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 April 4, 1997
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) (Zip Code)
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 9, 1997
__________________________ __________________________
Common stock, no par value 8,634,210
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 -
April 4, 1997 and December 31, 1996 3-4
Condensed Consolidated Statements of Income -
For the three month periods ended April 4, 1997
and March 29, 1996 5
Condensed Consolidated Statements of Cash Flows -
For the three month periods ended April 4, 1997
and March 29, 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
Item 3. Quantitative and Qualitative Disclosures About Market Risks 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>
Item 1.
Financial Statements
Worthington Foods, Inc. And Subsidiary
Condensed Consolidated Balance Sheets
4/4/97 12/31/96
(Unaudited) (Audited)
(000's omitted)
ASSETS
Current Assets
Cash $ 733 $ 811
Accounts receivable less allowance 7,555 8,664
(1997 - $126; 1996 - $100)
Inventories:
Finished goods 14,867 11,618
Work in process 1,266 830
Raw materials 4,272 3,170
Packaging materials and supplies 1,879 1,801
------- -------
22,284 17,419
Income taxes -- 128
Prepaid expenses and other 3,485 2,330
------- -------
Total Current Assets 34,057 29,352
Property, Plant and Equipment
Land 817 817
Building and improvements 22,913 22,746
Machinery and equipment 42,487 40,832
Furniture and fixtures 1,764 1,693
Construction in progress 7,060 5,082
------- -------
75,041 71,170
Less accumulated depreciation and amortization 22,619 21,608
------- -------
52,422 49,562
Goodwill 916 997
Other intangible assets 779 827
------- -------
1,695 1,824
TOTAL ASSETS $88,174 $80,738
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
<PAGE>
<TABLE>
Worthington Foods, Inc. And Subsidiary
Condensed Consolidated Balance Sheets
4/4/97 12/31/96
-------- ----------
(Unaudited) (Audited)
(000's omitted)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable (including outstanding checks $767 in 1996) $ 3,594 $ 4,608
Accrued compensation 382 1,435
Other accrued expenses 2,171 1,549
Current portion of long-term debt and capital lease obligations 1,630 1,630
Income taxes 977 --
------- -------
Total Current Liabilities 8,754 9,222
Long-Term Liabilities
Long-term debt and capital lease obligations 23,732 17,960
Deferred income taxes 4,965 4,825
------- -------
Total Long-Term Liabilities 28,697 22,785
Shareholders' Equity
Preferred shares, no par value, authorized 2,000,000 shares,
none issued -- --
Common shares, $1.00 stated value, authorized 30,000,000 shares,
issued 8,634,210 shares in 1997 and 8,544,676 in 1996 8,634 8,545
Additional paid-in capital 12,888 12,625
Retained earnings 29,201 27,561
------- -------
50,723 48,731
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $88,174 $80,738
======= =======
</TABLE>
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
4/4/97 3/29/96
-------- ---------
(Unaudited)
(000's omitted, except per share data)
<S> <C> <C>
Net sales $ 26,489 $ 24,353
Cost of goods sold 15,555 15,069
---------- ----------
Gross profit 10,934 9,284
Selling and distribution expenses 6,149 5,690
General and administrative expenses 892 838
Research and development expenses 373 337
---------- ----------
7,414 6,865
---------- ----------
Income from operations 3,520 2,419
Interest expense 376 237
---------- ----------
Income before income taxes 3,144 2,182
Provision for income taxes 1,289 895
---------- ----------
Net income $ 1,855 $ 1,287
========== ==========
Earnings per share:
Primary $ 0.21 $ 0.15
========== ==========
Fully diluted $ 0.21 $ 0.15
========== ==========
Dividends per share $ 0.025 $ 0.02
========== ==========
Weighted average number of common and common equivalent
shares used in computing earnings per share
Primary 8,967,438 8,779,828
Fully diluted 8,970,969 8,790,509
Note: 1996 share amounts have been adjusted to reflect the four-for-three share
split in December, 1996.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
-5-
<PAGE>
<TABLE>
Worthington Foods, Inc. And Subsidiary
Condensed Consolidated Statements Of Cash Flows
Three Months Ended
4/4/97 3/29/96
-------- ---------
(Unaudited)
(000's omitted)
<S> <C> <C>
Operating activities:
Net income $ 1,855 $ 1,287
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,011 794
Deferred income taxes 140 90
Amortization of intangible assets 138 89
Deferred compensation -- 11
Cash provided by (used for) current assets and liabilities:
Accounts receivable 1,109 894
Inventories (4,865) (860)
Prepaid expenses and other (1,154) (630)
Accounts payable and accrued expenses (1,446) (3,665)
Income taxes 1,106 790
(Increase) decrease in other assets (9) 19
-------- --------
Net cash used for operating activities (2,115) (1,181)
Investing activities:
Purchases of property, plant and equipment, net (3,872) (3,529)
-------- --------
Net cash used for investing activities (3,872) (3,529)
Financing activities:
Proceeds from line of credit and long-term borrowings 16,399 20,025
Payments on line of credit and long-term borrowings (10,627) (16,091)
Proceeds from the issuance of common shares 353 61
Dividends paid (216) (191)
-------- --------
Net cash provided by financing activities 5,909 3,804
Net decrease in cash (78) (906)
Cash at beginning of period 811 963
-------- --------
Cash at end of period $ 733 $ 57
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
-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 April 4, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997.
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, 1996 (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 22, 1997 meeting declared a $0.025 per
share dividend payable July 25, 1997 to shareholders of record June 27,
1997.
3. In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("Statement No. 128"). Statement
No. 128 requires adoption for periods ending after December 15, 1997. Until
that time, the Company will continue to apply the requirements of APB No.
15 for earnings per share.
The following table sets forth proforma earnings per share as calculated
under Statement No. 128 for the periods ended April 4, 1997 and March 29,
1996, respectively.
<TABLE>
Three Months Ended
4/4/97 3/29/96
<S> <C> <C>
Basic:
Weighted average number of common shares outstanding 8,594,589 8,485,045
========== ==========
Net income $1,855,000 $1,287,000
========== ==========
Earnings per share $ 0.22 $ 0.15
========== ==========
Diluted:
Weighted average number of common shares outstanding 8,594,589 8,485,045
Net effect of dilutive stock options based on 372,849 294,783
---------- ----------
treasury stock
method using average market price
Weighted average common and common equivalent shares 8,967,438 8,779,828
========== ==========
Net income $1,855,000 $1,287,000
========== ==========
Earnings per share $ 0.21 $ 0.15
========== ==========
</TABLE>
-7-
<PAGE>
Item 2.
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
4/4/97 3/29/96
-------- ---------
Net sales 100.0% 100.0%
Cost of goods sold 58.7 61.9
----- -----
Gross profit 41.3 38.1
Selling and distribution expenses 23.2 23.4
General and administrative expenses 3.4 3.4
Research and development expenses 1.4 1.4
----- -----
28.0 28.2
----- -----
Income from operations 13.3 9.9
Interest expense 1.4 .9
----- -----
Income before income taxes 11.9 9.0
Provision for income taxes 4.9 3.7
----- -----
Net income 7.0% 5.3%
===== =====
Provision for income taxes as a percentage
of income before income taxes 41.0% 41.0%
===== =====
First Quarter of 1997 Compared to 1996
Net sales for the first quarter ended April 4, 1997 increased approximately
$2,136,000 or 8.8% over the similar prior year period. Net sales in the first
quarter of 1997 to the Company's Specialty Markets (Seventh-day Adventist,
Health Food, and International) decreased approximately $345,000 or 4.2% from
the similar prior year period. This decrease is attributed to strong fourth
quarter 1996 purchases which affected sales to the Seventh-day Adventist and
International markets for the first quarter of 1997. Net sales to the
Seventh-day Adventist and International markets decreased approximately $344,000
and $281,000 or 7.7% and 18.5% from the similar prior year period. Solid gains
were achieved in the Health Food market as net sales increased approximately
$281,000 or 12.5% over the similar prior year period.
Foodservice sales for the first quarter of 1997 increased approximately $528,000
or 20.4% over the similar prior year period. Several important distributors have
been added to the Company's list of foodservice accounts. Foodservice continues
to be a growth market and an area of increased focus for the Company.
-8-
<PAGE>
Net sales of Morningstar Farms products to supermarkets in the first quarter of
1997 increased approximately $1,953,000 or 14.4% over the similar prior year
period. Net sales of Morningstar Farms meat alternative products in the first
quarter of 1997 increased approximately $1,887,0000 or 17.6% over the similar
prior year period. The increase in sales of Morningstar Farms meat alternatives
can be attributed to new products and expanded distribution of existing
products. Three new Morningstar Farms products were introduced into selected
United States markets in early February, 1997. Chik Nuggets have been well
received by buyers and consumers in supermarkets with over 10% distribution.
Burger Crumbles for Recipes and Sausage Crumbles for Recipes are new low-fat
substitutes for cooked ground beef and sausage. The products are individually
quick frozen pieces of vegetable protein already cooked and ready for spaghetti
sauce, pizza toppings, chili, or any recipe calling for cooked ground meat or
sausage. Net sales of Morningstar Farms frozen egg substitutes for the first
quarter of 1997 increased approximately $66,000 or 2.4% over the similar prior
year period. The Company does not expect this trend to continue.
Gross profit as a percentage of net sales for the first quarter of 1997
increased from 38.1% in 1996 to 41.3% in 1997. Gross profit in the first quarter
of 1997 also increased from 40.4% which was reported for the fourth quarter of
1996. The improved gross profit percentage is a result of continued efforts to
control and reduce material costs, improve operating efficiencies at the
Company's two manufacturing facilities, the elimination of contract
manufacturers, and a modest price increase which went into effect in late
December, 1996.
Selling and distribution expenses for the first quarter of 1997 decreased as a
percentage of net sales from 23.4% in 1996 to 23.2% in 1997. Marketing expenses
were increased in early 1997 to support the introduction of new products and
expand the distribution of existing products; however, these expenses were
favorably offset by the efficiencies gained through higher sales volume. General
and administrative expenses, as well as research and development expenses, were
comparable to prior year percentages.
Interest expense for the first quarter of 1997 increased approximately $139,000
or 58.6% over the similar prior year period. This increase is attributable to
higher average borrowing levels associated with the Company's capital expansion
at the Zanesville facility and higher inventory levels to support future sales
growth.
Net income for the first quarter of 1997 increased approximately $568,000 or
44.1% over the similar prior year period. The increase is primarily attributable
to increased sales, increased gross profit percentages, and lower selling,
general and administrative expenses as a percentage of net sales, which were
partially offset by higher interest costs.
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 9, 1997,
$1,975,000 of this credit facility was unused. The Company is currently
negotiating with its lending institutions to increase the revolving credit
facility to $25,000,000. The Company anticipates that these negotiations will be
favorable. The Company believes that this borrowing capability plus internally
generated funds will be adequate to finance current growth levels into the
foreseeable future.
The $11,500,000 capital expansion project at Zanesville to install a second
production line to produce meat alternatives and to finish additional warehouse
space for dry storage is well underway. This project is expected to be completed
by the end of September, 1997 and is expected to be funded from cash generated
from operations and the revolving credit facility. As of May 9, 1997,
approximately $4,500,000 of the $11,500,000 has been paid.
Net cash used for operating activities during the first quarter of 1997
increased from the similar prior year period, primarily due to changes in
operating assets and liabilities, partially offset by an increase in net income.
-9-
<PAGE>
Net cash used for investing activities during the first quarter of 1997
increased from the similar prior year period, primarily due to purchases of
property, plant and equipment related to the $11,500,000 expansion project at
Zanesville.
Net cash provided by financing activities during the first quarter of 1997
increased from the similar prior year period due to higher average borrowing
levels associated with the Company's capital expansion at its Zanesville
facility, and higher inventory levels to support future sales growth.
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 sales 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 which are not historical fact are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform 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, market acceptance
of new and existing products, capital expenditure amounts, uninsured product
liability and other factors described in detail in the Company's Form 10-K for
the year ended December 31, 1996.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
-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
On April 22, 1997, an Annual Meeting of Shareholders was
held. The following directors were elected:
<TABLE>
For Withheld Votes Not Cast Broker Non-Votes
--- -------- -------------- ----------------
<S> <C> <C> <C>
Emil J. Brolick 6,928,814 156,441 1,492,543 --
Francisco J. Perez 6,930,531 154,724 1,492,543 --
Donald B. Shackelford 6,934,634 150,621 1,492,543 --
</TABLE>
The following directors continued their term of office: Roger D.
Blackwell, Allan R. Buller, George T. Harding, IV, Donald G. Orrick,
William D. Parker, and Dale E. Twomley.
The shareholders approved by a vote of 6,732,258 to 306,470, with
46,527 votes abstained, and 1,492,543 votes not cast, the proposed
amendment to Article Fourth of the Company's Amended and Restated
Articles of Incorporation to increase the authorized number of common
shares from 15,000,000 to 30,000,000. The shareholders also approved
the amendment of the Worthington Foods, Inc., 1993 Stock Option Plan
for Non-Employee Directors by a vote of 5,789,397 to 1,174,519, with
121,339 votes abstained, and 1,492,543 votes not cast. There were no
broker non-votes with regards to the two proposals mentioned above.
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 April 4, 1997.
-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: May 15, 1997 By: /s/ WILLIAM T. KIRKWOOD
_______________________________
William T. Kirkwood
Executive Vice President and
Chief Financial Officer
-12-
<PAGE>
EXHIBIT INDEX
Filed with Worthington Foods, Inc. Quarterly Report on Form 10-Q for the Quarter
Ended April 4, 1997.
Exhibit No. Page No.
11 Computation of Earnings Per Share 14
27 Financial Data Schedule 15
-13-
<TABLE>
WORTHINGTON FOODS, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
4/4/97 3/29/96
------ -------
<S> <C> <C>
Primary:
Weighted average number of common shares outstanding 8,594,589 8,485,045
Net effect of dilutive stock options based on treasury stock
method using average market price 372,849 294,783
---------- ----------
Weighted average common and common equivalent shares 8,967,438 8,779,828
========== ==========
Net income $1,855,000 $1,287,000
========== ==========
Earnings per share $ 0.21 $ 0.15
========== ==========
Fully diluted:
Weighted average number of common shares outstanding 8,594,589 8,485,045
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 376,380 305,464
---------- ----------
Weighted average common and common equivalent shares 8,970,969 8,790,509
========== ==========
Net income $1,855,000 $1,287,000
========== ==========
Earnings per share $ 0.21 $ 0.15
========== ==========
Note: 1996 share amounts have been adjusted to reflect the four-for-three share
split in December, 1996.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> APR-04-1997
<CASH> 733
<SECURITIES> 0
<RECEIVABLES> 7,555
<ALLOWANCES> 126
<INVENTORY> 22,284
<CURRENT-ASSETS> 34,057
<PP&E> 75,041
<DEPRECIATION> 22,619
<TOTAL-ASSETS> 88,174
<CURRENT-LIABILITIES> 8,754
<BONDS> 0
0
0
<COMMON> 8,634
<OTHER-SE> 42,089
<TOTAL-LIABILITY-AND-EQUITY> 88,174
<SALES> 26,489
<TOTAL-REVENUES> 26,489
<CGS> 15,555
<TOTAL-COSTS> 22,969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376
<INCOME-PRETAX> 3,144
<INCOME-TAX> 1,289
<INCOME-CONTINUING> 3,520
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,855
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
