<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED APRIL 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-18339
SYLVAN INC.
(Exact name of registrant as specified in its charter)
NEVADA 25-1603408
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
333 MAIN STREET, P.O. BOX 249, SAXONBURG, PA 16056-0249
(Address of principal executive offices) (Zip Code)
(724) 352-7520
(Registrant's telephone number, including area code)
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
--- ---
Number of shares of common stock outstanding as of April 24, 2000...5,661,336
<PAGE> 2
SYLVAN INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
Part I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets,
April 2, 2000 and January 2, 2000..............................................3
Condensed Consolidated Statements of Income, Three Months
Ended April 2, 2000 and April 4, 1999..........................................5
Condensed Consolidated Statements of Cash Flows, Three Months
Ended April 2, 2000 and April 4, 1999..........................................6
Notes to Condensed Consolidated Financial Statements,
April 2, 2000..................................................................7
Item 2. Management's Discussion and Analysis..........................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................13
Part II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................13
Item 6. Exhibits and Reports on Form 8-K.............................................14
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1.
CONDENSED CONSOLIDATED BALANCE SHEETS
Sylvan Inc. and Subsidiaries
(In thousands)
<TABLE>
<CAPTION>
April 2, 2000 January 2, 2000
------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,447 $ 7,601
Trade accounts receivable, net of allowance
for doubtful accounts of $540 and $826,
respectively 11,653 12,347
Inventories 10,185 10,110
Prepaid income taxes and other expenses 1,309 1,537
Other current assets 646 1,121
Deferred income tax benefit 498 500
- --------------------------------------------------------------------------------------------
Total current assets 30,738 33,216
Property, plant and equipment, net 52,954 54,249
Intangible assets, net of accumulated amortization
of $4,096 and $3,906, respectively 12,315 12,797
Other assets, net of accumulated amortization
of $342 and $316, respectively 8,998 9,233
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $105,005 $109,495
============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
Sylvan Inc. and Subsidiaries
(In thousands except share data)
<TABLE>
<CAPTION>
April 2, 2000 January 2, 2000
------------- ---------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 296 $ 418
Accounts payable - trade 4,212 4,647
Accrued salaries, wages and employee benefits 2,318 2,970
Other accrued liabilities 1,441 1,703
Income taxes payable 1,055 697
- ----------------------------------------------------------------------------------------------------
Total current liabilities 9,322 10,435
- ----------------------------------------------------------------------------------------------------
Long-term and revolving-term debt 41,225 43,544
- ----------------------------------------------------------------------------------------------------
Other long-term liabilities:
Other employee benefits 985 1,053
Other 5,760 5,826
- ----------------------------------------------------------------------------------------------------
Total other long-term liabilities 6,745 6,879
- ----------------------------------------------------------------------------------------------------
Minority interest 1,457 1,413
SHAREHOLDERS' EQUITY:
Common stock, voting, par value $.001, 10,000,000 shares
authorized, 6,671,601 shares issued 7 7
Additional paid-in capital 16,801 16,801
Retained earnings 49,199 47,785
Less: Treasury stock, at cost, 1,010,265 and 966,765 shares
at April 2, 2000 and January 2, 2000, respectively (10,586) (10,166)
--------- ---------
55,421 54,427
Accumulated other comprehensive deficit:
Cumulative translation adjustment (9,165) (7,203)
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 46,256 47,224
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 105,005 $ 109,495
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sylvan Inc. and Subsidiaries
(Unaudited, in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
NET SALES $ 22,397 $ 22,115
- --------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Cost of sales 12,213 12,948
Selling, administration, research and development 6,066 5,586
Depreciation 1,360 1,364
- --------------------------------------------------------------------------------------------
19,639 19,898
- --------------------------------------------------------------------------------------------
OPERATING INCOME 2,758 2,217
INTEREST EXPENSE, NET, INCLUDING
AMORTIZATION OF DEBT ISSUANCE COST 653 535
OTHER INCOME (EXPENSE) (52) 79
- --------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,053 1,761
PROVISION FOR INCOME TAXES 595 471
- --------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST IN
INCOME OF CONSOLIDATED SUBSIDIARIES 1,458 1,290
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES 44 19
- --------------------------------------------------------------------------------------------
NET INCOME $ 1,414 $ 1,271
============================================================================================
NET INCOME PER SHARE - BASIC $ 0.25 $ 0.20
============================================================================================
NET INCOME PER SHARE - DILUTED $ 0.25 $ 0.20
============================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 5,690,424 6,360,284
============================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 5,690,424 6,388,075
============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sylvan Inc. and Subsidiaries
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,414 $ 1,271
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,568 1,546
Employee benefits (629) (217)
Trade accounts receivable 397 790
Inventories (295) (159)
Prepaid expenses and other assets 646 567
Accounts payable and accrued liabilities (486) (1,364)
Other 642 28
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,257 2,462
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net expenditures for property, plant and equipment (1,621) (1,744)
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (1,621) (1,744)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (205) (189)
Net borrowings under revolving credit line (2,037) 354
Proceeds from exercise of stock options 0 293
Purchase of treasury shares (420) (1,288)
- ------------------------------------------------------------------------------------------
Net cash used in financing activities (2,662) (830)
- ------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH (128) (315)
- ------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,154) (427)
CASH AND CASH EQUIVALENTS, beginning of period 7,601 6,497
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 6,447 $ 6,070
==========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 713 $ 644
Income taxes paid 355 78
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sylvan Inc. and Subsidiaries
April 2, 2000
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General
These condensed consolidated financial statements of Sylvan Inc. are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim period. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the company's Annual Report to
Shareholders and its Form 10-K for the year ended January 2, 2000.
Cash
The company maintains a French-franc denominated cash balance of
approximately FF15.0 million with a U.S. bank in support of a loan
advanced by a European bank. This balance is reported under "Other Assets"
as of April 2, 2000.
Inventories
Inventories at April 2, 2000 and January 2, 2000 consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) April 2, 2000 January 2, 2000
------------- ---------------
<S> <C> <C>
Growing crops and compost material $ 5,523 $ 5,021
Stores and other supplies 1,583 1,794
Mushrooms and spawn on hand 3,079 3,295
------- ---------
$10,185 $ 10,110
======= ========
</TABLE>
Marketing Agreement
Effective January 16, 2000, the company's Quincy Farms subsidiary entered
into a marketing agreement with C And C Carriage Mushroom Company (C And
C) of Avondale, Pennsylvania. The agreement provides for C And C to
purchase all of the mushrooms produced at the Quincy, Florida operation at
a price, based on product quality, which is adjusted annually to reflect
current market conditions. Under this agreement, Quincy sold its packaging
and distribution-related assets to C And C. The initial term of the
agreement is five years.
Earnings Per Common Share
Earnings per share were calculated using the weighted average number of
shares outstanding during the period and including the effect of stock
options outstanding. Pursuant to the company's 1990 and 1993 stock option
plans, options for a total of 1,372,417 shares of the company's common
stock have been granted and options for a total of 526,808 of these shares
have been exercised as of April 2, 2000.
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<PAGE> 8
The following table reconciles the number of shares utilized in the
earnings per share calculations for the three months ended April 2, 2000
and April 4, 1999.
<TABLE>
<CAPTION>
Three Months Ended
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Net income (in thousands) $1,414 $1,271
====== ======
Earnings per common share - basic $ .25 $ .20
====== ======
Earnings per common share - diluted $ .25 $ .20
====== ======
Common shares - basic 5,690,424 6,360,284
Effect of dilutive securities: stock options -- 27,791
--------- ---------
Common shares - diluted 5,690,424 6,388,075
========= =========
</TABLE>
Options to purchase approximately 846,000 and 342,000 shares of common
stock in the three months ended April 2, 2000 and April 4, 1999,
respectively, were outstanding, but were not included in the computation
of diluted earnings per share because the options' exercise prices were
greater than the average market prices of the company's common shares for
the respective periods.
2. LONG-TERM DEBT AND BORROWING ARRANGEMENTS:
The company has a Revolving Credit Agreement with two commercial banks,
dated August 6, 1998. It provides for revolving credit loans on which the
aggregate outstanding balance available to the company may not initially
exceed $55.0 million. This aggregate outstanding balance will decline over
the life of the agreement as follows:
Maximum Aggregate
Period Beginning Outstanding Balance
---------------- --------------------
August 6, 2003 $50.0 million
August 6, 2004 45.0 million
Outstanding borrowings under the agreement bear interest at either the
Prime Rate or LIBOR (plus an applicable margin) at the company's option.
On April 2, 2000, the company had outstanding borrowings under the
agreement of $37.3 million. The revolving credit loans mature on August 5,
2005.
The agreement provides for the maintenance of various financial covenants
and includes limitations as to incurring additional indebtedness and the
granting of security interests to third parties. Obligations under the
agreement are guaranteed by certain wholly owned subsidiaries of the
company.
The company has a French-franc denominated loan of FF15.0 million.
Interest is payable based on a formula that utilizes a Paris Interbank
Offered Rate plus an applicable margin. Repayment is due in January 2002.
This loan is supported by a compensating cash balance maintained in a U.S.
bank.
The company's majority-owned Dutch subsidiary has a long-term plant and
equipment and overdraft facility with a Dutch bank. At April 2, 2000, a
term loan amounting to 2.2 million Dutch guilders was outstanding under
this agreement.
8
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3. COMPREHENSIVE INCOME:
Comprehensive income consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
(in thousands) April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Net income $ 1,414 $ 1,271
Other comprehensive income:
Foreign currency translation adjustment (1,962) (2,305)
------- -------
Comprehensive loss $ (548) $(1,034)
======= =======
</TABLE>
4. BUSINESS SEGMENT INFORMATION:
Sylvan is a worldwide producer and distributor of mushroom products,
specializing in spawn (the equivalent of seed for mushrooms) and
spawn-related products and services, and is a major grower of fresh
mushrooms in the United States. The company has two reportable business
segments: spawn products, which includes spawn-related products and
services, and fresh mushrooms. Spawn-related products include casing
inoculum, nutritional supplements and disease-control agents. During the
quarter ended April 2, 2000, the company made no changes in the basis of
segmentation or in the basis of measurement of segment profit or loss from
that reported in the January 2, 2000 financial statements.
<TABLE>
<CAPTION>
Three Spawn Fresh Total
Months Products Mushrooms Reportable
(in thousands) Ended Segment Segment Segments
----- ------- ------- --------
<S> <C> <C> <C> <C>
Total revenues 2000 $16,641 $ 6,096 $22,737
1999 15,092 7,326 22,418
Intersegment revenues 2000 340 -- 340
1999 303 -- 303
Operating income 2000 3,248 701 3,949
1999 2,913 303 3,216
</TABLE>
Reconciliation to Consolidated Financial Data
<TABLE>
<CAPTION>
Three Months Ended
(in thousands) April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Total revenues for reportable segments $ 22,737 $ 22,418
Elimination of intersegment revenues (340) (303)
-------- --------
Total consolidated revenues $ 22,397 $ 22,115
======== ========
Total operating income for reportable segments $ 3,949 $ 3,216
Unallocated corporate expenses (1,191) (999)
Interest expense, net (653) (535)
Other income (expense) (52) 79
-------- --------
Consolidated income before income taxes $ 2,053 $ 1,761
======== ========
</TABLE>
9
<PAGE> 10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Sylvan Inc. and Subsidiaries
RESULTS OF OPERATIONS (Three Months Ended April 2, 2000 and April 4, 1999)
CONSOLIDATED REVIEW
Net Sales
(dollars in thousands) 2000 1999 % Change
---- ---- --------
Net sales $22,397 $22,115 1
Net sales for the three months ended April 2, 2000 were $22.4 million, 1% higher
than the $22.1 million reported for the corresponding 1999 quarter.
International sales for the quarter decreased to 50%, as compared with 51% for
the first quarter of 1999. This decrease was due to three factors. First, during
the fourth quarter of 1999, the company acquired the J.B. Swayne Spawn Company
which has substantially all of its sales within the United States. Second, the
company's Quincy Farms subsidiary experienced lower net sales due to a new
marketing arrangement which is discussed in the next paragraph. Third, further
strengthening of the U.S. dollar continued to offset the effect of higher
international sales volumes. The U.S. dollar was approximately 14% stronger at
the end of the current quarter, in terms of the company's applicable foreign
currencies, than at the end of the quarter ended April 4, 1999. This
strengthening of the U.S. dollar had the effect of decreasing net sales for the
current quarter by approximately $1.9 million.
Although consolidated net sales were relatively consistent for the first
quarters of 2000 and 1999, operational changes occurred within the fresh
mushrooms segment beginning on January 16, 2000. On this date, the company's
Quincy subsidiary entered into a marketing arrangement to sell all of its
mushrooms directly from the harvesting area to a third party, which then
packages and distributes the mushrooms on its own behalf. Although these changes
resulted in lower net sales and corresponding cost of goods sold, overall
profitability increased.
Operating Costs and Expenses
(dollars in thousands) 2000 1999 % Change
---- ---- --------
Cost of sales $12,213 $12,948 (6)
Selling, administration, 6,066 5,586 9
research and development
Depreciation 1,360 1,364 -
The company's cost of sales, expressed as a percentage of net sales, was 54.5%
for the first quarter of 2000, versus 58.5% for the first quarter of 1999. While
increased production efficiencies were realized in both business segments, the
greatest portion of the cost of sales reduction, on a quarter-versus-quarter
basis, was due to higher production yields and the new marketing arrangement in
the fresh mushrooms segment.
Selling, administration, research and development expenses increased to $6.1
million during the quarter ended April 2, 2000 from $5.6 million during the
quarter ended April 4, 1999. These expenses were 27.1% of net sales and 25.3% of
net sales, respectively. This increase can be explained by five factors. First,
the spawn products segment incurred a $0.2 million write-off of pre-construction
costs related to scope revisions and a management change in the company's
Hungarian composting project. Second, a provision of $0.1 million was recorded
for non-income related state taxes. This should be a non-recurring expense.
Third, a charge of $0.1 million was recorded as an anticipated loss in the sale
of a small mushroom farm that had been purchased as part of the May 1998
International Mushrooms Ltd. acquisition. Fourth, additional costs were also
associated
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<PAGE> 11
with operating the sales, administrative and research facilities of the Swayne
spawn company that was acquired in November 1999. Last, Quincy realized
recurring quarterly cost savings of $0.2 million related to wages, employee
benefits, and general building overhead costs of its former sales and
distribution functions which have been assumed under the terms of the new
marketing arrangement. Depreciation expense for the first quarter of 2000 was
$1.4 million, $4,000 lower than for the first quarter of 1999.
Interest Expense
The company's net interest expense for the first quarter of 2000 was $653,000,
22% higher than for the corresponding 1999 quarter. The effective borrowing rate
for the current quarter was 6.7%, which is the same as for the first quarter of
1999. Increased levels of interest expense were due to higher levels of
indebtedness between years, related particularly to the 1999 Swayne acquisition
and Sylvan's share purchase program.
Income Tax Expense
The effective income tax rate was 29% for the first quarter of 2000, as compared
with 27% for the corresponding quarter of 1999. This increased tax rate was due
to proportionately greater anticipated earnings in North American operations,
particularly at Quincy and the recently acquired Swayne spawn company.
BUSINESS SEGMENTS
Spawn Products Segment
(dollars in thousands) 2000 1999 % Change
---- ---- --------
Sales, including intersegment $16,641 $15,092 10
Operating expenses 13,393 12,179 10
Operating income 3,248 2,913 12
Net sales of spawn and spawn-related products were $16.6 million for the quarter
ended April 2, 2000, a 10% improvement over the corresponding period of 1999.
Overall spawn product sales volume increased 17%, with a 32% increase in the
Americas, due primarily to the November 1999 Swayne acquisition, and an 8%
increase in overseas markets. Strong overseas volume increases were achieved
during the quarter in Italy, France and the Netherlands. The overseas U.S.
dollar equivalent selling price was 11% lower during the current quarter, due
primarily to the strengthening of the U.S. dollar. The average selling price in
the Americas was 4% lower than that of the corresponding 1999 quarter due to the
inclusion of the sales of the recently acquired Swayne spawn company, which has
an overall lower pricing structure. Continued consolidation of the mushroom
industry, as evidenced by the recent acquisition of Vlasic Farms by a Canadian
company, has generated increased volume discounts, resulting in a lower average
net selling price. Sales of disease-control agents and nutritional supplements
increased 14%, accounting for 13% and 11% of consolidated net sales for the
quarters ended April 2, 2000 and April 4, 1999, respectively.
Operating expenses increased proportionately with net sales to $13.4 million
during the first quarter of 2000, versus $12.2 million during the 1999 period.
Within operating expenses, cost of sales, as a percentage of net sales, was
49.4% for the quarter ended April 2, 2000, as compared with 49.7% for the
quarter ended April 4, 1999. The remaining operating expenses increased by 11%
to $5.5 million. This increase was due primarily to the write-off of the
pre-construction costs related to the Hungarian composting project, as mentioned
above, as well as the costs associated with operating the sales, administrative
and research facilities of the recently acquired Swayne spawn company.
Operating income increased by 12% to $3.2 million for the first quarter of 2000
from $2.9 million for the first quarter of 1999. Operating income, as a
percentage of net sales, was 20% and 19% for the first-quarter periods
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<PAGE> 12
of 2000 and 1999, respectively. The foreign exchange translation effect of the
strengthening U.S. dollar on the operating income of this business segment,
which comprises all of the company's non-U.S. dollar denominated operations, was
a decrease of approximately $225,000.
Fresh Mushrooms Segment
(dollars in thousands) 2000 1999 % Change
---- ---- --------
Sales $ 6,096 $ 7,326 (17)
Operating expenses 5,395 7,023 (23)
Operating income 701 303 131
Fresh mushroom net sales decreased during the current quarter by $1.2 million to
$6.1 million, as compared with $7.3 million for the corresponding period in
1999. This decrease was due to two offsetting factors. First, during January
2000, Quincy entered into the previously mentioned marketing arrangement to sell
all of the mushrooms it produces directly from its harvesting area to a third
party. Since Quincy no longer provides such value-added commercial enhancements,
such as slicing and packaging, it receives a lower price per pound of mushrooms
sold than when it distributed its commercially prepared products to wholesalers
and retailers. Second, during the quarter ended April 2, 2000, Quincy
experienced production yield increases over the corresponding 1999 quarter,
which provided an increase of 11% in number of pounds sold.
The fresh mushroom cost of sales was $4.0 million, or 65.6% of net sales, for
the first quarter of 2000, versus $5.4 million, or 74.3% of net sales, for the
corresponding period of 1999. Since Quincy began to sell its products directly
from the harvest area without commercial enhancement, cost savings have been
achieved. Additionally during the first quarter of 1999, Quincy experienced
production inefficiencies that contributed to production yield reductions,
spreading a cost structure that is primarily fixed in nature over fewer pounds.
Production efficiencies were substantially improved during the quarter ended
April 2, 2000.
The first-quarter 2000 fresh mushroom operating income of 11%, as a percentage
of net sales, was $398,000 and 131% higher than the 4% operating income, as a
percentage of net sales, for the corresponding 1999 quarter. This increase is
the result of two factors. First, Quincy is no longer performing low-to-no
incremental margin commercial enhancement and distribution activities. Second,
its improved yield efficiencies, spreading more production over the primarily
fixed-cost structure, have also increased operating income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended April 2,
2000 was $3.3 million, an increase of $0.8 million over the $2.5 million
provided during the first quarter of 1999. Employee benefit accruals decreased
by $0.6 million for the quarter ended April 2, 2000, as compared with the $0.2
million decrease for the corresponding quarter of 1999. The primary change
between quarters relates to the payment of 1999 executive bonuses during the
first quarter of 2000, whereas no such payments were made during the first
quarter of 1999. Trade accounts receivable contributed $0.4 million to operating
cash flow for the first quarter of 2000, as compared with $0.8 million that was
contributed during the first quarter of 1999. Collection of trade accounts
receivable continued to be an area of focus, particularly among the spawn
products segment. Accounts receivable for this segment provided approximately
$0.7 million of cash during the first quarter of 2000. Trade accounts payable
and accrued liabilities decreased by $0.5 million and $1.4 million during the
first quarters of 2000 and 1999, respectively. More than one-half of this
decrease in 2000 was due to the timing of construction payments relating to
modifications to the company's Irish plant. The 1999 decrease related primarily
to payments made to contractors that had been retained pending the satisfactory
completion of equipment startup tests at the French inoculum laboratory.
Cash used by investing activities was $1.6 million for the three months ended
April 2, 2000, versus the $1.7 million used during the corresponding period of
1999. During the quarter ended April 2, 2000, cash approximating $225,000 was
provided from the sale of Quincy's packaging assets, and plant modifications to
12
<PAGE> 13
the Irish facility were completed. Capital expenditures in 2000 are expected to
total between $6 million and $8 million for existing operations, with additional
expenditures as required for any acquisitions or new initiatives. The company
routinely assesses its requirements for additional capital investments as it
experiences continued growth in its international operations. The company
believes that it has sufficient cash resources from current cash balances,
internally generated funds and available bank credit facilities to meet its
ongoing capital needs.
Available credit under the company's revolving credit arrangement was $17.3
million as of April 2, 2000. Term debt and revolving credit decreased by $2.2
million during the three months ended April 2, 2000, as compared with an
increase of $0.2 million during the corresponding period of 1999. Most of this
decrease was due to the positive cash flows of operations after capital
additions and share purchases.
During the 2000 first quarter, the company purchased 43,500 shares of Sylvan
common stock at an average price of $9.66 per share. By comparison, 100,500
shares were purchased during the first quarter of 1999 at an average price of
$12.82 per share. Management expects to continue the purchase program, subject
to price and share availability conditions that make such purchases financially
beneficial and appropriate.
EURO CURRENCY
Sylvan does not believe that the conversion to the Euro has a material impact on
its business or financial condition.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
From time to time in this report and in other written reports and oral
statements, references are made to expectations regarding future performance of
the company. These "forward-looking statements" are based on currently available
competitive, financial and economic data and the company's operating plans, but
they are inherently uncertain. Events could turn out to be significantly
different from what is expected, depending upon such factors as mushroom growing
process inconsistencies, specific pricing or product initiatives of the
company's competitors and competitive conditions in the U.S. mushroom market in
general, changes in currency and exchange risks, or changes in a specific
country's or region's political or economic conditions.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information presented under this item in the company's Form 10-K for the
fiscal year ended January 2, 2000 has not changed materially. Information
relating to the sensitivity to foreign currency exchange rate changes of the
company's firmly committed sales transactions, in addition to what is presented
in Item 2 of this filing, is omitted because it is an immaterial portion of
total sales.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Sylvan or any of its
subsidiaries is a party, or of which any of their property is subject, other
than ordinary, routine litigation incidental to their respective businesses.
13
<PAGE> 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
3.3 Articles of Incorporation of S. F. Nevada, Inc. - previously
filed as Exhibit 3.3 on November 12, 1999 with the company's Form
10-Q Quarterly Report for the period ended October 3, 1999 and
incorporated herein by reference
3.4 Articles of Merger of S. F. Nevada, Inc. and Sylvan Foods
Holdings, Inc. with exhibit - previously filed as Exhibit 3.4 on
November 12, 1999 with the company's Form 10-Q Quarterly Report
for the period ended October 3, 1999 and incorporated herein by
reference
3.5 Bylaws - previously filed as Exhibit 3.5 on November 12, 1999
with the company's Form 10-Q Quarterly Report for the period
ended October 3, 1999 and incorporated herein by reference
Compensation Plans and Arrangements
10.1.2 Sylvan Foods, Inc. Target Benefit Annuity Purchase Plan,
previously filed as Exhibit 3.3.2 on April 2, 1993 with the
company's Form 10-K Annual Report for the fiscal year ended
January 3, 1993 and incorporated herein by reference
10.1.3 Sylvan Foods Holdings, Inc. 1993 Stock Option Plan for
Nonemployee Directors, previously filed on April 1, 1994 with the
company's Form 10-K Annual Report for fiscal year ended January
2, 1994 and incorporated herein by reference
10.12 Sylvan Inc. 1990 Stock Option Plan (amended and restated),
previously filed on November 12, 1999 with the company's Form
10-Q Quarterly Report for the period ended October 3, 1999 and
incorporated herein by reference
Material Contracts
10.2.1 Revolving Credit Agreement, dated as of August 6, 1998, by and
among Sylvan Inc., a Nevada corporation, Sylvan Foods
(Netherlands) B.V., a Dutch corporation, as Borrowers, the Banks
party thereto from time to time and Mellon Bank, N.A., a national
banking association, as issuing bank and as agent for the Banks
thereunder, together with various annexes, exhibits and schedules
and various related documents, previously filed as Exhibits 10.1
through 10.10 on November 10, 1998 with Sylvan's Form 10-Q
Quarterly Report for the period ended September 27, 1998 and
incorporated herein by reference
10.2.11 Index of Other Exhibits to the Revolving Credit Agreement,
previously filed as Exhibit 10.11 with Sylvan's Form 10-Q
Quarterly Report for the period ended September 27, 1998 and
incorporated herein by reference
10.3.1 Collective Bargaining Agreement, dated July 20, 1999, between
Quincy Corporation and the United Farm Workers of America,
AFL-CIO, previously filed as Exhibit 10 on August 9, 1999 with
the company's Form 10-Q Quarterly Report for the period ended
July 4, 1999 and incorporated herein by reference
14
<PAGE> 15
10.5.1 Agreement, dated January 14, 2000, by and between C And C
Carriage Mushroom Co., t/a Modern Sales Company, and Quincy
Corporation, previously filed with the company's 10-K Annual
Report for the fiscal year ended January 2, 2000 and incorporated
herein by reference
10.5.2 Index of Exhibits to the C And C Agreement referenced above,
previously filed with the company's 10-K Annual Report for the
fiscal year ended January 2, 2000 and incorporated herein by
reference
11 Statement re computation of per share earnings is not required
because the relevant computation can be clearly determined from
the material contained in the financial statements included
herein
27 Financial Data Schedule
- -------------
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.
Date: May 4, 2000 SYLVAN INC.
-------------------
By: /s/ DONALD A. SMITH
-------------------------------
Donald A. Smith
Chief Financial Officer
By: /s/ FRED Y. BENNITT
---------------------------------
Fred Y. Bennitt
Secretary/Treasurer
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