SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996 Commission File Number 0-15584
Alpine Lace Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2717823
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Dunnell Road, Maplewood, New Jersey 07040
(Address of Principal Executive Offices)
(Registrant's telephone number, including area code):
201-378-8600
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 issuers classes of
common stock, as of the latest practicable date: As of August 1, 1996, there
were 5,125,602 shares of Common Stock, $.01 par value, outstanding.
1
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ALPINE LACE BRANDS, INC.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Earnings for the Three
Months and Six Months Ended June 30, 1996
and 1995 (unaudited) 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995 (unaudited) 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALPINE LACE BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 Dec. 31, 1995
(unaudited)
ASSETS (substantially pledged)
Cash and cash equivalents $ 65,802 $ 459,610
Accounts receivable, net of
allowance for bad debts 12,105,468 13,068,356
Inventories 7,111,887 6,213,256
Prepaid expenses and deposits 401,382 381,445
Advances to suppliers 300,000 300,000
Total current assets 19,984,539 20,422,667
Property, plant and equipment
Land, buildings and improvements 310,006 289,314
Equipment under capital leases 973,795 973,795
Leasehold improvements 121,115 106,176
Furniture, fixtures and equipment 2,615,642 2,389,337
4,020,558 3,758,622
Less accumulated depreciation
and amortization 1,649,814 1,422,968
2,370,744 2,335,654
OTHER ASSETS
Note Receivable - Mountain Farms, Inc. 1,675,948 1,675,948
Trademarks, tradenames and technology,
less accumulated amortization of
$942,400 in 1996 and $865,061
in 1995 1,478,901 1,556,240
Note receivable 8,235 16,035
Other 249,322 270,157
3,412,406 3,518,380
$25,767,689 $26,276,701
The accompanying notes are an integral part of these statements.
3
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ALPINE LACE BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 Dec. 31, 1995
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,327,399 $12,844,895
Accrued expenses 1,223,845 1,995,784
Income taxes 440,962 379,824
Current maturities of obligations under
capital leases 164,707 143,083
Total current liabilities 11,156,913 15,363,586
Long term obligations, less current maturities
Long term debt 7,983,591 5,325,945
Obligation under capital leases 338,228 409,561
Other long-term liability - 82,362
8,321,819 5,817,868
Stockholders' equity
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares;
issued and outstanding 45,000 at
June 30, 1996 liquidation amount
$50.00 per share 2,250,000 2,250,000
Common stock, par value $.01 per share,
authorized 10,000,000 shares; issued
5,176,302 shares; outstanding 5,141,202
at June 30, 1996 and 5,050,136 shares
issued and outstanding at
December 31, 1995 51,763 50,501
Additional paid-in capital 3,196,074 2,611,966
Retained earnings 992,498 182,780
Less: 35,100 shares of common
stock in treasury, at cost (201,378) -
6,288,957 5,095,247
$25,767,689 $26,276,701
The accompanying notes are an integral part of these statements.
4
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ALPINE LACE BRANDS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Net sales $37,567,174 $33,998,678 $70,118,168 $66,444,997
Cost of goods sold 28,778,201 24,641,816 53,681,630 48,320,711
Gross profit 8,788,973 9,356,862 16,436,538 18,124,286
Operating expenses
Selling 6,530,390 6,495,263 12,311,785 12,844,217
Administrative 1,260,732 1,257,316 2,300,912 2,346,956
7,791,122 7,752,579 14,612,697 15,191,173
Operating profit 997,851 1,604,283 1,823,841 2,933,113
Other income - 38,098 - 28,735
Interest expense - net 194,389 259,298 381,755 588,029
Earnings before
income taxes and
extraordinary item 803,462 1,383,083 1,442,086 2,373,819
Income taxes 305,316 179,801 547,993 246,180
Earnings before
extraordinary item 498,146 1,203,282 894,093 2,127,639
Extraordinary Item:
Gain from extinguishment
of debt, net of income
taxes of $7,451 - - - 103,760
Net earnings 498,146 1,203,282 894,093 2,231,399
Preferred Stock Dividends 42,188 39,844 84,375 39,844
Net earnings applicable
to common shareholders $ 455,958 $ 1,163,438 $ 809,718 $2,191,555
Earnings per share of common stock
Earnings before extraordinary
item $ .09 $ .22 $ .15 $ .40
Extraordinary item .00 .00 .00 .02
Net earnings per share of common
stock $ .09 $ .22 $ .15 $ .42
Weighted average number of common and
common equivalent shares
outstanding 5,248,845 5,299,278 5,271,888 5,247,605
The accompanying notes are an integral part of these statements.
5
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ALPINE LACE BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities
Net earnings $ 894,093 $2,231,399
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 304,185 278,461
Extraordinary gain from extinguishment
of debt, net of income taxes - (103,760)
Provisions for losses on accounts
receivable 13,296 25,989
(Gain) on sale of fixed assets - (20,738)
Change in assets and liabilities:
Decrease in accounts receivable 949,592 5,985,511
Increase in inventory (898,631) (1,167,106)
(Increase) Decrease in prepaid
expenses (19,937) 122,712
(Increase) Decrease in
other assets 20,835 (286,016)
Decrease in note receivable 7,800 6,998
Decrease in accounts payable (3,517,496) (4,731,291)
Decrease in accrued expenses (771,939) (601,427)
Increase in income taxes 61,138 216,472
Decrease in other long-term
liabilities (82,362) (247,085)
(3,933,519) (521,280)
Net cash (used in) provided by
operating activities $(3,039,426) $1,710,119
The accompanying notes are an integral part of these statements.
6
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ALPINE LACE BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
1996 1995
Cash flows from investing activities:
Additions to property, plant and equipment $ (261,936) $ (193,014)
Payments for trademarks and trade names - (5,087)
Proceeds from sale of fixed assets - 342,604
Net cash (used in) provided by investing
activities (261,936) 144,503
Cash flows from financing activities:
Net payments from obligation
under capital lease (49,709) (144,433)
Net proceeds (payments) under long-term
obligations 2,657,646 (4,197,017)
Net proceeds from preferred stock issued - 2,052,648
Net proceeds from stock option
exercises 585,370 47,282
Payment of dividends to preferred
shareholders (84,375) (39,844)
Treasury stock purchases (201,378) -
Net cash provided by (used in) financing
activities 2,907,554 (2,281,364)
Net (decrease) in cash and cash
equivalents (393,808) (426,742)
Cash and cash equivalents at beginning
of year 459,610 438,414
Cash and cash equivalents at end of
six months $ 65,802 $ 11,672
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 390,776 $ 617,978
Income taxes $ 486,856 $ 31,455
The accompanying notes are an integral part of these statements.
7
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ALPINE LACE BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the
financial position of Alpine Lace Brands, Inc. as of June 30, 1996 and
December 31, 1995 and the results of its operations for the three months
and six months ended June 30, 1996 and 1995 and cash flows for the six
months ended June 30, 1996 and 1995. All material intercompany accounts
and transactions have been eliminated.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission,
although the Company believes that the disclosures are adequate to make
the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the year-end financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K filed with the Securities Exchange Commission.
The accounting policies followed by the Company are set forth in the
notes to the Company's consolidated financial statements as set forth in
its Annual Report on Form 10-K.
2. The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the entire
fiscal year.
3. Inventories are summarized as follows:
June 30, 1996 December 31, 1995
Cheese inventory $6,725,657 $5,880,513
Packaging supplies 386,230 332,743
$7,111,887 $6,213,256
4. Earnings per share of common stock was computed by dividing net earnings,
after deducting preferred dividend requirements, by the weighted average
number of common equivalent shares outstanding during the period,
including the incremental shares from the dilutive effect of warrants and
stock options, if applicable.
5. The Company's operations consist of two segments: (1) the branded cheese
business which develops, markets, converts, packages and distributes
branded cheeses and deli meats; and (2) the Company's cheese and dairy
products trading business.
6. On August 2, 1996, the Company was served in a class action litigation
pending in the United States District Court for the Eastern District of
Wisconsin. The amended complaint contains allegations of violations
under the federal antitrust acts as well as claims of misrepresentation
and breach of contract and names Kraft Foods, Inc., Borden, Inc., The
National Cheese Exchange, Inc. and the Company as defendants.
Unspecified damages and injunctive relief is sought. The action is based
on an alleged conspiracy to manipulate the price of bulk cheese on The
National Cheese Exchange. Although it is too early to predict the
outcome of this lawsuit, in the Company's opinion, the allegations lack
merit and it is our intention to put forth a vigorous defense.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
a. Results of Operations.
Comparison of the Company's second quarter (April 1, 1996 - June 30,
1996) of the current fiscal year ("1996") with the second quarter (April
1, 1995 - June 30, 1995) of the last fiscal year ("1995").
Net sales for the second quarter ending June 30, 1996 were $37,567,174 as
compared to $33,998,678 in the same period of 1995. The Company's
Branded Division had increased sales of $1,880,045 for the second quarter
ending June 30, 1996 going from $27,814,348 in 1995 to $29,694,393 in the
same period of 1996 primarily due to increased sales of commodity cheddar
cheese. Sales for the Company's cheese and dairy products trading
business increased by 27.3% or $1,686,434 to $7,872,150 from $6,185,716
for the comparative period of 1995 primarily due to increased sales unit
volume.
As a percentage of sales, gross profit decreased to 23.4% in the second
quarter of 1996 from 27.5% in the comparable period of 1995. Gross
profit decreased by $567,889 in the quarter ending June 30, 1996 going
from $9,356,862 in 1995 to $8,788,973 in 1996. This decrease was the
result of the higher cost to purchase cheese resulting from higher
commodity prices, partially offset by continuing manufacturing
efficiencies.
Selling and administrative expenses increased from $7,752,579 in the
second quarter of 1995 to $7,791,122 in the same period of 1996. As a
percentage of sales, selling and administrative expenses decreased from
22.8% in the second quarter of 1995 to 20.7% in the comparable period of
1996.
The Company's operating profit decreased by $606,432 from $1,604,283 in
the second quarter of 1995 to $997,851 in the comparable period of 1996.
Operating profit as a percent of net sales decreased to 2.7% in the
second quarter of 1996 compared to 4.7% in the second quarter of 1995 due
to the lower gross profit previously discussed.
Net interest expense in the second quarter of 1996 was $194,389, a
decrease of $64,909 from the comparable period of 1995, as a result of
the Company's decreased use of its working capital credit line and lower
interest rates.
The Company's income tax provision for the second quarter of 1996 was
38.0% or $305,316. The Company's effective tax rate of 13.0% or $179,801
in the second quarter of 1995 included the utilization of net operating
loss carry-forwards generated in prior years.
The Company's net earnings for the quarter ending June 30, 1996 was
$498,146 compared to $1,203,282 for the same period of 1995 for the
reasons discussed above.
9
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b. Results of Operations.
Comparison of the Company's first six months (January 1, 1996 - June 30,
1996) of the current fiscal year ("1996") with the first six months
(January 1, 1995 - June 30, 1995) of the last fiscal year ("1995").
Net sales for the six months ending June 30, 1996 were $70,118,168 as
compared to $66,444,997 in the same period of 1995. The Company's
Branded Division had increased sales of $2,600,082 for the first six
months ending June 30, 1996 going from $53,150,647 in 1995 to $55,750,729
in the same period of 1996 primarily due to increased sales of commodity
cheddar cheese. Sales for the Company's cheese and dairy products
trading business increased by 8.1% or $1,078,120 to $14,366,572 from
$13,288,452 for the comparative period of 1995 due to higher average
selling price and increased sales unit volume.
As a percentage of sales, gross profit decreased to 23.4% in the first
six months of 1996 from 27.3% in the comparable period of 1995. Gross
profit decreased by $1,687,748 in the six months ending June 30, 1996
going from $18,124,286 in 1995 to $16,436,538 in 1996. This decrease
was the result of the higher cost to purchase cheese resulting from
higher commodity prices, partially offset by continuing manufacturing
efficiencies.
As a percentage of sales, selling and administrative expenses decreased
from 22.9% in the first six months of 1995 to 20.8% in the comparable
period of 1996. Selling and administrative expenses decreased from
$15,191,173 in the first six months of 1995 to $14,612,697 in the same
period of 1996. The major contributors to this decrease were from
advertising, slotting and reduced freight and warehousing expenses.
The Company's operating profit decreased by $1,109,272 from $2,933,113 in
the first six months of 1995 to $1,823,841 in the comparable period of
1996. Operating profit as a percent of net sales decreased to 2.6% in
the first six months of 1996 compared to 4.4% in the first six months of
1995 due to the lower gross profit, partially offset by lower selling and
administrative expenses previously discussed.
Net interest expense in the first six months of 1996 was $381,755 a
decrease of $206,274 from the comparable period of 1995, as a result of
the Company's decreased use of its working capital credit line and lower
interest rates.
The Company's income tax provision for the first six months of 1996 was
38.0% or $547,993. The Company's effective tax rate of 10.4% or $246,180
in the first six months of 1995 included the utilization of net operating
loss carry-forwards generated in prior years.
The Company's net earnings for the six months ending June 30, 1996 was
$894,093 compared to $2,231,399 for the same period of 1995 for the
reasons discussed above.
c. Financial Condition
The major sources of cash for the six months ending June 30, 1996 came
from the decrease in accounts receivable, net earnings and proceeds from
stock option exercises. The major uses of cash for the six months ending
June 30, 1996 were to fund decreases in accounts payable and increases in
inventory. As of August 1, 1996, the Company had approximately
$4,500,000 available on its revolving credit facility and $3,500,000
available on its equipment credit facility. The bank has agreed that the
Company may use up to $1,000,000 under the revolving credit facility to
fund the Company's previously announced plans to repurchase shares of its
common stock. As of August 1, 1996, the Company had repurchased 50,700
shares of common stock for a total cost of $281,047. The Company
anticipates purchasing shares with the balance of the $1,000,000, but the
actual number of shares purchased, the time of purchase and the prices at
which they will be purchased will be dependent on future conditions.
10
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PART II. Other Information
Item 1. Legal Proceedings
On August 2, 1996, the Company was served in a class action litigation
pending in the United States District Court for the Eastern District of
Wisconsin. The amended complaint contains allegations of violations under
the federal antitrust acts as well as claims of misrepresentation and breach
of contract and names Kraft Foods, Inc., Borden, Inc., The National Cheese
Exchange, Inc. and the Company as defendants. Unspecified damages and
injunctive relief is sought. The action is based on an alleged conspiracy to
manipulate the price of bulk cheese on The National Cheese Exchange. Although
it is too early to predict the outcome of this lawsuit, in the Company's
opinion, the allegations lack merit and it is our intention to put forth a
vigorous defense.
Item 4. Submission of Matters to a Vote of Security Holders
On May 16, 1996, the Company held its Annual Meeting of Stockholders (the
"Meeting"), whereby the stockholders elected Directors and approved a
proposal to ratify the appointment of Grant Thornton LLP as the Company's
independent auditors for the year ending December 31, 1996. The vote on such
matters was as follows:
1. Election of Directors:
For Withhold
Carl T. Wolf 4,664,461 27,422
Marion F. Wolf 4,663,861 28,022
Richard Cheney 4,662,261 29,622
Richard S. Hickok 4,662,761 29,122
Howard M. Lorber 4,664,347 27,536
Joseph R. Rosetti 4,664,961 26,922
Stephen Sadove 4,665,461 26,422
Marvin Schiller 4,665,761 26,122
2. RATIFICATION OF APPOINTMENT OF AUDITORS: To ratify the appointment of
Grant Thornton LLP as the independent auditors of the Company for the year
ending December 31, 1996.
For Against Abstain
4,656,011 28,933 6,939
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit.
Exhibit 11 Computation of Earnings per Share of Common Stock
b. Form 8-K Reports.
There were no current reports on Form 8-K filed by the registrant
during the quarter ended June 30, 1996.
11
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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 thereunto duly authorized.
ALPINE LACE BRANDS, INC.
By: /s/ Carl T. Wolf
Carl T. Wolf, President and Chairman of the Board
(Principal Executive Officer)
Dated: August 7, 1996
By: /s/ Arthur Karmel
Arthur Karmel, Vice President-Finance (Chief Accounting Officer)
Dated: August 7, 1996
12
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Exhibit 11.
ALPINE LACE BRANDS, INC.
Computation of Earnings Per Share of Common Stock
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Net Earnings for the Period $498,146 $1,203,282 $ 894,093 $2,231,399
Preferred Stock Dividends 42,188 39,844 84,375 39,844
Net Earnings for Computation
of Earnings Per Share 455,958(A) 1,163,438(A) 809,718(A)2,191,555(A)
Weighted Average
Number of Common
Shares Outstanding:
Weighted Average
Number of Issued
and Outstanding
Common Shares (1) 5,164,962 5,022,687 5,150,691 5,022,687
Incremental Shares
Attributable to
Assumed Exercise
of Stock Options
and Warrants (2) 83,883 276,591 121,197 224,918
Weighted Average
Number of Common
Shares (1) + (2) 5,248,845(B) 5,299,278(B) 5,271,888(B)5,247,605(B)
Earnings Per
Common and Common
Equivalent Share $ .09(A)/(B) $ .22(A)/(B) $ .15(A)/(B)$ .42(A)/(B)
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 65,802
<SECURITIES> 0
<RECEIVABLES> 12,161,790
<ALLOWANCES> 56,322
<INVENTORY> 7,111,887
<CURRENT-ASSETS> 19,984,539
<PP&E> 4,020,558
<DEPRECIATION> 1,649,814
<TOTAL-ASSETS> 25,767,689
<CURRENT-LIABILITIES> 11,156,913
<BONDS> 8,321,819
<COMMON> 51,763
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2,250,000
<OTHER-SE> 3,987,194
<TOTAL-LIABILITY-AND-EQUITY> 25,767,689
<SALES> 70,118,168
<TOTAL-REVENUES> 70,118,168
<CGS> 53,681,630
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