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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT
REPORTED):
FEBRUARY 3, 1998
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GARDENBURGER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OREGON
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-20330
(COMMISSION FILE NO.)
93-0886359
(IRS EMPLOYER IDENTIFICATION NO.)
1411 S.W. MORRISON STREET
SUITE 400
PORTLAND, OREGON 97205
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(503) 205-1500
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<PAGE>
ITEM 5. OTHER EVENTS.
On February 3, 1998, Gardenburger, Inc. ("Gardenburger") issued a press
release announcing financial results for the fourth quarter and fiscal year
ended December 31, 1997. A copy of the press release is attached as an exhibit
to this report.
On February 4, 1998, Lyle G. Hubbard, President and Chief Executive Officer
of Gardenburger, and Richard C. Dietz, Executive Vice President and Chief
Financial Officer, discussed the 1997 financial results and related matters in a
conference call with members of the investment community. During the discussion
and in response to questions, Mr. Hubbard and Mr. Dietz made the following
statements:
1. 1997 was a successful year for Gardenburger. Sales for the year totaled
$56.8 million, a 40 percent gain over 1996. The company successfully rolled out
its products on a national basis into the grocery channel, securing a strong
number two market share position after only six months of national availability.
The company began national advertising for the Gardenburger(R) brand in May, and
in November the company successfully introduced into retail channels two new
Gardenburger flavors: Hamburger Style(TM) and Hamburger Style with Cheese(TM).
The company secured a new manufacturing plant earlier and at lower cost than
planned. The company secured new, significant food service customers, completed
its senior management hiring, and changed its name from Wholesome & Hearty
Foods, Inc. to Gardenburger, Inc. to better reflect its intent to focus on the
veggie burger segment. Quarterly sales growth as compared to the prior year
periods increased from 3 percent in the fourth quarter of 1996 to 9 percent in
the first quarter of 1997, to 19 percent in the second quarter, to 41 percent in
the third quarter, and finally to 105 percent in the fourth quarter. The company
made the investments to achieve these accomplishments while showing an operating
loss of approximately $1.4 million.
2. Gardenburger's innovative print advertising helped the company increase
its market share, which started the year at 14 percent, to a high of 32 percent
following a Labor Day promotion that combined advertising, couponing and trade
promotion. The company finished the year at a 25 percent market share, up 11
share points from the start of 1997.
3. The biggest contributor to the company's growth in 1997 was the grocery
channel. Sales in this channel were up 167 percent over grocery channel sales in
1996.
4. Gardenburger is in the process of selling its Portland-area property
that was originally purchased to construct a new manufacturing facility. The
Company estimates that proceeds of the sale will be between $1.5 million and $2
million.
5. Gardenburger's new Clearfield, Utah plant will begin production in
February 1998. The new facility is expected to improve product quality,
consistency, and margins while also providing the company with significant
additional capacity, packaging flexibility and new product capability.
<PAGE>
6. Gardenburger's goal is to create a company with $200 million in sales in
the year 2000, generating 8 to 12 percent operating income margin. Its
strategies to accomplish that goal are to:
-- Secure the leadership position in every channel where consumers buy
veggie patties.
-- Brand the veggie patty category with the Gardenburger name via
consumer advertising.
-- Leverage the Gardenburger brand name to work synergistically across
channels, especially grocery and food service.
-- Position Gardenburger as the supplier of choice when national
quick-serve restaurants enter the veggie patty category, by having the
recognized leadership position and the internal capabilities to
support customers' growth plans.
7. The company intends to use a growth strategy that worked for granola
bars and rice cakes. In both cases the keys to growth were: (1) a large, and
growing, consumer target with an unfulfilled product need; (2) a good tasting
product innovation to meet this need; and (3) significant levels of television
advertising to create consumer awareness, buying interest and trial.
Gardenburger's research shows that as of 1997, 58 percent of adults in the U.S.
were actively trying to eat a healthier diet by reducing their red meat
consumption and lowering their fat intake. The company believes it has a great
tasting product. In 1998 Gardenburger will engage in a television and print
advertising plan measured at $14 million by syndicated data sources. This
advertising plan is intended to drive consumer awareness of the company's
products from 27 percent in 1997 toward 90 percent in 1998, and to significantly
increase the numbers of consumers buying Gardenburger veggie patties.
8. Following a New Year's coupon promotion, Gardenburger's share increased
to 39 percent in the first week of January following the promotion, and held at
37 percent for the first three weeks in January. The company held the number one
market share for that time period, and sold, on a weekly basis during that
period, one-third more volume than during the highest sales week at any time
during the 1997 grilling season.
9. The company is introducing three new flavors of veggie patty. These
flavors are: Savory Mushroom(TM) with portabella mushrooms and wild rice, Fire
Roasted Vegetable(TM) with roasted garlic and sun-dried tomatoes, and Classic
Greek(TM) with kalamata olives and feta cheese. All three products were tested
with consumers who indicated a high buying interest.
<PAGE>
10. The company is taking a calculated risk in 1998 by significantly
increasing its marketing spending and new product introductions. As a result,
shareholders can expect higher levels of Gardenburger veggie patty sales in the
first and second quarters of 1998, as compared to the same periods of 1997.
However, depending on how quickly advertising drives sales, losses in the first
and second quarters will also likely be greater than in 1997. The company may
also post a loss in the third quarter, but expects that the fourth quarter will
be profitable. The company expects to post a small profit or perhaps a loss for
all of 1998, depending on the success of the advertising campaign. The company
expects that its gross margin will be lower in the first quarter of 1998 than in
the first quarter of 1997, but that gross margins for the year will exceed those
realized in 1997.
11. The company will need sales of approximately $120 million to achieve
operating income margins of 8 to 12 percent while maintaining an appropriate
level of advertising. Management believes that there is a reasonable likelihood
that the company can realize that level of sales in 1999.
Mr. Dietz noted that the statements about future events or performance made
in the course of the discussion were forward-looking statements. The
forward-looking statements included statements related to expected retail sales,
market penetration and consumer acceptance, sales growth rates, revenues,
expenses, earnings, operating losses and cash reserves. These statements are
necessarily subject to risk and uncertainty. Actual results could differ
materially from those projected in these forward looking statements as a result
of certain risk factors, including those set forth in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and its 1996 Annual
Report to Shareholders. These risk factors include, but are not limited to, the
company's reliance on product acceptance, the company's ability to execute its
retail distribution plans, the company's ability to control costs, the
effectiveness of the company's sales and marketing efforts, and intense
competition in the meatless food products industry, which the company believes
will increase. Although forward-looking statements help provide complete
information about the Company, investors should keep in mind that
forward-looking statements are inherently less reliable than historical
information.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
The exhibits filed herewith are listed in the exhibit index following the
signature page of this report.
<PAGE>
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 hereunto duly authorized.
GARDENBURGER, INC.
Dated: February 6, 1998 By: /s/ Richard C. Dietz
-------------------------
Richard C. Dietz
Executive Vice President
and Chief Financial Officer
EXHIBIT INDEX
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99 Press release of Gardenburger, Inc., dated February 3, 1998.
<PAGE>
EXHIBIT 99
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FOR IMMEDIATE RELEASE
CONTACT: RICHARD C. DIETZ SEAN BEERS
CHIEF FINANCIAL OFFICER INVESTOR RELATIONS
(503) 205-1500 (503) 844-8888 X-105
GARDENBURGER, INC. REPORTS 105% RISE IN NET SALES
AND RECORD EARNINGS DURING FOURTH QUARTER
PORTLAND, Ore., Feb. 3, 1998 -- Gardenburger, Inc. (NASDAQ:GBUR) today
announced financial results for the fourth quarter ended December 31, 1997,
showing a continuation of its accelerating sales growth with a 105 percent
increase in net sales over the same period in 1996 and record earnings of
$979,000, or $.11 per share on a basic basis. For the year, the Company reported
net sales growth of 40 percent over 1996 and a net loss of $1.4 million, which
was in line with its operating plan. These results reflect the Company's
reclassification of certain trade promotions and sales discounts during the
fourth quarter, which are now shown as sales and marketing expenses rather than
as offsets to net sales. All comparative figures have been restated for this
reclassification.
For the fourth quarter ended December 31, 1997, net sales increased 105
percent to $17.0 million from $8.3 million for the fourth quarter of 1996. The
gross profit percentage in the fourth quarter of 1997 was approximately 56
percent, up from 50 percent in the same quarter of 1996, due mainly to increased
efficiencies at the Company's Portland, Oregon manufacturing facility and better
fixed cost coverage from higher sales. Selling and marketing expenses in the
fourth quarter of 1997 were $6.2 million, or 36 percent of net sales, compared
to selling and marketing expenses in the fourth quarter of 1996 of $3.3 million,
or 40 percent of net sales. The increase in expense was due to the Company's
continued investment in sales and marketing activities during the fourth quarter
of 1997 associated with its national roll-out of the Gardenburger(R) veggie
patty into the retail grocery channel. General and administrative expenses in
the fourth quarter of 1997 were $1.6 million, or 9 percent of net sales,
compared to general and administrative expenses in the fourth quarter of 1996 of
$1.2 million, or 15 percent of net sales.
Net income for the fourth quarter of 1997 was $979,000, compared to a net
loss of $294,000 for the same period last year. Net income per share was $.11 on
a basic basis and $.10 per share on a diluted basis in the fourth quarter of
1997, compared to a net loss per share of $.03 on both a basic and diluted basis
in the fourth quarter of 1996.
For the year-to-date period ended December 31, 1997, net sales increased 40
percent to $56.8 million, up from $40.5 million for the same period last year.
The gross profit percentage was approximately 52 percent for 1997, up from 51
percent for 1996, due to improved manufacturing efficiencies and better fixed
cost coverage from higher sales. Selling and marketing expenses were $26.2
million, or 46 percent of net sales, compared to selling and marketing expenses
of $13.6 million, or 34 percent of net sales, during the same period last year.
The increase was due to the Company's investment in sales and marketing
activities during 1997 associated with its continuing national roll-out of the
Gardenburger(R) product into the retail grocery channel and a national
advertising campaign. General and administrative expenses were $5.5 million, or
10 percent of net sales, compared to general and administrative expenses in 1996
of $5.0 million, or 12 percent of net sales.
<PAGE>
In line with its operating plan, the Company incurred a net loss for the
year-to-date period ended December 31, 1997, of $1,393,000, compared to
$1,063,000 in net income in the same period last year. The net loss per share
was $.16 on both a basic and diluted basis, down from net income per share of
$.13 on a basic basis and $.12 on a diluted basis in the corresponding 1996
period.
"Our 105 percent sales increase during the fourth quarter continues the
acceleration in sales growth that began earlier this year," said Lyle G.
Hubbard, chief executive officer. "This gain was primarily driven by our
successful expansion of Gardenburger(R) into full national grocery distribution.
Overall, we are very pleased with our quarter and year-end results for 1997, and
we are also optimistic that 1998 is going to be a year of rapid growth driven by
national TV advertising, additional new product introductions and improved
margins from our new manufacturing facility in Clearfield, Utah."
Founded in 1985 by GardenChef Paul Wenner(TM), Gardenburger, Inc. is an
innovator in meatless, low-fat food products. The Company distributes its
flagship Gardenburger(R) and other GardenProducts(TM) to more than 30,000 food
service outlets throughout the United States, Canada and abroad. Retail
customers include more than 20,000 grocery and specialty food stores and more
than 4,000 natural food stores. Based in Portland, Oregon, the Company currently
employs more than 160 people.
Statements in this press release about future events or performance are
forward looking statements that are necessarily subject to risk and uncertainty.
The Company's actual results could be quite different. Important factors that
could affect results include the Company's reliance on product acceptance, the
Company's ability to execute its retail distribution plans, the effectiveness of
the Company's sales and marketing efforts and intense competition in the
meatless food products industry, which the Company believes will increase. Other
important factors that could affect results are set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Company's 1996 annual report to shareholders. Although forward-looking
statements help provide complete information about the Company, investors should
keep in mind that forward-looking statements are inherently less reliable than
historical information.
GARDENBURGER, INC.
<TABLE>
<CAPTION>
Fourth Quarter Ended Year-to-date Period Ended
Dec 31, 1997 Dec 31, 1996 Dec 31, 1997 Dec 31, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $16,997,000 $8,305,000 $56,837,000 $40,527,000
Net income (loss) 979,000 (294,000) (1,393,000) 1,063,000
Net income (loss) per share
- - basic $ .11 $ (.03) $ (.16) $ .13
=========== =========== =========== ===========
Net income (loss) per share
- - diluted $ .10 $ (.03) $ (.16) $ .12
=========== =========== =========== ===========
Weighted average shares
outstanding - basic 8,606,561 8,566,456 8,584,300 8,455,623
Weighted average shares
outstanding - diluted 9,355,652 8,566,456 8,584,300 9,065,969
</TABLE>
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<PAGE>
<TABLE>
GARDENBURGER, INC.
ANALYSIS OF STATEMENTS OF EARNINGS
(AFTER SALES/DISCOUNT RESTATEMENT & UNAUDITED)
FISCAL QUARTER ENDED FISCAL YTD AS OF
<CAPTION>
Dec 31 Dec 31 CHANGE Dec 31 Dec 31 CHANGE
1997 1996 DOLLARS % 1997 1996 DOLLARS %
----------- ----------- ----------- ----- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $16,996,664 $ 8,305,054 $ 8,691,610 105% $56,836,652 $40,526,809 $16,309,843 40%
Cost of goods sold 7,532,095 4,184,000 3,348,095 80% 27,235,908 19,906,000 7,329,908 37%
----------- ----------- ----------- -----------
Gross profit 9,464,569 4,121,054 5,343,515 130% 29,600,744 20,620,809 8,979,935 44%
MARGIN 56% 50% 52% 51%
Operating expenses:
Sales & marketing 6,156,272 3,299,054 2,857,218 87% 26,191,302 13,582,809 12,608,493 93%
General & administrative 1,568,121 1,229,000 339,121 28% 5,470,908 4,963,000 507,908 10%
Acquired in-process research
& development - - - 612,000 (612,000) -100%
----------- ----------- ----------- -----------
Total Operating expense 7,724,393 4,528,054 3,196,339 71% 31,662,210 19,157,809 12,504,401 65%
Operating income 1,740,176 (407,000) 2,147,176 -528% (2,061,466) 1,463,000 (3,524,466) -241%
Other income(expense):
Rounding - - - -
Interest income 57,297 78,000 (20,703) -27% 145,719 365,000 (219,281) -60%
Interest expense - - - 0% - - - 0%
Other (48,765) (39,000) (136,249) (38,000)
----------- ----------- ----------- -----------
Total other income(expense) 8,532 39,000 (30,468) -78% 9,470 327,000 (317,530) -97%
Income before provision
for income taxes 1,748,708 (368,000) 2,116,708 -575% (2,051,996) 1,790,000 (3,841,996) -215%
Provision for income taxes 770,190 (73,096) 843,286 -1154% (659,326) 727,000 (1,386,326) -191%
----------- ----------- ----------- -----------
NET EARNINGS $ 978,518 $ (294,904) $ 1,273,422 -432% $(1,392,670) $ 1,063,000 $(2,455,670) -231%
=========== =========== =========== ===========
MARGIN 6% -4% -2% 3%
Basic earnings per share $ 0.11 $ (0.03) $ (0.16) $ 0.13
=========== =========== =========== ===========
Diluted earnings per share $ 0.10 $ (0.03) $ (0.16) $ 0.12
=========== =========== =========== ===========
Basic number of
shares outstanding 8,606,561 8,566,456 8,584,300 8,455,623
=========== =========== =========== ===========
Diluted # of shares
outstanding 9,355,652 8,566,456 8,584,300 9,065,969
=========== =========== =========== ===========
- ---------------------------------------------------------------------------------------------------------------------------------
* Amount of restatement $ 904,986 $ 261,054 $ 2,145,710 $ 1,272,809
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GARDENBURGER, INC.
BALANCE SHEET
(Unaudited)
Dec 97 Dec 96
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ASSETS
Current Assets:
Cash & cash equivalents $ 2,614,359 $ 7,755,000
Accounts receivable (net) 8,847,557 2,800,000
Inventory 3,202,607 4,790,000
Prepaid expenses 2,321,480 378,000
Tax refunds 474,690 653,000
Current deferred tax asset 713,122 470,000
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Total current assets 18,173,815 16,846,000
Net fixed assets 7,822,365 6,814,000
Other assets 1,260,877 1,274,000
Deffered tax asset - -
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TOTAL ASSETS $27,257,057 $24,934,000
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Short term note payable - -
Accounts payable $ 3,164,713 $ 2,173,000
Payroll and related liabilities payable 948,247 458,000
Accrued employee bonuses 668,311 221,000
Accrued relocation 160,646 178,000
Accrued brokers'commissions 469,273 199,000
Accrued slotting fees 678,649 89,063
Other current liabilities 568,411 134,937
----------- -----------
Total Current Liabilities 6,658,250 3,453,000
Deferred Income Tax Liability 437,750 502,000
Deferred gain sale/leaseback 310,249
----------- -----------
Total Long-term Liabilities 747,999 502,000
Shareholders' equity:
Common stock 8,670,659 8,468,000
Capital paid in surplus 4,219,643 4,139,000
Retained earnings 6,960,506 8,372,000
----------- -----------
Total Shareholders' Equity 19,850,808 20,979,000
TOTAL LIABILITIES & EQUITY $27,257,057 $24,934,000
=========== ===========
<PAGE>
<TABLE>
GARDENBURGER, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
After Restatement
-------------------------------------------- --------------------------------------------
Q1-1996 Q2-1996 Q3-1996 Q4-1996 YTD 1996 Q1-1997 Q2-1997 Q3-1997 Q4-1997 YTD 1997
------- ------- ------- ------- -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 9,439 $11,353 $11,431 $ 8,304 $ 40,527 $10,304 $13,465 $16,071 $16,997 $ 56,837
Cost of goods sold 4,641 5,473 5,608 4,184 19,906 5,188 6,623 7,892 7,532 27,235
------- ------- ------- ------- -------- ------- ------- ------- ------- --------
Gross margin 4,798 5,880 5,823 4,120 20,621 5,116 6,842 8,179 9,465 29,602
Operating expenses:
Sales and marketing 3,208 3,545 3,530 3,300 13,583 4,663 7,549 7,824 6,156 26,192
General and administrative 1,000 1,589 1,146 1,228 4,963 1,114 1,532 1,256 1,568 5,470
Acquired in-process
research & development 612 - - - 612
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
4,820 5,134 4,676 4,528 19,158 5,777 9,081 9,080 7,724 31,662
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Operating income (22) 746 1,147 (408) 1,463 (661) (2,239) (901) 1,741 (2,060)
Other income (expense):
Interest income 113 83 92 77 365 67 39 22 17 145
Other, net (1) - - (37) (38) (4) (8) (115) (9) (136)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
112 83 92 40 327 63 31 (93) 9 10
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Income (loss) before provision
for (benefit from) income taxes 90 829 1,239 (368) 1,790 (598) (2,208) (994) 1,749 (2,051)
Provision for (benefit from)
income taxes 32 308 461 (74) 727 (243) (837) (349) 770 (659)
------- ------- ------- ------- ------- ------- ------- ------- ------ --------
Net income (loss) $ 58 $ 521 $ 778 $ (294) $ 1,063 $ (355) $(1,371) $ (645) $ 979 $ (1,392)
======= ======= ======= ======= ======= ======= ======= ======= ====== ========
Basic net income (loss) per share $ 0.01 $ (0.06) $ 0.09 $ (0.03) $ 0.13 $ (0.04) $ (0.16) $ (0.08) $ 0.11 $ (0.16)
======= ======= ======= ======= ======= ======= ======= ======= ====== ========
Diluted net income (loss) per share $ 0.01 $ (0.06) $ 0.09 $ (0.03) $ 0.12 $ (0.04) $ (0.16) $ (0.08) $ 0.10 $ (0.16)
======= ======= ======= ======= ======= ======= ======= ======= ====== ========
</TABLE>
