<PAGE> 1
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 September 30, 1994
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 0-19075
THE MORNINGSTAR GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2217488
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5956 SHERRY LANE, SUITE 1100
DALLAS, TEXAS 75225-6522
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 360-4777
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 .
--- ---
As of September 30, 1994, the number of shares outstanding of each class
of common stock was:
Common Stock, $.01 par value: 14,916,747 shares
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,340 $ 3,206
Receivables, net of allowance for doubtful accounts of $974 and $1,066 . . 26,762 25,633
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,527 13,175
Prepaids and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,519 5,053
Net assets of discontinued operations - current . . . . . . . . . . . . . . 5,571 -
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 56,719 47,067
PROPERTY, PLANT AND EQUIPMENT:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,062 6,062
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,463 17,844
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 29,334 33,514
------------ ------------
Gross property, plant and equipment . . . . . . . . . . . . . . . . 51,859 57,420
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . (9,749) (12,149)
------------ ------------
Net property, plant and equipment . . . . . . . . . . . . . . . . . 42,110 45,271
INTANGIBLE AND OTHER ASSETS:
Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . 3,177 2,703
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,829 67,771
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . 2,705 1,633
Net assets of discontinued operations - noncurrent . . . . . . . . . . . . 33,822 -
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,772 2,247
------------ ------------
Total intangible and other assets . . . . . . . . . . . . . . . . . 113,305 74,354
------------ ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212,134 $ 166,692
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE> 3
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,850 $ 17,679
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,663 20,129
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 14,750 2,995
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 50,263 40,803
LONG-TERM DEBT (net of current maturities) . . . . . . . . . . . . . . . . . 105,425 60,374
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 1,913 1,959
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares authorized;
14,287,212 shares in 1993 and 14,916,747 in 1994 issued and outstanding . 143 149
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 69,541 71,157
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,151) (7,750)
------------ ------------
Total stockholders' equity and retained deficit . . . . . . . . . . 54,533 63,556
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $ 212,134 $ 166,692
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 4
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1993 1994 1993 1994
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . $ 69,603 $ 70,429 $ 198,540 $ 214,835
Cost of goods sold . . . . . . . . . . . . . . . . 55,406 54,764 152,934 165,633
Selling, distribution, and general
and administrative . . . . . . . . . . . . . . . . 12,431 11,904 37,177 37,242
---------- ----------- ---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . 1,766 3,761 8,429 11,960
OTHER (INCOME) AND EXPENSE:
Interest expense, net . . . . . . . . . . . . . . . 1,273 942 3,703 3,319
Amortization of net deferred financing cost . . . . 128 90 366 260
Other income, net . . . . . . . . . . . . . . . . . (212) (217) (661) (887)
---------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . 577 2,946 5,021 9,268
Provision for income taxes . . . . . . . . . . . . 331 1,089 1,981 3,108
---------- ----------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . 246 1,857 3,040 6,160
DISCONTINUED OPERATIONS
Income (loss) from discontinued operations (a) . . 314 (252) 2,139 818
Gain (loss) on disposal (b) . . . . . . . . . . . . - (43) - 423
----------- ----------- ---------- ----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS . . . . . 314 (295) 2,139 1,241
---------- ----------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEM . . . . . . . . 560 1,562 5,179 7,401
EXTRAORDINARY ITEM (c) . . . . . . . . . . . . . . . - - (164) -
---------- ----------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 560 $ 1,562 $ 5,015 $ 7,401
========== =========== ========== ==========
EARNINGS PER COMMON SHARE:
Earnings from continuing operations . . . . . . . . $ .01 $ .12 $ .20 $ .41
Earnings (loss) from discontinued operations. . . . .02 (.02) .14 .08
---------- ----------- ---------- ----------
Earnings before extraordinary item . . . . . . . . .03 .10 .34 .49
Extraordinary item . . . . . . . . . . . . . . . . - - (.01) -
---------- ----------- ---------- ----------
Earnings per common share . . . . . . . . . . . . . $ .03 $ .10 $ .33 $ .49
========== =========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . 15,009,048 15,078,713 15,037,752 15,010,785
(a) Net of applicable tax provision of . . . . . . $ 171 $ - $ 1,034 $ 507
(b) Net of applicable tax provision of . . . . . . - - - 2,879
(c) Loss on purchase of senior subordinated debentures, net of applicable taxes of $71.
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 5
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1993 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . $ 199,671 $ 216,469
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 126
Income tax refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 -
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . (184,852) (195,756)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,621) (3,419)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (453) (1,784)
----------- ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . 9,928 15,636
NET CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . 4,996 (3,488)
----------- ----------
NET CASH PROVIDED BY OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 14,924 12,148
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,322) -
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,279) (5,846)
Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . 26 30
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,307) (502)
----------- ----------
Net cash used in continuing operations . . . . . . . . . . . . . . . . . . . (34,882) (6,318)
Discontinued Operations:
Sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . - 50,237
Capital and other expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (938) (482)
----------- ----------
Net cash provided (used) by discontinued operations . . . . . . . . . . . . . (938) 49,755
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . (35,820) 43,437
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuing common stock . . . . . . . . . . . . . . . . . . . . . . . 58 1,622
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . 35,000 -
Net payments on revolving credit facility . . . . . . . . . . . . . . . . . . . 1,313 (16,675)
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,731) (40,131)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,605) (535)
----------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . 20,035 (55,719)
----------- ----------
NET DECREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (861) (134)
CASH, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,849 3,340
----------- ----------
CASH, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,988 $ 3,206
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 6
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1993 1994
----------- -----------
<S> <C> <C>
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,015 $ 7,401
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH FLOW FROM OPERATIONS:
Discontinued operations net income . . . . . . . . . . . . . . . . . . . . . . (2,139) (1,241)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,824 3,092
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . 3,473 2,022
(Gain) loss on fixed asset retirements . . . . . . . . . . . . . . . . . . . . 30 (243)
Increase in deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 2,447 2,814
Loss on redemption of debentures . . . . . . . . . . . . . . . . . . . . . . . 164 -
Change in assets and liabilities, net of effects
from disposition of subsidiary:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 1,129
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,359) (1,648)
Prepaids & deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,784) 3,578
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,001 (239)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,991 (1,076)
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,031) 47
---------- ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . 9,928 15,636
DISCONTINUED OPERATIONS:
Discontinued operations net income . . . . . . . . . . . . . . . . . . . . . . 2,139 1,241
Gain on divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (423)
Change in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 572 (5,095)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 2,285 789
---------- ----------
NET CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . 4,996 (3,488)
---------- ----------
NET CASH PROVIDED BY OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,924 $ 12,148
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 7
THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of September 30, 1994,
and for the nine months then ended have been prepared by The Morningstar
Group Inc. (the "Company" or "Morningstar") without audit. In the
opinion of management, all necessary adjustments (which include only
normal recurring adjustments) to present fairly, in all material
respects, the consolidated financial position, results of operations and
changes in cash flows at September 30, 1994 and for the nine months then
ended, have been made. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These
financial statements should be read in conjunction with the Company's
1993 financial statements contained in its most recent Annual Report on
Form 10-K.
On April 13, 1994, Morningstar completed the divestiture of its
Florida-based fluid milk operation Velda Farms Inc. ("Velda") to Engles
Dairy Acquisition L.P. ("Purchaser") at an approximate selling price of
$51 million consisting of $48 million of cash and $3 million of 9% Series
A Preferred Stock. The sale of Velda completes the Company's divestiture
of its regional dairies. These operations have been treated as
discontinued operations, and previously published financial statements
have been restated to conform with this presentation.
On March 31, 1993, the Company acquired Favorite Foods Inc.,
("Favorite") a subsidiary of Nestle USA, Inc., for $28 million plus
expenses. Favorite, headquartered in Fullerton, California, is a
processor of cultured and ultrapasteurized products. The Company amended
its senior credit agreement to increase the term loan and borrowed funds
thereunder to complete this purchase.
(2) INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
At December 31, At September 30,
1993 1994
-------------- ----------------
<S> <C> <C>
Raw materials and supplies . . . . . . . . . . . . . . . . . . . $ 7,871 $ 7,757
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 3,656 5,418
-------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,527 $ 13,175
============== =============
</TABLE>
Finished goods inventories include the costs of materials, labor
and plant overhead.
6
<PAGE> 8
(3) DEBT
The Company's outstanding long-term debt and average interest
rates in effect on September 30, 1994 were:
<TABLE>
<CAPTION>
Average
Amount of Interest
Debt Rate
------------- --------
(in thousands)
<S> <C> <C>
Senior term loan . . . . . . . . . . . . . . . . . . . . . . $ 60,369 6.176%
Revolving credit facility (a) . . . . . . . . . . . . . . . . - 8.000%
Industrial development revenue bonds . . . . . . . . . . . . . 3,000 4.250%
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 63,369
Less: Current maturities . . . . . . . . . . . . . . . . . . 2,995
------------
Long term debt, net of current maturities . . . . . . . . . . $ 60,374
============
</TABLE>
(a) At September 30, 1994, there were no amounts borrowed under
the revolving credit facility and letters of credit
totalling $5,145,515 were issued. At September 30, 1994,
the Company had $19,854,485 in additional borrowing
capacity under the terms of its revolving credit facility.
(4) PRO FORMA RESULTS
The following unaudited pro forma information is presented to
illustrate the estimated effects of: (i) the acquisition of Favorite and
(ii) the divestiture of Velda as if both transactions had occurred at
January 1, 1993 (in thousands except per share information):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1993 1994 1993 1994
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Pro forma net sales . . . . . . . . . . . . . . . . . $ 69,603 $ 70,429 $ 209,727 $ 214,835
Pro forma net income . . . . . . . . . . . . . . . . 246 1,857 3,098 6,160
Pro forma shares outstanding . . . . . . . . . . . . 15,009,048 15,078,713 15,037,752 15,010,785
Pro forma earnings per share . . . . . . . . . . . . $ .01 $ .12 $ .21 $ .41
</TABLE>
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations - Third Quarter and Year-to-Date 1994
Compared with Third Quarter and Year-to-Date 1993
Net sales are classified into two categories: (i) branded specialty
products, which include historical sales of the Company's four national branded
products - International Delight(R) non-dairy coffee creamer, Second Nature(R)
egg product, Lactaid(R) reduced lactose milk and Naturally Yours(R) no fat sour
cream; and (ii) other specialty products, which includes all sales of the
Company's specialty foods business other than branded specialty products.
Net sales for the third quarter of 1994 totalled $70.4 million, an increase
of $.8 million from net sales for the same period in 1993. For the nine months
ended September 30, 1994, net sales were $214.8 million, an increase of $16.3
million from the same period in 1993. The following table reflects net sales
by business category from year to year:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
Business Category 1993 1994 1993 1994
----------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Branded specialty products . . . . . . . . . . . $ 18,811 $ 24,792 $ 57,253 $ 72,610
Other specialty products . . . . . . . . . . . . 50,792 45,637 141,287 142,225
----------- ------------ ----------- -----------
Net sales . . . . . . . . . . . . . . . . . . . $ 69,603 $ 70,429 $ 198,540 $ 214,835
=========== ============ =========== ===========
</TABLE>
Net sales of branded specialty products increased by 31.8% and 26.8% for
the third quarter and first nine months of 1994 when compared to similar
periods in 1993. This improvement was accomplished through increased sales of
all four branded products. Net sales of other specialty products decreased
10.1% during the third quarter due to declines in UHT, cultured and other while
sales for the first nine months remained relatively level with the same period
in 1993. The third quarter declines in net sales were primarily due to lower
volumes and competitive pricing.
Gross margin was 22.2% and 22.9% for the third quarter and first nine
months of 1994 compared to 20.4% and 23.0% for the same periods in 1993. These
comparisons are the result of increasing sales of branded products in the third
quarter, which contribute higher gross margins, but have been slightly offset
by increased competitive pricing in the other specialty products category.
Operating expense ratios were 16.9% and 17.3% for the third quarter and
first nine months of 1994 compared to 17.9% and 18.7% for the same periods in
1993. Distribution expenses, as a percent of net sales, remained relatively
level with the same period in 1993. Selling expenses increased as a percent of
net sales primarily as the result of increased advertising and promotional
activities related to the growth of branded specialty products. General and
administrative expenses declined as a percent of net sales due to the effects
of the Company's restructuring program.
The Company's operating income during the third quarter of 1994 was $3.8
million, an increase of 113.0% from operating income for the third quarter of
1993 of approximately $1.8 million. For the first nine months, 1994 operating
income was $12.0 million, an increase of 41.9% from 1993 operating income of
$8.4 million. The increase in operating income from like periods in 1993 was
the result of higher sales and gross margins.
For the third quarter, interest expense declined by 26.0% from $1.3
million in 1993 to $.9 million in 1994. For the first nine months, interest
expense declined 10.4%. These reductions resulted primarily from lower average
debt levels especially in the second and third quarter of 1994 following the
sale of Velda.
The Company recorded net income from continuing operations of $1.9 million
and $6.2 million in the third quarter and first nine months of 1994 compared to
$.2 million and $3.0 million for the comparable periods of 1993. The improved
profitability was primarily the result of higher branded sales and lower
interest expense and general and administrative expenses.
8
<PAGE> 10
The Company recorded a gain of approximately $.4 million net of applicable
taxes on the sale of Velda which was completed during the second quarter of
1994.
The Company recorded an extraordinary loss of $.2 million in the second
quarter of 1993 for the premium paid to retire approximately $4.8 million in
senior subordinated debentures.
During the fourth quarter of 1993, the Company recorded a charge of $9.0
million which included provisions for reductions in workforce, relocation of
the manufacturing of certain product lines to gain operating efficiencies, and
the abandonment of other product lines. The charge also included $1.9 million
representing the excess of the book value of operating assets sold in 1991 and
1992 over their estimated realizable value. Cash expenditures during the first
nine months of 1994 related to this charge were approximately $3.0 million,
with an additional $1.9 million expected in the remainder of 1994.
Liquidity and Capital Resources
Cash provided by continuing operations was $15.6 million during the first
nine months of 1994 compared to cash provided by continuing operations of $9.9
million during the first nine months of 1993. The sources of cash during the
first nine months of 1994 were the $15.6 million provided by continuing
operations, $50.2 million from the sale of Morningstar's discontinued
operations, $.1 million from reduced cash balances, and $1.6 million from the
exercise of stock options. These sources of cash were utilized to pay down
debt of $56.8 million, to provide for capital and other expenditures of $6.8
million, to pay dividends of $.5 million, and to provide $3.4 million used by
discontinued operations.
Capital expenditures during the first nine months of 1994 were spent
primarily on equipment additions for increased operating efficiencies. As of
the end of the third quarter of 1994, the Company was in compliance with all
covenants and financial ratios contained in its senior credit agreement.
At September 30, 1994 the Company had approximately $19.9 million in
unused borrowing capacity under its revolving credit facility. The Company
expects that operating cash flows, together with borrowings under its revolving
credit facility, will be sufficient to fund the Company's requirements for
working capital and capital expenditures for the foreseeable future.
Financing
As of September 30, 1994, the Company's senior credit agreement consisted
of a $60.4 million term loan and a $25.0 million revolving credit facility. As
of September 30, 1994, there were no amounts borrowed under the revolving
credit facility and approximately $5.1 million in letters of credit were
outstanding.
On April 13, 1994, Morningstar completed the divestiture of Velda, its
Florida-based fluid milk operation, to Engles Dairy Acquisition L.P. at an
approximate selling price of $51 million including $3.0 million of 9% Series A
Preferred Stock. After adjusting the selling price for increases in working
capital, approximately $48 million was received in cash. Following the
application of all cash proceeds on June 14, 1994, the Company had no revolver
balance outstanding and had a remaining term loan balance of approximately
$60.5 million. No further quarterly payments are required on the term loan
until June 20, 1995. The remaining amortization schedule for the term loan is
as follows:
<TABLE>
<CAPTION>
Approximate
Quarterly payment date(s) Quarterly payment
---------------------------------- -----------------
<S> <C>
June 20, 1995 $ 2,995,000
September 20, 1995 - March 20, 1997 3,723,000
June 20, 1997 - September 20, 1998 4,529,000
December 20, 1998 4,139,000
</TABLE>
9
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
To the knowledge of the Company, there are no reportable suits or
proceedings pending or threatened against or affecting the Company other than
those encountered in the ordinary course of the Company's business and
described in the Company's most recent Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 - Financial Data Schedule (Electronic Filing Only)
(b) Reports on Form 8-K.
None.
10
<PAGE> 12
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.
THE MORNINGSTAR GROUP INC.
/s/ C. DEAN METROPOULOS
-------------------------------------
C. Dean Metropoulos
President and Chief Executive Officer
(Authorized Officer)
Date: November 11, 1994
11
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------- ----------- ------------
<S> <C> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,206
<SECURITIES> 0
<RECEIVABLES> 26,699
<ALLOWANCES> 1,066
<INVENTORY> 13,175
<CURRENT-ASSETS> 47,067
<PP&E> 57,420
<DEPRECIATION> (12,149)
<TOTAL-ASSETS> 166,692
<CURRENT-LIABILITIES> 40,803
<BONDS> 0
<COMMON> 71,306
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 166,692
<SALES> 214,835
<TOTAL-REVENUES> 214,835
<CGS> 165,633
<TOTAL-COSTS> 194,049
<OTHER-EXPENSES> (753)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,445
<INCOME-PRETAX> 9,268
<INCOME-TAX> 3,108
<INCOME-CONTINUING> 6,160
<DISCONTINUED> 1,241
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,401
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
