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 September 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 November 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 September 30, 1996
(unaudited) and December 31, 1995
3
Consolidated Statements of Earnings for the Three
Months and Nine Months Ended September 30, 1996
and 1995 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 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 10
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALPINE LACE BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1996 Dec. 31, 1995
(unaudited)
ASSETS (substantially pledged)
Cash and cash equivalents $ 227,051 $ 459,610
Accounts receivable, net of
allowance for bad debts 14,021,076 13,068,356
Inventories 7,827,940 6,213,256
Prepaid expenses and deposits 468,813 381,445
Advances to suppliers 300,000 300,000
Total current assets 22,844,880 20,422,667
Property, plant and equipment
Land, buildings and improvements 311,622 289,314
Equipment under capital leases 973,795 973,795
Leasehold improvements 121,115 106,176
Furniture, fixtures and equipment 2,633,261 2,389,337
4,039,793 3,758,622
Less accumulated depreciation
and amortization 1,766,512 1,422,968
2,273,281 2,335,654
OTHER ASSETS
Note Receivable - Mountain Farms, Inc. 1,675,948 1,675,948
Trademarks, tradenames and technology,
less accumulated amortization of
$981,070 in 1996 and $865,061
in 1995 1,440,232 1,556,240
Note receivable 4,173 16,035
Other 233,851 270,157
3,354,204 3,518,380
$28,472,365 $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
September 30, 1996 Dec. 31, 1995
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 12,391,470 $12,844,895
Accrued expenses 2,065,785 1,995,784
Income taxes 604,364 379,824
Current maturities of obligations under
capital leases 143,083 143,083
Total current liabilities 15,204,702 15,363,586
Long term obligations, less current maturities
Long term debt 6,121,491 5,325,945
Obligation under capital leases 322,495 409,561
Other long-term liability - 82,362
6,443,986 5,817,868
Stockholders' equity
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares;
issued and outstanding 45,000 at
September 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 5,125,602
at September 30, 1996 and 5,050,136
shares issued and outstanding at
December 31, 1995 51,763 50,501
Additional paid-in capital 3,196,179 2,611,966
Retained earnings 1,606,782 182,780
Less: 50,700 shares of common
stock in treasury, at cost (281,047) -
6,823,677 5,095,247
$28,472,365 $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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Net sales $53,116,255 $37,240,549 $123,234,423 $103,685,546
Cost of goods sold 42,580,618 27,897,283 96,262,247 76,217,994
Gross profit 10,535,637 9,343,266 26,972,176 27,467,552
Operating expenses
Selling 7,949,191 6,730,938 20,260,977 19,575,155
Administrative 1,263,862 1,165,588 3,564,774 3,512,543
9,213,053 7,896,526 23,825,751 23,087,698
Operating profit 1,322,584 1,446,740 3,146,425 4,379,854
Other income - 3,811 - 32,545
Interest expense - net (263,760) (228,628) (645,515) (816,657)
Earnings before
income taxes and
extraordinary item 1,058,824 1,221,923 2,500,910 3,595,742
Income taxes 402,353 219,946 950,346 466,126
Earnings before
extraordinary item 656,471 1,001,977 1,550,564 3,129,616
Extraordinary Item:
Gain from extinguishment
of debt, net of income
taxes of $7,451 - - - 103,760
Net earnings 656,471 1,001,977 1,550,564 3,233,376
Preferred Stock Dividends 42,188 42,188 126,563 82,031
Earnings applicable to
MCT, Dairies, Inc. Option 85,244 1,474 87,480 3,606
Net earnings applicable
to common shareholders $ 529,039 $ 958,315 $ 1,336,521 $3,147,739
Earnings per share of common stock
Earnings before extraordinary
item $ .10 $ .18 $ .26 $ .58
Extraordinary item .00 .00 .00 .02
Net earnings per share of common
stock $ .10 $ .18 $ .26 $ .60
Weighted average number of common
and common equivalent shares
outstanding 5,226,159 5,363,140 5,249,225 5,286,117
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)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities
Net earnings $1,550,564 $3,233,376
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 459,552 430,830
Extraordinary gain from extinguishment
of debt, net of income taxes - (103,760)
Provisions for losses on accounts
receivable 56,273 119,706
(Gain) on sale of fixed assets - (20,738)
Change in assets and liabilities:
(Increase) Decrease in accounts
receivable (1,008,993) 3,691,203
(Increase) Decrease in inventory (1,614,684) 138,263
(Increase) Decrease in prepaid
expenses (87,368) 133,443
(Increase) Decrease in other assets 36,306 (452,067)
Decrease in note receivable 11,862 10,641
Decrease in accounts payable (453,425) (5,244,358)
(Increase) Decrease in accrued
expenses 70,001 (236,984)
Increase in income taxes 224,540 426,273
Decrease in other long-term
liabilities (82,362) (370,627)
(2,388,298) (1,481,061)
Net cash (used in) provided by
operating activities $ (837,734) $1,752,315
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)
Nine Months Ended
September 30,
1996 1995
Cash flows from investing activities:
Additions to property, plant and equipment $ (281,170) $ (327,941)
Payments for trademarks and trade names - (2,047)
Proceeds from sale of fixed assets - 452,812
Net cash (used in) provided by investing
activities (281,170) 122,824
Cash flows from financing activities:
Net payments from obligation
under capital lease (87,066) (179,616)
Net proceeds (payments) under long-term
obligations 795,546 (4,033,808)
Net proceeds from preferred stock issued - 2,016,741
Net proceeds from stock option
exercises 585,475 47,282
Payment of dividends to preferred
shareholders (126,563) (82,031)
Treasury stock purchases (281,047) -
Net cash provided by (used in) financing
activities 886,345 (2,147,494)
Net (decrease) in cash and cash
equivalents (232,559) (272,355)
Cash and cash equivalents at beginning
of year 459,610 438,414
Cash and cash equivalents at end of
nine months $ 227,051 $ 166,059
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 624,621 $ 881,253
Income taxes $ 725,806 $ 44,588
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 September 30,
1996 and December 31, 1995 and the results of its operations for the
three months and nine months ended September 30, 1996 and 1995 and
cash flows for the nine months ended September 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 contained in its Annual
Report on Form 10-K.
2. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the entire fiscal year.
3. Inventories are summarized as follows:
September 30, 1996 December 31, 1995
Cheese inventory $7,382,985 $5,880,513
Packaging supplies 444,955 332,743
$7,827,940 $6,213,256
4. Earnings per share of common stock was computed by dividing net
earnings, after deducting preferred dividend requirements and earnings
applicable to MCT Dairies, Inc. option, 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. In October, 1996, the Company was joined as a
defendant in a second class action suit pending in the United States
District Court for the Eastern District of Wisconsin. The complaints in
these two actions are nearly identical, were filed by the same plaintiff's
lawyer, and were brought on behalf of the same class. However, the named
plaintiffs and class representatives in the first action are Illinois
residents whereas the named plaintiffs and class representatives in the
second action are Wisconsin residents. The second action was brought to
help defeat a then pending motion to transfer the first case to Illinois.
The motion to transfer has been denied and a motion by plaintiffs to
consolidate the two cases is now pending.
8
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Both complaints contain allegations of violations under the federal
antitrust acts as well as claims of misrepresentation and breach of
contract and name Kraft Foods, Inc., Borden, Inc., The National Cheese
Exchange, Inc. and the Company as defendants. Unspecified damages and
injunctive relief are sought. These actions are based on an alleged
conspiracy to manipulate the price of bulk cheese on The National Cheese
Exchange.
On September 9, 1996, in litigation commenced by the Company in 1995 in
the United States District Court for the District of New Jersey against
Kraft Foods, Inc., Borden, Inc. Beatrice Cheese, Inc. and Schreiber Foods,
Inc. alleging infringement of the Company's patent for the manufacture of
low fat cheese, a motion for partial summary judgment was granted in favor
of Borden and Schreiber. This decision has been appealed to the U.S. Court
of Appeals for the Federal Circuit in Washington D.C. and it is
anticipated that the appeal will be heard with the currently pending
appeal of an earlier grant of summary judgment in favor of Kraft. A motion
for partial summary judgment by the fourth defendant Beatrice was denied
in September 1996.
In addition, in this litigation, motions have been filed by Kraft to have
the case declared exceptional under Section 285 of the Patent Statute and
by Borden and Schreiber to have the case declared exceptional in part. If
the motions are granted, it is anticipated that the Company would appeal.
If the case is ultimately declared exceptional, the Company may be liable
to those parties for some portion of their reasonable attorneys fees and
expenses.
9
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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 third quarter (July 1, 1996 - September 30,
1996) of the current fiscal year ("1996") with the third quarter (July 1,
1995 - September 30, 1995) of the last fiscal year ("1995").
Net sales for the third quarter ending September 30, 1996 were $53,116,255
as compared to $37,240,549 in the same period of 1995. The Company's
Branded Division had increased sales of $1,747,091 for the third quarter
ending September 30, 1996 going from $28,235,930 in 1995 to $29,983,021 in
the same period of 1996 primarily due to increases in selling prices.
Sales for the Company's cheese and dairy products trading business
increased by 156.9% or $14,127,597 to $23,131,774 from $9,004,177 for the
comparative period of 1995 primarily due to increased sales unit volume
and higher average selling price.
As a percentage of sales, gross profit decreased to 19.8% in the third
quarter of 1996 from 25.1% in the comparable period of 1995. This decrease
was the result of the increased sales at the Company's cheese and dairy
products trading business, where gross profit as a percent of sales is
lower and the higher cost to purchase cheese resulting from higher
commodity prices, partially offset by continuing manufacturing
efficiencies. Gross profit increased by $1,192,371 in the quarter ending
September 30, 1996 going from $9,343,266 in 1995 to $10,535,637 in 1996.
This increase was the result of the increased gross profit from the
Company's cheese and dairy products trading business partially offset by
decreased gross profit from the Company's Branded Division.
As a percentage of sales, selling and administrative expenses decreased
from 21.2% in the third quarter of 1995 to 17.3% in the comparable period
of 1996. Selling and administrative expenses increased from $7,896,526 in
the third quarter of 1995 to $9,213,053 in the same period of 1996. The
major contributors to this increase were from commissions, printing,
coupon and co-op advertising expenses.
The Company's operating profit decreased by $124,156 from $1,446,740 in
the third quarter of 1995 to $1,322,584 in the comparable period of 1996.
Operating profit as a percent of net sales decreased to 2.5% in the third
quarter of 1996 compared to 3.9% in the third quarter of 1995 due to the
lower gross profit percent previously discussed.
Net interest expense in the third quarter of 1996 was $263,760, an
increase of $35,132 from the comparable period of 1995, as a result of the
Company's increased use of its working capital credit line partially
offset by lower interest rates.
The Company's income tax provision for the third quarter of 1996 was 38.0%
or $402,353. The Company's effective tax rate of 18.0% or $219,946 in the
third 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 September 30, 1996 was
$656,471 compared to $1,001,977 for the same period of 1995 for the
reasons discussed above.
10
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b. Results of Operations.
Comparisons of the Company's first nine months (January 1, 1996 -
September 30, 1996) of the current fiscal year ("1996") with the first
nine months (January 1, 1995 - September 30, 1995) of the last fiscal
year ("1995").
Net sales for the nine months ending September 30, 1996 were $123,234,423
as compared to $103,685,546 in the same period of 1995. The Company's
Branded Division had increased sales of $4,347,173 for the first nine
months ending September 30, 1996 going from $81,386,577 in 1995 to
$85,733,750 in the same period of 1996 primarily due to increased sales of
commodity cheddar cheese and increases in selling prices. Sales for the
Company's cheese and dairy products trading business increased by 68.2% or
$15,205,717 to $37,498,346 from $22,292,629 for the comparative period of
1995 due to increased sales unit volume and higher average selling price.
As a percentage of sales, gross profit decreased to 21.9% in the first
nine months of 1996 from 26.5 in the comparable period of 1995. This
decrease was the result of the increased sales at the Company's cheese and
dairy products trading business, where gross profit as a percent of sales
is lower and the higher cost to purchase cheese resulting from higher
commodity prices, partially offset by continuing manufacturing
efficiencies. Gross profit decreased by $495,376 in the nine months ending
September 30, 1996 going from $27,467,552 in 1995 to $26,972,176 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 22.3% in the first nine months of 1995 to 19.3% in the comparable
period of 1996. Selling and administrative expenses increased from
$23,087,698 in the first nine months of 1995 to $23,825,751 in the same
period of 1996. The major contributors to this increase were from
commission and promotion expenses.
The Company's operating profit decreased by $1,233,429 from $4,379,854 in
the first nine months of 1995 to $3,146,425 in the comparable period of
1996. Operating profit as a percent of net sales decreased to 2.6% in the
first nine months of 1996 compared to 4.2% in the first nine months of
1995 due to the lower gross profit previously discussed.
Net interest expense in the first nine months of 1996 was $645,515 a
decrease of $171,142 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 nine months of 1996 was
38.0% or $950,346. The Company's effective tax rate of 13.0% or $466,126
in the first nine months of 1995 included the utilization of net operating
loss carry-forwards generated in prior years.
The Company's net earnings for the nine months ending September 30, 1996
was $1,550,564 compared to $3,233,376 for the same period of 1995 for the
reasons discussed above.
c. Financial Condition
The major sources of cash for the nine months ending September 30, 1996
came from net earnings, proceeds from stock option exercises and the
decrease in accounts payable. The major uses of cash for the nine months
ending September 30, 1996 were to fund increases in accounts receivable
and inventory. On October 17, 1996, the Company renegotiated and reduced
its asset based revolving credit to $15,000,000. The revolving credit
facility in the amount of $13,500,000 and an equipment credit facility in
the amount of $1,500,000 have been extended through March 2, 2000. As of
October 22, 1996, the Company had approximately $4,500,000 available on
its revolving credit facility and $1,500,000 available on its equipment
credit facility.
11
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The bank has agreed that the Company may use up to $1 million under the
revolving credit facility to fund the Company's previously announced plans
to repurchase shares of its common stock. As of November 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 million, 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.
12
<PAGE>
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. In October, 1996, the Company was joined as a defendant in a
second class action suit pending in the United States District Court for
the Eastern District of Wisconsin. The complaints in these two actions are
nearly identical, were filed by the same plaintiff's lawyer, and were
brought on behalf of the same class. However, the named plaintiffs and
class representatives in the first action are Illinois residents whereas
the named plaintiffs and class representatives in the second action are
Wisconsin residents. The second action was brought to help defeat a then
pending motion to transfer the first case to Illinois. The motion to
transfer has been denied and a motion by plaintiffs to consolidate the two
cases is now pending.
Both complaints contain allegations of violations under the federal
antitrust acts as well as claims of misrepresentation and breach of
contract and name Kraft Foods, Inc., Borden, Inc., The National Cheese
Exchange, Inc. and the Company as defendants. Unspecified damages and
injunctive relief are sought. These actions are based on an alleged
conspiracy to manipulate the price of bulk cheese on The National Cheese
Exchange.
On September 9, 1996, in litigation commenced by the Company in 1995 in
United States District Court for the District of New Jersey against Kraft
Foods, Inc., Borden, Inc. Beatrice Cheese, Inc. and Schreiber Foods, Inc.
alleging infringement of the Company's patent for the manufacture of low
fat cheese, a motion for partial summary judgment was granted in favor of
Borden and Schreiber. This decision has been appealed to the U.S. Court of
Appeals for the Federal Circuit in Washington D.C. and it is anticipated
that the appeal will be heard with the currently pending appeal of an
earlier grant of summary judgment in favor of Kraft. A motion for partial
summary judgment by the fourth defendant Beatrice was denied in September
1996.
In addition, in this litigation, motions have been filed by Kraft to have
the case declared exceptional under Section 285 of the Patent Statute and
by Borden and Schreiber to have the case declared exceptional in part. If
the motions are granted, it is anticipated that the Company would appeal.
If the case is ultimately declared exceptional, the Company may be liable
to those parties for some portion of their reasonable attorneys fees and
expenses.
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 September 30, 1996.
13
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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: November 13, 1996
By: /s/ Arthur Karmel
Arthur Karmel, Vice President-Finance (Chief Accounting Officer)
Dated: November 13, 1996
14
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Exhibit 11.
ALPINE LACE BRANDS, INC.
Computation of Earnings Per Share of Common Stock
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Net Earnings for the Period $ 656,471 $1,001,977 $1,550,564 $3,233,376
Preferred Stock Dividends 42,188 42,188 126,563 82,031
Earnings Applicable to
MCT Dairies, Inc. Option 85,244 1,474 87,480 3,606
Net Earnings for Computation
of Earnings Per Share 529,039(A) 958,315(A) 1,336,521(A) 3,147,739(A)
Weighted Average
Number of Common
Shares Outstanding:
Weighted Average
Number of Issued
and Outstanding
Common Shares (1) 5,128,001 5,040,287 5,143,072 5,040,287
Incremental Shares
Attributable to
Assumed Exercise
of Stock Options
and Warrants (2) 98,158 322,853 106,153 245,830
Weighted Average
Number of Common
Shares (1) + (2) 5,226,159(B) 5,363,140(B) 5,249,225(B) 5,286,117(B)
Earnings Per
Common and Common
Equivalent Share $ .10(A)/(B) $ .18(A)/(B) $ .26(A)/(B) $ .60(A)/(B)
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 227,051
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<RECEIVABLES> 14,120,375
<ALLOWANCES> 99,299
<INVENTORY> 7,827,940
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<BONDS> 6,443,986
0
2,250,000
<COMMON> 51,763
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<SALES> 123,234,423
<TOTAL-REVENUES> 123,234,423
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