UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1996
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: 0-19887
WORTHINGTON FOODS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0733120
- - ------------------------ ------------------------------------
(State of incorporation) (IRS Employer Identification Number)
900 PROPRIETORS ROAD, WORTHINGTON, OH 43085
-------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (614) 885-9511
Not Applicable
------------------
(Former name, former address and formal fiscal year,
if changed from last report.)
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 the latest practicable date.
Class Outstanding at May 3, 1996
-------------------------- --------------------------
Common stock, no par value 6,366,257
Exhibit Index at Page 14
Page 1 of 17
<PAGE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 29, 1996 and December 31, 1995 ..................... 3-4
Condensed Consolidated Statements of Income -
For the three month periods ended March 29, 1996
and March 31, 1995 ....................................... 5
Condensed Consolidated Statements of Cash Flows -
For the three month periods ended March 29, 1996
and March 31, 1995 ....................................... 6
Notes to Condensed Consolidated Financial Statements ....... 7
Independent Accountants' Review Report ..................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 9-11
PART II OTHER INFORMATION ........................................... 12
Item 1. Legal Proceedings .......................................... 12
Item 2. Changes in Securities ...................................... 12
Item 3. Defaults Upon Senior Securities ............................ 12
Item 4. Submission of Matters to a Vote of Security Holders ........ 12
Item 5. Other Information .......................................... 12
Item 6. Exhibits and Reports on Form 8-K ........................... 12
Signature ........................................................... 13
Exhibit Index ....................................................... 14
Exhibit 11 - Computation of Earnings Per Share ................. 15
Exhibit 15 - Letter Regarding Unaudited Interim
Financial Information ............................. 16
Exhibit 27 - Financial Data Schedule ........................... 17
- 2 -
<PAGE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
3/29/ 12/31/95
(Unaudited) (Audited)
(000's omitted)
ASSETS
Current Assets
Cash ................................................ $ 57 $ 963
Accounts receivable less allowance .................. 6,542 7,436
(1996 - $126; 1995 - $100)
Inventories:
Finished goods .................................... 11,378 10,403
Work in process ................................... 1,121 769
Raw materials ..................................... 4,534 4,920
Packaging materials and supplies .................. 1,820 1,900
------- -------
18,853 17,992
Prepaid expenses and other .......................... 2,236 1,606
------- -------
Total Current Assets .............................. 27,688 27,997
Property, Plant and Equipment
Land .............................................. 817 817
Building and improvements ......................... 16,686 16,621
Machinery and equipment ........................... 33,761 33,490
Furniture and fixtures ............................ 1,135 1,089
Construction in progress .......................... 8,937 5,819
------- -------
61,336 57,836
Less accumulated depreciation and amortization .... 18,786
18,021
42,550 39,815
Goodwill ............................................ 1,238 1,319
Other intangible assets ............................. 774 802
------- -------
2,012 2,121
TOTAL ASSETS ................................ $72,250 $69,933
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
3/29/96 12/31/95
(Unaudited) (Audited)
(000's omitted)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable (including outstanding checks
of $1,597 in 1995) ............................... $ 2,760 $ 6,575
Accrued compensation .............................. 489 1,208
Other accrued expenses ............................ 2,418 1,547
Current portion of long-term debt and capital
lease obligations ............................... 1,581 1,581
Income taxes ...................................... 888 99
-------- --------
Total Current Liabilities ....................... 8,136 11,010
Long-Term Liabilities
Long-term debt and capital lease obligations ...... 16,724 12,790
Deferred income taxes ................................ 4,255 4,165
-------- --------
Total Long-Term Liabilities ..................... 20,979 16,955
Shareholders' Equity
Preferred shares, no par value, authorized
2,000,000 shares, none issued ................... -- --
Common shares, $1.00 stated value, authorized
15,000,000 shares, issued 6,365,320 shares in
1996 and 6,356,884 in 1995 ...................... 6,365 6,357
Additional paid-in capital ........................ 14,729 14,677
Retained earnings ................................. 22,051 20,955
Less deferred compensation ........................ (10) (21)
-------- --------
43,135 41,968
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...... $ 72,250 $ 69,933
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 4 -
<PAGE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
_______________________
3/29/96 3/31/95
(Unaudited)
(000's omitted, except
per share data)
Net sales ........................................ $ 24,353 $ 20,921
Cost of goods sold ............................... 15,069 12,949
---------- ----------
Gross profit .................................. 9,284 7,972
Selling and distribution expenses ................ 5,690 4,800
General and administrative expenses .............. 838 771
Research and development expenses ................ 337 294
---------- ----------
6,865 5,865
---------- ----------
Income from operations ........................... 2,419 2,107
Interest expense ................................. 237 307
---------- ----------
Income before income taxes ....................... 2,182 1,800
Provision for income taxes ....................... 895 738
---------- ----------
Net income ....................................... $ 1,287 $ 1,062
========== ==========
Earnings per share:
Primary ..................................... $ 0.20 $ 0.17
========== ==========
Fully Diluted ............................... $ 0.20 $ 0.17
========== ==========
Divdends per share ............................... $ 0.03 $ 0.02
========== ==========
Weighted average number of common and common
equivalent shares used in computing earnings
per share
Primary ..................................... 6,585,059 6,360,215
Fully Diluted ............................... 6,593,070 6,413,051
Note: 1995 share amounts have been adjusted to reflect the five-for-four share
split in December, 1995.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 5 -
<PAGE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
_____________________
3/29/96 3/31/95
(Unaudited)
(000's omitted)
Operating activities:
Net income .......................................... $ 1,287 $ 1,062
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ....................................... 794 733
Deferred income taxes ............................ 90 --
Amortization of intangible assets .................. 89 114
Deferred compensation .............................. 11 11
Cash provided by (used for) current assets
and liabilities:
Accounts receivable ............................... 894 (297)
Inventories ....................................... (860) (2)
Prepaid expenses and other ........................ (630) (5)
Accounts payable and accrued expenses ............. (3,665) 837
Income taxes ...................................... 790 (866)
Decrease in other assets ........................... 19 68
-------- -------
Net cash (used for) provided by operating
activities ........................................ (1,181) 1,655
Investing activities:
Purchases of property, plant and equipment, net ..... (3,529) (950)
-------- -------
Net cash used for investing activities .............. (3,529) (950)
Financing activities:
Proceeds from line of credit and long-term
borrowings ........................................ 20,025 4,025
Payments on line of credit and long-term
borrowings ........................................ (16,091) (4,821)
Proceeds from the issuance of common shares ......... 61 4
Dividends paid ...................................... (191) (151)
-------- -------
Net cash provided by (used for) financing
activities ........................................ 3,804 (943)
Net decrease in cash .................................. (906) (238)
Cash at beginning of period ........................... 963 982
-------- -------
Cash at end of period ................................. $ 57 $ 744
======== =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 6 -
<PAGE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying condensed consolidated financial statements (unaudited)
include the accounts of Worthington Foods, Inc. and Subsidiary.
The information furnished reflects all adjustments (all of which were of a
normal recurring nature) which are, in the opinion of management,
necessary to fairly present the condensed consolidated financial position,
results of operations, and cash flows on a consistent basis. Operating
results for the three month period ended March 29, 1996 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1996.
The accompanying condensed consolidated financial statements (unaudited)
are presented in accordance with the requirements for Form 10-Q and
consequently do not include all the disclosures normally required by
generally accepted accounting principles. Reference should be made to the
Company's Form 10-K for the fiscal year ended December 31, 1995 (File No.
0-19887) for additional disclosures including a summary of the Company's
accounting policies, which have not significantly changed. The Company's
policy is that each fiscal year includes four, thirteen week periods.
2. The Board of Directors at its April 23, 1996 meeting declared a $0.03 per
share dividend payable July 26, 1996 to shareholders of record June 21,
1996.
3. The condensed consolidated financial statements included herein as of
March 29, 1996, and for the three month period then ended have been
subjected to a review, prior to filing, by Ernst & Young LLP, the
Registrant's independent public accountants, whose report is included
herein.
- 7 -
<PAGE>
Independent Accountants' Review Report
Board of Directors
Worthington Foods, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Worthington Foods, Inc. and Subsidiary (the Company) as of March 29, 1996, and
the related condensed consolidated statements of income and cash flows for the
three-month periods ended March 29, 1996 and March 31, 1995. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Worthington Foods, Inc. and
Subsidiary as of December 31, 1995, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented herein) and in our report dated February 2, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1995, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
ERNST & YOUNG LLP
April 16, 1996
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth selected items from the Company's Consolidated
Statements of Income expressed as a percentage of net sales for the periods
indicated.
Three Months Ended
3/29/96 3/31/95
Net sales...................................... 100.0% 100.0%
Cost of goods sold............................. 61.9 61.9
---- -----
Gross profit............................ 38.1 38.1
Selling and distribution expenses.............. 23.4 22.9
General and administrative expenses............ 3.4 3.7
Research and development expenses.............. 1.4 1.4
---- ----
28.2 28.0
---- -----
Income from operations......................... 9.9 10.1
Interest expense............................... .9 1.5
--- ---
Income before income taxes..................... 9.0 8.6
Provision for income taxes..................... 3.7 3.5
---- ---
Net income.................................... 5.3% 5.1%
==== ====
Provision for income taxes as a percentage
of income before income taxes................. 41.0% 41.0%
===== ====
First Quarter of 1996 Compared to 1995
Net sales for the first quarter ended March 29, 1996 increased approximately
$3,432,000 or 16.4% over the similar prior year period. Net sales in the first
quarter of 1996 to the Company's Specialty Markets (Seventh-day Adventist,
Health Food, and International) increased approximately $292,000 or 3.7% over
the similar prior year period. This increase is attributed to increased sales
in the Health Food and International markets of approximately $221,000 and
$149,000, which were both 10.9% over the similar prior year period, offset by
Seventh-day Adventist sales which declined approximately $78,000 or 1.7% from
the similar prior year period. Foodservice sales for the first quarter of 1996
increased approximately $851,000 or 48.8% over the similar prior year period.
Sales agreements entered into in late 1995 with restaurant chains such as
Subway, Chili's, Denny's, Pizzeria Uno, and Marie Callender's are fueling the
growth in Foodservice.
Net sales of Morningstar Farms products to supermarkets in the first quarter
of 1996 increased approximately $2,289,000 or 20.4% over the similar prior
year period. Net sales of Morningstar Farms meat alternative products
increased approximately $2,257,000 or 27.0% over the similar prior year
period. This increase is attributable to expanded distribution of existing
products, new product introductions and targeted marketing programs. Net sales
of Morningstar Farms frozen egg substitutes for the first quarter of 1996
declined slightly by approximately 2.8% from the similar prior year period.
- 9 -
<PAGE>
Gross profit as a percentage of net sales during the first quarter of 1996
remained constant at 38.1% in comparison to the similar prior year period. The
gross profit percentage declined slightly from year end gross profit due to
contract manufacturing arrangements for certain Morningstar Farms products and
increased material costs. On April 1, 1996, the Company began production of
Better'n Burgers and other hot-air oven products at its Zanesville, Ohio
facility. This permitted the Company to terminate its contract manufacturing
arrangements which have contributed to the reduced gross profit percentages
from the past three quarters. During the end of the first quarter of 1996,
modest price increases were also implemented to help offset increased material
costs.
Selling and distribution expenses for the first quarter of 1996 increased as a
percentage of net sales from 22.9% in 1995 to 23.4% in 1996. This increase is
related to costs associated with targeted marketing programs, additional
increases in national distribution, and new product introductions which have
contributed to the increased sales of Morningstar Farms products. General and
administrative expenses for the first quarter of 1996 decreased as a
percentage of net sales from 3.7% in 1995 to 3.4% in 1996. Research and
development expenses for the first quarter of 1996 remained constant as a
percentage of net sales at 1.4% compared to the similar prior year period.
Interest expense for the first quarter of 1996 decreased approximately $70,000
or 22.8% from the similar prior year period primarily due to capitalized
interest of $91,000 related to construction costs associated with the
Zanesville expansion project and lower average borrowing rates, which were
slightly offset by higher average borrowing levels.
Net income in the first quarter of 1996 increased approximately $225,000 or
21.2% over the similar prior year period, primarily due to an increase in
sales and a decrease in interest expense, slightly offset by higher selling
and distribution expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on cash generated from operations and a $20,000,000
revolving credit facility as its principal sources of liquidity. As of May 3,
1996, $11,800,000 of this credit facility was unused. The Company believes
that this borrowing capability plus internally generated funds will be
adequate to finance current growth levels into the foreseeable future. On
April 1, 1996, production of Better'n Burgers and other hot air oven products
began at the Company's Zanesville, Ohio facility. The 37,000 square foot
frozen foods warehouse and the 22,000 square foot dry storage space is now
complete. During the month of May, the Company will complete the consolidation
of its Plant Finished Goods Inventory and Distribution functions at the
Zanesville site. As of May 3, 1996 $7,550,000 of the $9,000,000 expansion
project budget has been spent. The Company anticipates that 1996 operating
income will be sufficient to cover the $9,000,000 expansion cost.
Net cash provided by operating activities during the first quarter of 1996
decreased from the similar prior year period primarily due to changes in
operating assets and liabilities, partially offset by an increase in net
income.
Net cash used for investing activities during the first quarter of 1996
increased from the similar prior year period due to purchases of property,
plant and equipment related to the $9,000,000 Zanesville expansion project.
Net cash provided by financing activities during the first quarter of 1996
increased from the similar prior year period, primarily due to increased
borrowings to finance capital expenditures for the $9,000,000 Zanesville
expansion project.
- 10 -
<PAGE>
INFLATION
Although inflation has slowed in recent years, the Company continues to seek
ways to moderate any inflationary impact. To the extent possible based on
competitive conditions, the Company passes increased costs on to its customers
by increasing prices over time.
The Company uses the LIFO method of accounting for raw materials, packaging
materials and the materials content of work-in-process and finished goods.
Under this method, the cost of products sold reported in the financial
statements approximates current costs.
COMPLIANCE WITH ENVIRONMENTAL PROTECTION REGULATIONS
The Company does not anticipate that compliance with federal, state, and local
regulations with respect to the discharge of materials into the environment,
or otherwise relating to the protection of the environment, will have a
material effect on capital expenditures, earnings, or the competitive position
of the Company.
- 11 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On April 23, 1996, an Annual Meeting of Shareholders
was held. The following directors were elected:
Votes
Yes No Abstain Not Cast
---------------------------------
Allan R. Buller 5,154,741 - 16,890 1,193,689
George T. Harding, IV 5,162,176 - 9,455 1,193,689
William D. Parker 5,156,651 - 14,980 1,193,689
The following directors continued their term of office: Roger D.
Blackwell, John B. Gerlach, Theodore A. Hamer, Donald G. Orrick, Donald B.
Shackelford, and Dale E. Twomley.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11. Computation of Earnings Per Share
Exhibit 15. Letter Regarding Unaudited Interim
Financial Information
Exhibit 27. Financial Data Schedule
(b) No report on Form 8-K was filed during the fiscal
quarter ended March 29, 1996.
- 12 -
<PAGE>
SIGNATURE
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.
WORTHINGTON FOODS, INC.
(Registrant)
Date: May 9, 1996
By: /S/WILLIAM T. KIRKWOOD
________________________________________
William T. Kirkwood
Executive Vice President and
Chief Financial Officer
- 13 -
<PAGE>
EXHIBIT INDEX
Filed with Worthington Foods, Inc. Report on Form 10-Q for the Quarter
Ended March 29, 1996.
Exhibit No. Page No.
11 Computation of Earnings Per Share .......................... 15
15 Letter Regarding Unaudited Interim Financial Information ... 16
27 Financial Data Schedule .................................... 17
- 14 -
Exhibit 11
WORTHINGTON FOODS, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
______________________
3/29/96 3/31/95
Primary:
Weighted average number of common shares
outstanding ...................................... 6,363,946 6,314,482
Net effect of dilutive stock options based
on treasury stock method using average
market price ..................................... 221,113 45,733
---------- ----------
Weighted average common and common equivalent
shares ........................................... 6,585,059 6,360,215
========== ==========
Net income ......................................... $1,287,000 $1,062,000
========== ==========
Net income per common share ........................ $ 0.20 $ 0.17
========== ==========
Fully Diluted:
Weighted average number of common shares
outstanding ...................................... 6,363,946 6,314,482
Net effect of dilutive stock options
based on treasury stock method using
market price at end of period if greater than
the average market price during the period ........ 229,124 98,569
---------- ----------
Weighted average common and common equivalent
shares ........................................... 6,593,070 6,413,051
========== ==========
Net income ......................................... $1,287,000 $1,062,000
========== ==========
Net income per common share ........................ $ 0.20 $ 0.17
========== ==========
Note: 1995 share amounts have been adjusted to reflect the five-for-four
share split in December, 1995.
- 15 -
Exhibit 15
Letter Regarding Unaudited Interim
Financial Information
Board of Directors
Worthington Foods, Inc.
We are aware of the incorporation by reference in the Registration
Statements (Form S-8 No. 33-55842, Form S-8 No. 33-67290 and Form S-8 No.
333-2904) of Worthington Foods, Inc. of our report dated April 16, 1996,
relating to the unaudited condensed consolidated interim financial statements
of Worthington Foods, Inc. which are included in its Form 10-Q for the quarter
ended March 29, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not
a part of the registration statements prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Columbus, Ohio
April 16, 1996
- 16 -
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-29-1996
<CASH> 57
<SECURITIES> 0
<RECEIVABLES> 6,542
<ALLOWANCES> 100
<INVENTORY> 18,853
<CURRENT-ASSETS> 27,688
<PP&E> 61,336
<DEPRECIATION> 18,786
<TOTAL-ASSETS> 72,250
<CURRENT-LIABILITIES> 8,136
<BONDS> 0
0
0
<COMMON> 6,365
<OTHER-SE> 36,770
<TOTAL-LIABILITY-AND-EQUITY> 72,250
<SALES> 24,353
<TOTAL-REVENUES> 24,353
<CGS> 15,069
<TOTAL-COSTS> 21,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> 2,182
<INCOME-TAX> 895
<INCOME-CONTINUING> 2,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,287
<EPS-PRIMARY> 0.20
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