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 June 28, 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 August 7, 1996
-------------------------- -----------------------------
Common stock, no par value 6,366,757
Exhibit Index at Page 13
Page 1 of 15
<PAGE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
INDEX
Page No.
PART I FINANCIAL INFORMATION --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 28, 1996 and December 31, 1995....................... 3-4
Condensed Consolidated Statements of Income -
For the three month and six month periods ended
June 28, 1996 and June 30, 1995.......................... 5
Condensed Consolidated Statements of Cash Flows -
For the six month periods ended June 28, 1996 and
June 30, 1995............................................. 6
Notes to Condensed Consolidated Financial Statements........ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8-10
PART II OTHER INFORMATION............................................ 11
Item 1. Legal Proceedings........................................... 11
Item 2. Changes in Securities....................................... 11
Item 3. Defaults Upon Senior Securities............................. 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
Item 5. Other Information........................................... 11
Item 6. Exhibits and Reports on Form 8-K............................ 11
Signature............................................................ 12
Exhibit Index........................................................ 13
Exhibit 11 - Computation of Earnings Per Share.................. 14
Exhibit 27 - Financial Data Schedule............................ 15
- 2 -
<PAGE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
6/28/96 12/31/95
------- --------
(Unaudited) (Audited)
(000's omitted)
ASSETS
Current Assets
Cash ............................................. $ 690 $ 963
Accounts receivable less allowance ............... 7,688 7,436
(1996 - $135; 1995 - $100)
Inventories:
Finished goods ................................. 11,400 10,403
Work in process ................................ 1,285 769
Raw materials .................................. 3,169 4,920
Packaging materials and supplies ............... 1,658 1,900
------- -------
17,512 17,992
Prepaid expenses and other ....................... 2,406 1,606
------- -------
Total Current Assets ........................... 28,296 27,997
Property, Plant and Equipment
Land ........................................... 817 817
Building and improvements ...................... 21,390 16,621
Machinery and equipment ........................ 38,319 33,490
Furniture and fixtures ......................... 1,226 1,089
Construction in progress ....................... 3,117 5,819
------- -------
64,869 57,836
Less accumulated depreciation and
amortization ................................ 19,705 18,021
------- -------
45,164 39,815
Goodwill ......................................... 1,158 1,319
Other intangible assets .......................... 822 802
------- -------
1,980 2,121
TOTAL ASSETS ............................. $75,440 $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
6/28/96 12/31/95
------- --------
(Unaudited) (Audited)
(000's omitted)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable (including outstanding checks
of $1,402 in 1996 and $1,597 in 1995) ............ $ 4,308 $ 6,575
Accrued compensation .............................. 914 1,208
Other accrued expenses ............................ 2,626 1,547
Current portion of long-term debt and capital
lease obligations .............................. 1,581 1,581
Income taxes ...................................... 388 99
------- --------
Total Current Liabilities ....................... 9,817 11,010
Long-Term Liabilities
Long-term debt and capital lease obligations ...... 16,330 12,790
Deferred income taxes ................................ 4,339 4,165
------- --------
Total Long-Term Liabilities ..................... 20,669 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 6,366,757 shares
in 1996 and 6,356,884 in 1995 .................. 6,367 6,357
Additional paid-in capital ........................ 14,736 14,677
Retained earnings ................................. 23,851 20,955
Less deferred compensation ........................ -- (21)
------- --------
44,954 41,968
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...... $75,440 $ 69,933
======= ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
- 4 -
<PAGE>
<TABLE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
6/28/96 6/30/95 6/28/96 6/30/95
--------- --------- --------- ---------
(Unaudited)
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net sales .......................... $ 27,548 $ 22,902 $ 51,901 $ 43,823
Cost of goods sold ................. 16,767 13,398 31,836 26,347
---------- ---------- ---------- ----------
Gross profit .................... 10,781 9,504 20,065 17,476
Selling and distribution expenses .. 6,181 5,756 11,871 10,556
General and administrative expenses 967 854 1,805 1,625
Research and development expenses .. 333 286 670 580
---------- ---------- ---------- ----------
7,481 6,896 14,346 12,761
---------- ---------- ---------- ----------
Income from operations ............. 3,300 2,608 5,719 4,715
Interest expense ................... 349 304 586 611
---------- ---------- ---------- ----------
Income before income taxes ......... 2,951 2,304 5,133 4,104
Provision for income taxes ......... 960 945 1,855 1,683
---------- ---------- ---------- ----------
Net income ......................... $ 1,991 $ 1,359 $ 3,278 $ 2,421
========== ========== ========== ==========
Earnings per share:
Primary ....................... $ 0.30 $ 0.21 $ 0.50 $ 0.38
========== ========== ========== ==========
Fully Diluted ................. $ 0.30 $ 0.21 $ 0.50 $ 0.38
========== ========== ========== ==========
Dividends per share ................ $ 0.03 $ 0.03 $ 0.06 $ 0.05
========== ========== ========== ==========
Weighted average number of common
and common equivalent shares used in
computing earnings per share
Primary ....................... 6,603,379 6,503,950 6,594,430 6,443,704
Fully Diluted ................. 6,621,958 6,505,089 6,621,222 6,499,531
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.
</TABLE>
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<PAGE>
<TABLE>
WORTHINGTON FOODS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
6/28/96 6/30/95
------- -------
(Unaudited)
(000's omitted)
<S> <C> <C>
Operating activities:
Net income ............................................ $ 3,278 $ 2,421
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ......................................... 1,776 1,464
Deferred income taxes .............................. 174 890
Amortization of intangible assets .................... 179 219
Deferred compensation ................................ 21 23
Cash provided by (used for) current assets
and liabilities:
Accounts receivable ................................. (252) (980)
Inventories ......................................... 480 (917)
Prepaid expenses and other .......................... (800) (10)
Accounts payable and accrued expenses ............... (1,482) 2,911
Income taxes ........................................ 289 (1,663)
(Increase) decrease in other assets .................. (38) 88
-------- --------
Net cash provided by operating activities ............. 3,625 4,446
Investing activities:
Purchases of property, plant and equipment, net ....... (7,125) (1,942)
-------- --------
Net cash used for investing activities ................ (7,125) (1,942)
Financing activities:
Proceeds from line of credit and long-term borrowings . 26,800 9,100
Payments on line of credit and long-term borrowings ... (23,260) (11,529)
Proceeds from the issuance of common shares ........... 69 36
Dividends paid ........................................ (382) (303)
-------- --------
Net cash provided by (used for) financing activities .. 3,227 (2,696)
Net decrease in cash .................................... (273) (192)
Cash at beginning of period ............................. 963 982
-------- --------
Cash at end of period ................................... $ 690 $ 790
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
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<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 and six month periods ended
June 28, 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 July 23, 1996 meeting declared a $0.03 per
share dividend payable October 25, 1996 to shareholders of record
September 20, 1996.
- 7 -
<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.
<TABLE>
Three Months Ended Six Months Ended
6/28/96 6/30/95 6/28/96 6/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ......................... 60.9 58.5 61.3 60.1
----- ----- ----- -----
Gross profit ............................. 39.1 41.5 38.7 39.9
Selling and distribution expenses .......... 22.4 25.1 22.9 24.1
General and administrative expenses ........ 3.5 3.7 3.5 3.7
Research and development expenses .......... 1.2 1.3 1.3 1.3
----- ----- ----- -----
27.1 30.1 27.7 29.1
----- ----- ----- -----
Income from operations ..................... 12.0 11.4 11.0 10.8
Interest expense ........................... 1.3 1.3 1.1 1.4
----- ----- ----- -----
Income before income taxes ................. 10.7 10.1 9.9 9.4
Provision for income taxes ................. 3.5 4.2 3.6 3.9
----- ----- ----- -----
Net income ................................. 7.2% 5.9% 6.3% 5.5%
===== ===== ===== =====
Provision for income taxes as a
percentage of income before
income taxes ............................ 32.5% 41.0% 36.1% 41.0%
===== ===== ===== =====
</TABLE>
Second Quarter and Six Month Period of 1996 Compared to 1995
Net sales for the second quarter and six month period ended June 28, 1996
increased approximately $4,646,000 and $8,078,000 or 20.3% and 18.4% over the
similar prior year periods. Net sales in the second quarter and six month
period of 1996 to the Company's Specialty Markets (Seventh-day Adventist,
Health Food and International) increased approximately $790,000 and $1,082,000
or 9.2% and 6.5% over the similar prior year periods. This increase is
primarily attributable to the Health Food market which increased approximately
$598,000 and $819,000 or 31.8% and 20.9% over the similar prior year periods.
Recently, the Company established a national broker network for sales to
natural food stores which has significantly increased the exposure of its
Natural Touch brand of products.
Foodservice sales for the second quarter and six month period of 1996
increased approximately $915,000 and $1,766,000 or 47.5% and 48.1% over the
similar prior year periods. This increase is attributable to higher sales from
Subway units, Chili's and Denny's restaurants, as well as additional
foodservice operators which are beginning to use the Company's vegetarian
products.
- 8 -
<PAGE>
Net sales of Morningstar Farms products to supermarkets in the second
quarter and six month period of 1996 increased approximately $2,941,000 and
$5,230,000 or 23.8% and 22.2% over the similar prior year periods. Net sales
of Morningstar Farms meat alternative products in the second quarter and six
month period of 1996 increased approximately $3,134,000 and $5,391,000 or
33.2% and 30.3% over the similar prior year periods. Mass market sales
continue to benefit from strong consumer programs and expanded distribution of
new and existing products. Net sales of Morningstar Farms frozen egg
substitutes for the six month period of 1996 declined by approximately 6.0%
from the similar prior year period.
Gross profit as a percentage of net sales for the second quarter of 1996
decreased from 41.5% in 1995 to 39.1% in 1996. For the six month period, gross
profit decreased from 39.9% in 1995 to 38.7% in 1996. This decrease is
attributable to contract manufacturing arrangements for certain Morningstar
Farms products, increased material costs and the start up of the Zanesville
facility. During the second quarter of 1996, the Company began full operation
of its Zanesville, Ohio facility and eliminated contract manufacturing
arrangements. Gross profit as a percentage of net sales did improve from the
38.1% reported in the first quarter of 1996 to 39.1%.
Selling and distribution expenses for the second quarter of 1996
decreased as a percentage of net sales from 25.1% to 22.4%. For the six month
period of 1996, selling and distribution expenses decreased from 24.1% to
22.9% of net sales. This decrease is primarily attributable to efficiencies
gained through higher sales volume. General and administrative expenses, as
well as research and development, remained comparable for both the second
quarter and six month period of 1996.
Interest expense for the second quarter of 1996 increased approximately
$45,000 or 14.8% over the similar prior year period. This increase is
primarily attributable to higher borrowing levels associated with the
Zanesville expansion project. Interest expense for the six month period of
1996 decreased approximately $25,000 or 4.1% from the similar prior year
period. This decrease is primarily due to capitalized interest of
approximately $91,000 related to construction costs associated with the
Zanesville expansion project, which was partially offset by higher average
borrowing levels.
Net income for the second quarter and six month period of 1996 increased
approximately $632,000 and $857,000 or 46.5% and 35.4% over the similar prior
year periods. The increase is primarily due to increased sales, lower selling,
general and administrative expenses as a percentage of net sales, and slightly
lower interest expense which were partially offset by lower gross profit
percentages.
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 August
7, 1996, $12,450,000 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. During
the second quarter of 1996, the Company completed the consolidation of its
plant finished goods inventory and distribution functions at the Zanesville,
Ohio site. The $9,000,000 Zanesville expansion project is complete and within
budget. As of August 7, 1996, $8,900,000 of the budgeted $9,000,000 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 for the six month period of
1996 decreased from the similar prior year period due to changes in operating
assets and liabilities, partially offset by an increase in net income.
- 9 -
<PAGE>
Net cash used for investing activities for the six month period 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 for the six month period 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.
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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q are "forward-looking statements"
within the meaning of the Private Securities Litigation Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors
that may cause actual results to differ materially. Such risks, uncertainties
and other factors include, but are not limited to, changes in general economic
conditions, fluctuation in interest rates, increases in raw material costs,
level of competition and other factors described in detail in the Company's
Form 10-K for the year ended December 31, 1995.
- 10 -
<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
Not Applicable
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 27. Financial Data Schedule
(b) No report on Form 8-K was filed during the fiscal quarter
ended June 28, 1996.
- 11 -
<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: August 8, 1996
By: /S/ WILLIAM T. KIRKWOOD
_____________________________
William T. Kirkwood
Executive Vice President and
Chief Financial Officer
- 12 -
<PAGE>
EXHIBIT INDEX
Filed with Worthington Foods, Inc. Report on Form 10-Q for the Quarter
Ended June 28, 1996.
Exhibit No. Page No.
___________ ________
11 Computation of Earnings Per Share .................. 14
27 Financial Data Schedule ............................ 15
- 13 -
Exhibit 11
<TABLE>
WORTHINGTON FOODS, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
-------------------- -------------------
6/28/96 6/30/95 6/28/96 6/30/96
Primary:
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding ..................... 6,366,450 6,318,255 6,365,212 6,316,379
Net effect of dilutive stock options based
on treasury stock method using average
market price ........................... 236,929 185,695 229,218 127,325
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares ...................... 6,603,379 6,503,950 6,594,430 6,443,704
========== ========== ========== ==========
Net income ............................... $1,991,000 $1,359,000 $3,278,000 $2,421,000
========== ========== ========== ==========
Net income per common share .............. $ 0.30 $ 0.21 $ 0.50 $ 0.38
========== ========== ========== ==========
Fully Diluted:
Weighted average number of common
shares outstanding ..................... 6,366,450 6,318,255 6,365,212 6,316,379
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 ............................ 255,508 186,834 256,010 183,152
========== ========== ========== ==========
Weighted average common and common
equivalent shares ...................... 6,621,958 6,505,089 6,621,222 6,499,531
========== ========== ========== ==========
Net income ............................... $1,991,000 $1,359,000 $3,278,000 $2,421,000
========== ========== ========== ==========
Net income per common share .............. $ 0.30 $ 0.21 $ 0.50 $ 0.38
========== ========== ========== ==========
Note: 1995 share amounts have been adjusted to reflect the five-for-four
share split in December, 1995.
</TABLE>
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-28-1996
<CASH> 690
<SECURITIES> 0
<RECEIVABLES> 7,688
<ALLOWANCES> 135
<INVENTORY> 17,512
<CURRENT-ASSETS> 28,296
<PP&E> 64,869
<DEPRECIATION> 19,705
<TOTAL-ASSETS> 75,440
<CURRENT-LIABILITIES> 9,817
<BONDS> 0
0
0
<COMMON> 6,367
<OTHER-SE> 38,587
<TOTAL-LIABILITY-AND-EQUITY> 75,440
<SALES> 51,901
<TOTAL-REVENUES> 51,901
<CGS> 31,836
<TOTAL-COSTS> 46,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 586
<INCOME-PRETAX> 5,133
<INCOME-TAX> 1,855
<INCOME-CONTINUING> 5,719
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,278
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
