<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 March 31, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-19934
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 1800
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 April 30, 1996, the number of shares outstanding of each class of
common stock was:
Common Stock, $.01 par value: 15,234,161 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, March 31,
1995 1996
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,811 $ 4,339
Receivables, net of allowance for doubtful accounts of $1,595 and $1,821 . 28,043 24,891
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,123 11,367
Prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,597 1,431
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,089 3,089
Net assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . 836 831
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 50,499 45,948
PROPERTY, PLANT AND EQUIPMENT:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,713 5,843
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,804 21,422
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 43,552 45,832
------------ ------------
Gross property, plant and equipment . . . . . . . . . . . . . . . . 68,069 73,097
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . (17,748) (18,654)
------------ ------------
Net property, plant and equipment . . . . . . . . . . . . . . . . . 50,321 54,443
INTANGIBLE AND OTHER ASSETS:
Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . 1,847 1,931
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,671 58,591
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . 1,259 1,165
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 222
------------ ------------
Total intangible and other assets . . . . . . . . . . . . . . . . . 61,889 61,909
------------ ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162,709 $ 162,300
============ ============
</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, March 31,
1995 1996
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,488 $ 22,324
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,869 18,065
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 8,000 7,798
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 45,357 48,187
LONG-TERM DEBT (net of current maturities) . . . . . . . . . . . . . . . . . 36,000 34,202
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 4,029 3,917
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares authorized;
15,244,261 shares issued and outstanding in 1995 and 1996 . . . . . . . . 152 152
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 71,991 72,131
Treasury stock, at cost (230,000 shares in 1995 and 767,000 shares
in 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,840) (6,140)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,020 9,851
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 77,323 75,994
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $ 162,709 $ 162,300
============ ============
</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
March 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,893 $ 81,724
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,624 62,338
Selling, distribution, and general and administrative . . . . . . . . . . . . . . 13,185 14,498
---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,084 4,888
OTHER (INCOME) AND EXPENSE:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136 697
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (268) -
Amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . 96 95
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (392) (191)
---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,512 4,287
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,243 1,456
---------- ----------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2,269 2,831
DISCONTINUED OPERATIONS:
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . - -
Gain on disposal, net of applicable tax provision of $806 . . . . . . . . . . . . 694 -
---------- ----------
INCOME FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 694 -
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,963 $ 2,831
========== ==========
EARNINGS PER COMMON SHARE:
Earnings from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ .15 $ .19
Earnings from discontinued operations . . . . . . . . . . . . . . . . . . . . . . .05 -
---------- ----------
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .20 $ .19
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . 15,111,000 14,782,000
</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>
Three Months Ended
March 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,900 $ 84,890
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 34
Income Tax Refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 156
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . (66,235) (73,199)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,350) (752)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,175) (245)
----------- ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . 7,150 10,884
NET CASH USED BY DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . - -
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . 7,150 10,884
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary:
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 71
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . - (3,113)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (578)
----------- ----------
Net cash used by acquisition of subsidiary . . . . . . . . . . . . . . . . . - (3,620)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,925) (2,588)
Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . 5 -
Dividends received from Velda Preferred Stock . . . . . . . . . . . . . . . . . 268 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (152) 152
----------- ----------
Net cash used by continuing operations . . . . . . . . . . . . . . . . . . . . (2,804) (2,436)
Discontinued operations:
Sale of Velda Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 -
Capital and other expenditures . . . . . . . . . . . . . . . . . . . . . . . . . - -
Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . - -
----------- ----------
Net cash provided by discontinued operations . . . . . . . . . . . . . . . . . 3,000 -
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . 196 (6,056)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . - -
Net payments under revolving credit facility . . . . . . . . . . . . . . . . . . (58) -
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,000) (2,000)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . - (4,300)
----------- ----------
NET CASH USED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . (5,058) (6,300)
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . 2,288 (1,472)
CASH, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,152 5,811
----------- ----------
CASH, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,440 $ 4,339
=========== ==========
</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>
Three Months Ended
March 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,963 $ 2,831
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH FLOW FROM OPERATIONS:
Discontinued operations net income . . . . . . . . . . . . . . . . . . . . . . . (694) -
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,268 1,444
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . 675 675
Increase in deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,850 21
Change in assets and liabilities, net of effects from
acquisition of subsidiary:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,031 3,166
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,590) 13
Prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,197 166
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (495) 836
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,057) 1,869
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (137)
---------- ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . 7,150 10,884
DISCONTINUED OPERATIONS:
Discontinued operations net income . . . . . . . . . . . . . . . . . . . . . . . 694 -
Gain on disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (694) -
Increase in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . - -
---------- ----------
NET CASH USED BY DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . - -
---------- ----------
NET CASH PROVIDED BY OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,150 $ 10,884
========== ==========
</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
March 31, 1996
(1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 1996, and
for the three 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 March 31, 1996, and for the three 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
1995 financial statements contained in its most recent Annual Report on
Form 10-K. Certain prior year balances have been reclassified to conform
to the current year presentation.
On March 19, 1996, the Company completed the acquisition of
substantially all of the assets of Merkt Cheese Company ("Merkt"),
located in Bristol, Wisconsin. Merkt recorded approximately $10.3
million in sales for the fiscal year ending June 30, 1995. Merkt's
revenues during the first quarter of 1996 were immaterial to the
Company's consolidated statements of operations. The Company paid
approximately $3.62 million in cash for the assets purchased, and assumed
approximately $.3 million in liabilities. The source of funding for this
acquisition was provided by the Company's operations.
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 in cash after working capital
adjustments and $3 million of 9% Series A Preferred Stock (the "Velda
Preferred Stock"). The Company deferred the recognition of the gain on
the Velda Preferred Stock pending realization of the gain. The sale of
Velda completed the Company's divestiture of its regional dairies.
These regional dairy operations, along with the Company's other divested
operations, have been treated as discontinued operations, and previously
published financial statements have been restated to conform with this
presentation.
On March 31, 1995, the Velda Preferred Stock was redeemed by its
issuer at face value plus accrued dividends. The $3.0 million gain on
the stock, less applicable taxes and other reserves of $2.3 million, was
reflected in discontinued operations in the Consolidated Statements of
Operations for the three months ended March 31, 1995. The Company also
recognized $268,000 in dividends, related to the Velda Preferred Stock,
during the first quarter of 1996 which was recorded in continuing
operations.
(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 At
December 31, March 31,
1995 1996
-------------- ------------
<S> <C> <C>
Raw materials and supplies . . . . . . . . . . . . . . . . . . . $ 5,975 $ 5,848
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . 5,148 5,519
------------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,123 $ 11,367
============= ============
</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 March 31, 1996 were:
<TABLE>
<CAPTION>
Average
Amount of Interest
Debt Rate
-------------- --------------
(in thousands)
<S> <C> <C>
Senior term loan . . . . . . . . . . . . . . . . . . . . . . . $ 39,000 5.938%
Revolving credit facility (a) . . . . . . . . . . . . . . . . - - %
Industrial development revenue bonds . . . . . . . . . . . . . 3,000 3.650%
-------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Less: Current maturities . . . . . . . . . . . . . . . . . . 7,798
-------------
Long-term debt, net of current maturities . . . . . . . . . . $ 34,202
=============
</TABLE>
_________________
(a) As of March 31, 1996, there were no outstanding borrowings
under the revolving credit facility and letters of credit
totaling $8,555,000 were issued. As of March 31, 1996, the
Company had $16,445,000 in additional borrowing capacity
under the terms of its revolving credit facility.
(4) EARNINGS PER COMMON SHARE
The earnings (loss) per common share is computed based on the
weighted average number of shares of the Company's common stock and
common stock equivalents outstanding during the period. Common stock
equivalents represent the dilutive effect of the assumed exercise of
certain outstanding stock options.
(5) STOCK REPURCHASE PROGRAM
On June 21, 1995, the Company's Board of Directors announced that
it had approved a plan pursuant to which the Company may repurchase up to
$20 million of its common stock. The purchases will be effected through
open market transactions or negotiated transactions from time to time,
depending on the market price of the stock and other factors. As of
December 31, 1995, 230,000 shares had been repurchased by the Company at
a cost of $1.8 million. As of March 31, 1996, the Company had purchased
an additional 537,000 shares at a cost of $4.3 million.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.
Results of Operations - First Quarter 1996
Compared with First Quarter 1995
Net sales are classified into two categories: (i) Branded products, which
include sales of the Company's four national branded products -- International
Delight(R) gourmet flavored coffee creamers, Second Nature(R) egg product,
Lactaid(R) reduced lactose and lactose-free milks and Naturally Yours(R)
regular and no-fat sour cream; and (ii) Specialty products, which include all
sales of the Company's specialty foods business other than branded specialty
products.
Net sales for the first quarter of 1996 totaled $81.7 million, an increase
of $9.8 million from net sales for the same period in 1995. The following
table reflects net sales by business category from year to year (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
Business Category 1995 1996
----------------- ----------- -----------
<S> <C> <C>
Branded products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,527 $ 33,535
Specialty products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,366 48,189
----------- ----------
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,893 $ 81,724
=========== ==========
</TABLE>
Net sales of branded products increased by 21.8 % for the first quarter of
1996 when compared to the same period of 1995. This improvement was
accomplished through increased sales of International Delight and Lactaid. Net
sales of specialty products increased by 8.6% during the first quarter as
compared to 1995 primarily as a result of increased UHT and cultured product
sales.
Gross margin was 23.7% for the first quarter of 1996 compared to 24.0% for
the like period of 1995, despite the increased mix of branded products. This
slight reduction in gross margin is the result of increased prices for certain
raw materials used by the Company, offset in part by increased sales of branded
products, which provide higher margins.
Operating expenses as a percentage of net sales were 17.7% for the first
quarter of 1996 compared to 18.3% for the same period of 1995. Distribution
expenses as a percent of sales decreased as compared to 1995 despite the
increase in branded sales in the first quarter of 1996. This reflects the
Company's continued efforts to optimize its distribution programs. Selling
expenses increased as a percent of sales as a result of increased marketing and
promotional activities (up 1.8% as a percent of net sales) and increased
brokerage commissions related to the increase in branded sales. General and
administrative expenses as a percent of sales decreased as compared to 1995.
The Company's operating income during the first quarter of 1996 was $4.9
million, an increase of 19.7% from operating income for the first quarter of
1995 of approximately $4.1 million. The increase in operating income was
primarily due to the increased sales of branded products, in conjunction with
lower operating costs, offset by a slight reduction in gross margin.
For the first quarter, interest expense decreased by 38.6% from $1.1
million during 1995 to $.7 million during 1996. The decrease resulted from
lower debt levels in conjunction with lower average interest rates on the
Company's debt in 1996 as compared with the first quarter of 1995.
The Company recorded income from continuing operations of $2.8 million in
the first quarter of 1996 compared to income from continuing operations of $2.3
million in the same period last year. The improved profitability was primarily
the result of higher sales, lower operating costs and lower interest expense
offset by slightly lower gross margins.
8
<PAGE> 10
Liquidity and Capital Resources
Cash provided by continuing operations was $10.9 million during the first
three months of 1996 compared to cash provided by continuing operations of $7.2
million during the first three months of 1995. The sources of cash during the
first quarter of 1996 were the $10.9 million provided by continuing operations
and the reduced cash balance of $1.4 million. The sources of cash were utilized
to pay down debt of $2.0 million, to provide for capital and other expenditures
of $2.4 million, to provide for the purchase of Merkt for $3.6 million and to
purchase $4.3 million of treasury stock.
Capital expenditures during the first quarter of 1996 were spent primarily
on equipment additions for increased operating efficiencies. As of March 31,
1996, the Company was in compliance with all covenants and financial ratios
contained in its Senior Credit Agreement. Based upon the Company's projections
for the remainder of 1996, management does not anticipate any violation of the
financial covenants contained in the Senior Credit Agreement.
At March 31, 1996, the Company had approximately $16.4 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, treasury stock purchases and capital expenditures for the foreseeable
future.
Financing
As of March 31, 1996, the Company's senior credit agreement consisted of a
$97.0 million term loan and a $25.0 million revolving credit facility. As of
March 31, 1996, there were no outstanding borrowings under the revolving credit
facility and approximately $8,555,000 million in letters of credit were
outstanding. As of March 31, 1996, the unpaid principal balance of the term
loan was $39.0 million.
On April 13, 1994, the Company 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 consisting of $48 million in cash
after working capital adjustments and $3 million of 9% Series A Preferred
Stock. Following the application of the cash proceeds on April 13, 1994, the
Company had no revolver balance outstanding and had a remaining term loan
balance of approximately $64.2 million. The Company made additional term loan
principal payments during the years ended December 31, 1994, and 1995, of
approximately $11.8 million and $14.0 million respectively. The remaining
amortization schedule for the term loan as of March 31, 1996, is as follows:
<TABLE>
<CAPTION>
Approximate
Quarterly payment date(s) Quarterly payment
------------------------------------- -----------------
<S> <C>
June 20, 1996 - December 20, 1996 $ 2,000,000
March 20, 1997 1,798,000
June 20, 1997 - September 20, 1998 4,519,000
December 20, 1998 4,088,000
</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
99(A) Calculation of weighted average shares outstanding .
(b) Reports on Form 8-K.
(1) March 19, 1996.
Item 2. Acquisition or Disposition of Assets.
(a) Acquisition of Merkt Cheese Company.
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/ DARRON K. ASH
--------------------------------------
Darron K. Ash
(Authorized Officer)
Date: May 15, 1996
11
<PAGE> 13
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
99(A) Calculation of weighted average shares outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,339
<SECURITIES> 0
<RECEIVABLES> 26,712
<ALLOWANCES> 1,821
<INVENTORY> 11,367
<CURRENT-ASSETS> 45,948
<PP&E> 73,097
<DEPRECIATION> 18,654
<TOTAL-ASSETS> 162,300
<CURRENT-LIABILITIES> 48,187
<BONDS> 0
<COMMON> 75,994
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 162,300
<SALES> 81,724
<TOTAL-REVENUES> 81,724
<CGS> 62,338
<TOTAL-COSTS> 62,338
<OTHER-EXPENSES> 14,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 792
<INCOME-PRETAX> 4,287
<INCOME-TAX> 1,456
<INCOME-CONTINUING> 2,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,831
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
<PAGE> 1
EXHIBIT 99(A)
Calculation of weighted average shares outstanding.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------
1995 1996
----------------- -----------------
<S> <C> <C>
Shares outstanding during period 14,934,847 15,234,161
Treasury stock - (652,912)
Dilutive effect of stock options,
(using the treasury stock method) 176,153 200,751
------------ -----------
Weighted Average Common and Common Equivalent
Shares Outstanding 15,111,000 14,782,000
============ ===========
</TABLE>
