sales has been
consistent and steady with large event catering providing the majority of the
sales increase. These large events include large city convention centers,
Florida vacation resorts, casinos and sporting events. The most recent addition
involves Cuisine Solutions product added to the restaurant menu of a large hotel
chain. Sales via this channel are expected to accelerate during the second
quarter as the restaurant menu program is rolled out to the numerous hotel
locations. The lodging/food service sales channel continues to provide the
Company with steady growth and superior gross margin potential. Customers in
this market place high value on the labor savings, quality, consistency, safety
and availability. Gross margins without distribution costs on sales to this
channel were approximately 36.4% during the first quarter of fiscal 2001.
Management can continue to improve this margin through management of the product
mix and cost reduction, but will reap the most benefit through improvements in
distribution management and related costs.
6
<PAGE> 12
Fiscal 2001 first quarter sales to the On Board services channel
increased 24% in the USA to $3,720,000 from $2,998,000 in the previous year
through penetration and progressive development into existing accounts as well
as new accounts. The On Board Services channel has developed business
relationships with most of the major US airlines and is working on building
these relationships through continued value and service. Cuisine Solutions is
becoming a "known" and popular quality supplier in the industry. This icon is
important to management since the current sales and marketing program as well as
the Company name has only been in the market place for less than three years.
The On Board Service sales channel also manages sales activity to passenger rail
services. Passenger rail service programs involve developing products and sales
programs designed for targeted passenger rail lines.
Management believes the Company will reach its market potential to this
customer group in fiscal 2001 of approximate sales objectives of $2,500,000 to
$3,000,000.
While airline and railway sales continue to increase through the
execution of strategic marketing plans, the On Board Service team has continued
efforts to provide meal solutions to harbor cruise lines. During the first
quarter of fiscal 2001, sales to this customer group were over $400,000.
Cuisine Solutions has also initiated a strategic effort to penetrate the
USA Retail channel by marketing pre-prepared product to the In-Store Deli
segment of the USA retail business. Cuisine Solutions restaurant quality product
and unique product line will allow large supermarkets to provide high-end,
pre-prepared product to be sold directly to consumers for home consumption.
Cuisine Solutions has already conducted live store tests during the first
quarter of fiscal 2001 and plans to roll out the tests to additional stores
during the second quarter of fiscal 2001. Management intends to obtain feedback
on consumer acceptance, product pricing and store reaction to marketing programs
developed by Cuisine Solutions experienced Retail Management. Cuisine Solutions
initiated this retail effort due to the significant sales volume opportunity and
the low cost to pursue this opportunity. Cuisine Solutions plans to control
costs by use existing product lines and has targeted the in-store deli market
since it does not involve brand marketing, slotting fees, packaging development
and direct consumer marketing. Advantages to the supermarkets include easy
handling, low shrink, high dollar rings and upscale products lines without the
upscale price. The sous vide product line produced at Cuisine Solutions does not
contain chemicals and preservatives since the sous vide process does not require
preservatives, but also delivers a shelf life of eighteen months on most sous
vide products. Management believes the unique product line, "clean" ingredient
statement and long shelf life provides Cuisine Solutions with an extremely
competitive advantage to address the in-store deli, home meal programs. Sales to
retail customers totaled $102,000 for the first quarter of fiscal 2001, a
decrease of $17,000 from the previous year. Fiscal 2001 retail sales were driven
by new customer sales while previous years sales were not repeated by the same
customers largely due to lack of follow up programs and service since retail was
not a focus at that time.
Sales to military accounts increased 138% in fiscal 2001 to $279,000 from
$117,000 in fiscal 2001. The Company has increased its management of military
selling in order to explore the opportunity of larger volume sales with a
limited product line. All Cuisine Solutions sales to the military are through
brokers and distributors.
Other miscellaneous sales amounted to $148,000 in the first quarter of
fiscal 2001, down from $160,000 in fiscal 2000. The miscellaneous sales category
includes smaller unit sales to catalog companies and product sales to small
restaurant accounts.
The USA did not receive any revenues from management services during the
first quarter of fiscal 2001.
NORWAY SALES
The majority of Norwegian sales, approximately 77.2%, are inter-company
sales to the USA and France. During the first quarter of fiscal 2001, total
Norwegian sales volume increased 18.3% to 17,479,000 Norwegian kroner in the
first quarter of fiscal 2001 from 14,771,000 Norwegian kroner during the first
7
<PAGE> 13
quarter of fiscal 2000. The sales amount converted to US dollars amounted to
$1,967,000 in the first quarter of fiscal 2001 and $1,882,000 during the first
quarter of fiscal 2000 before the elimination of inter-company balances. The US
dollar increase of 4.5% is lower than the true volume increase due to the
increased value of the US dollar versus the Norwegian currency from fiscal 2000
to fiscal 2001. The Sales to Europe from Norway represent product shipments sent
directly to customers and billed directly by the Norwegian subsidiary. These
direct sales account for approximately 7% of total Norwegian sales.
FRANCE SALES
Cuisine Solutions France sales in French francs were FRF 14,095,000
versus previous years first quarter sales of FRF 10,804,000, an increase of
approximately 30%. The US dollars conversion for these sales were $1,965,000 for
the first quarter of fiscal 2001 and $1,725,000 for the first quarter of fiscal
2000, an increase of approximately 14%. The difference in sales growth rates is
due to the increased value of the US dollar from fiscal year 2000 to fiscal year
2001. The composition of sales in France for the first quarter of fiscal 2001
were approximately 30% Foodservice, 21% On Board Services and 49% Retail. The
largest dollar growth came from the retail sales channel whose sales are driven
by the demand of a private label product line produced for a large global
retailer with current distribution limited to the French market.
BRAZIL
No management revenues were earned during the first quarter of fiscal
2001.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------
SEP. 16, SEP. 18,
2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Net sales..............................................................$ 8,343 $ 7,730
Gross margin percentage ............................................. 23.7% 26.0%
Loss from operations $ (161) (84)
</TABLE>
Gross margins decreased in the USA and France due to increased prices of
salmon from Norway and continued losses from the Norwegian facility. The price
of salmon began to decline during the first quarter of fiscal 2001, and
Management anticipates a continued decline in the price of salmon during the
second quarter of fiscal 2001. Management expects to enter into contracts for
the annual supply of salmon once the market price reaches the expected low
point. Management has also replaced the Managing Director of the Norwegian
facility with an experienced manager that has the ability to improve the
operations output and reduce production costs. The Company's consumption of
other key raw materials such as lamb and poultry are reaching levels that will
allow management to bypass the broker network and purchase direct from producers
through large annual contracts. Management has also initiated weekly training
programs to educate and empower all employees with the ability to identify and
initiate cost reduction projects.
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SELLING AND ADMINISTRATIVE EXPENSES
A comparison of selling and general administrative costs follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
SEP 16, SEP. 18,
2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Selling and administrative costs................................................ $ 2,046 $ 1,984
</TABLE>
Selling and administrative expenses increased $62,000 in the first
quarter of fiscal 2001 versus the first quarter of fiscal 2000. Expenses as a
percent of sales were 24.5% in the first quarter of fiscal 2001 versus 25.7% in
fiscal 2000. The Company has initiated an aggressive push for reduction of
selling and administrative expenses and anticipates some re-organization in
areas that do not provide the value to justify the expense.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $38,000 to $293,000 for the first
quarter of fiscal year 2001, compared with $255,000 for the same period a year
ago. This increase is due to the installation of the new pasta line added during
the first quarter of fiscal 2001.
NON-OPERATING INCOME AND EXPENSE
Investment income consists of returns earned on funds invested in
corporate bonds and treasury bills. Management maintains these funds in a trust
account with the majority of the funds invested in government securities.
Interest expense relates to the borrowings relating to the Company's
U.S., Norwegian subsidiary including the Norwegian capital lease and the French
subsidiary. At September 16, 2000, the Company had borrowings of approximately
$2,736,000, bearing interest at rates ranging from 5.5% to 9.9%. The majority of
these borrowings of $2,118,000 was through its Norwegian subsidiary and includes
an outstanding principle amount of $1,062,000 for the capital lease on the
building in Norway and $1,056,000 in a working capital line of credit. Cuisine
Solutions France also has a term loan for $299,000 at 5.5% obtained to finance a
plant expansion and elimination of factoring. The current portion of this loan
is $13,000, and loan is due September 2003. The remainder of the debt $11,000 is
a vehicle loan used to acquire a truck for the Company's USA facility.
PROVISION FOR TAXES
No provision for income taxes was made during the first quarter of
fiscal 2001.
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IMPACT OF INFLATION AND THE ECONOMY
Variations in labor and ingredient costs can significantly affect the
Company's operations. Many of the Company's employees are paid hourly rates
related to, but generally higher than the federal minimum rates.
The Company's sales pricing structure allows for the fluctuation of raw
material prices. As a result, market price variations do not significantly
affect the gross margin realized on product sales. Customer sensitivity to price
changes can influence the overall sales of individual products. In the event of
accelerated commodity price increases, the Company may suffer a short-term loss
since customers cannot accept multiple price changes in short periods of time.
The Company will continue to investigate larger purchase contracts for key raw
materials where pricing to the customer can also be contracted.
The Company's costs of its Norwegian subsidiary are denominated in
Norwegian kroner. Sales of products from its Norwegian subsidiary are made in
the currency of the purchasing jurisdiction and are subsequently recorded in
Norwegian kroner. The Company does engage in forward contracts for Norway
shipments to the USA where these shipments are predictable with the objective of
protecting planned profit margins. The USA does not purchase product from France
and therefore, does not have any exposure to foreign exchange other than
translation adjustments during consolidations.
LIQUIDITY AND CAPITAL RESOURCES
At September 16, 2000, the Company's combined total of cash and
short-term investment balances was $0, compared with $948,000 at June 24, 2000.
The Company's cash overdraft amounted to $184,000 for year to date 2001,
compared to $0 as of June 24, 2000. This decrease is the result of the increased
inventory and increased pre-payments. Additionally, the Company held investments
of $4,333,000 and $4,715,000 at September 16, 2000 and June 24, 2000,
respectively, with maturities greater than one year. There is no restriction on
cash balances at the end of the fiscal 2001 first quarter.
Net cash used by operations amounted to $1,680,000 for year to date 2001,
compared to cash used of $1,556,000 a year ago. Cash in the amount of $261,000
was provided by investing activities, largely due to the sale of investments at
maturity. Cash in the amount of $287,000 was provided by financing activities to
related to the Norwegian operations expanded use of a working capital line of
credit.
The Company's Norwegian subsidiary has secured a working capital
commitment for its liquidity needs in Norway in the form of an overdraft
facility. As of September 16, 2000, $1,056,000 was outstanding under this
overdraft facility. The maximum amount available under line of credit is
currently $1,120,000.
FUTURE PROSPECTS
MARKETING EFFORTS
In fiscal year 2001, the Company's strategy will involve increasing the
Cuisine Solutions market share while improving the image of pre-prepared frozen
entrees in the banquet, airline, rail and cruise line industries. During fiscal
year 2001, the Company launched a strategic effort to enter the retail in-store
deli market by establishing test stores with large supermarkets to evaluate
consumer acceptance, case movements and price points. The Company plans to roll
out the retail program to other stores during the second, third and fourth
quarter. The benefit of retail sales include high volume potential, economies of
scale from production and lower distribution and administrative cost per sales
order.
The Company is re-evaluating its position with regards to establishing an
internet venture to market products directly to consumers via the internet.
Management is concerned with the distraction and resources
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<PAGE> 16
required to pursue this venture and the impact the venture may have on the core
competency of being the producer of high quality sous vide products versus
consumer marketing via the internet.
LODGING/FOOD SERVICE:
The Company plans to consolidate the sales efforts of Lodging/Food
Service with On Board Services while focusing on larger key accounts. To date,
any size hotel and banquet facility could order direct from Cuisine Solutions
resulting in high inventory requirement, high order processing costs and high
distribution costs. Cuisine Solutions intends to establish minimum order sizes
and re-direct smaller sales through distributors.
The Company has also had a number of products added to the restaurant
menu of a major hotel chain. Sales via this program are expected to accelerate
during the second quarter and could be a significant portion of total Food
Service sales.
ON BOARD SERVICES
On Board Services has enjoyed continued aggressive growth during fiscal
year 2001 and management expects the growth rates to grow through the balance of
the year. Key growth areas include an aggressive campaign to penetrate the
European airline market, continued product development and market penetration
into the USA airline market and a long term strategy to investigate
opportunities with vacation cruise lines.
RETAIL
The Company has already met with executive management of over 10,000
retail supermarkets throughout North America. Initial feedback has been very
positive and the Company has a focused strategic plan that management believes
will work for both Cuisine Solutions and the supermarkets.
The Company has experienced sporadic sales to retail, but until recently, never
made a strategic effort to enter this market. The Company plans to roll out
single test stores to regional market tests during the second and third quarter
of fiscal 2001. The Company is also evaluating opportunities in the private
label packaging of enrobed pasta to take advantage of recent capital investment
in the pasta line.
EUROPE
Norway salmon prices are expected to drop during the second quarter of
fiscal 2001 and management is positioning to contract for annual volumes once
the price falls to its expected targeted low point.
Cuisine Solutions France will continue to pursue additional product line
expansion into the retail market and attempt to increase its market share and
product facings. Cuisine Solutions France is also investigating similar
opportunities with larger key accounts in the Food Service sales channel with
the objective of establishing key partnerships that need the culinary service
and R&D that is provided by Cuisine Solutions when working with larger accounts.
BRAZIL
The Company became a partner with Sanoli Industri E Comercio De
Alimentacao LTDA as Cuisine Solutions, Brazil in fiscal year 1999. The facility
is under construction is expected to be operational by January 2001.
The Company has already entered into discussion with large retail
accounts in Brazil as well as anticipating sales that will occur via the efforts
of the partners in Brazil. To date, the largest opportunity in Europe has been
in the retail market, and the Company's established relationships and reputation
in the European market will be helpful in accelerating retail sales in Brazil.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (i.e. the risk of loss arising from adverse
changes in market rates and prices) to which we are exposed are:
Interest rates and foreign exchange rates.
Interest rates:
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment and debt portfolio. The Company
has not used derivative financial instruments in its investment portfolio. The
Company places its investments with high quality issuers. A portion of the debt
portfolio has fluctuating interest rates which change with changes in the
market.
Foreign Currency Risk:
International operations constitute 30% of first quarter fiscal year 2001
Company sales. The majority of the Company's sales are denominated in U.S.
dollars, thereby limiting the Company's risk to changes in foreign currency
rates. The Norwegian subsidiary's sales are denominated in Norwegian kroner
while the French subsidiary reports in French francs. As currency exchange
rates fluctuate, translation of the income statements of the Norway and French
operations into U.S. dollars affects year-over-year comparability of operating
results. Sales which are subject to these foreign currency fluctuations are
approximately 30% of the Company's sales. The net assets of the subsidiaries are
approximately 25% of the Company's net assets. The Company does not enter into
hedges to minimize volatility of reported earnings because it does not believe
it is justified by the exposure or the cost.
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<PAGE> 18
CUISINE SOLUTIONS, INC.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is engaged in ordinary and routine litigation incidental to
its business. Management does not anticipate that any amounts, which it may be
required to pay by reason thereof, will have a material effect on the Company's
financial position.
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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 hereunto duly authorized.
CUISINE SOLUTIONS, INC.
------------------------------
Date: October 31, 2000 By: /s/Stanislas Vilgrain
------------------------------- ---------------------
Stanislas Vilgrain
President and CEO
By:/s/Robert Murphy
-----------------
Robert Murphy
Vice President and
Chief Financial Officer
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