UNITED STATES
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, 2000
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 0-19263
SUPREMA SPECIALTIES, INC.
(Exact Name of Registrant as
specified in its charter)
New York 11-2662625
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
510 EAST 35TH STREET
PATERSON, NEW JERSEY 07543
(Address of principal executive offices)
(Zip Code)
(973) 684-2900
(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 ___
As of November 9, 2000 there were 5,622,193 shares of the registrant's Common
Stock $.01 par value outstanding excluding an additional 213,370 treasury shares
which have been issued but repurchased by the registrant.
1
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of 3
September 30, 2000 and June 30, 2000
Consolidated Statements of Earnings 4
For The Three Month Periods Ended
September 30, 2000 and 1999
Consolidated Statements of Cash Flows 5
For the Three Month Periods Ended
September 30, 2000 and 1999
Notes to Consolidated Financial 6
Statements
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
Sept. 30, June 30,
2000 2000
------------- -------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 449,088 $ 950,121
Accounts receivable, net of allowances
of $770,290 at Sept. 30, 2000 and
$770,290 at June 30, 2000 73,231,801 62,326,908
Inventories 53,172,607 51,630,343
Prepaid expenses and other current assets 774,844 755,067
Deferred income taxes 89,000 89,000
------------- -------------
Total current assets 127,717,340 115,751,439
PROPERTY AND EQUIPMENT, NET 7,592,787 7,181,208
OTHER ASSETS 1,809,694 2,027,069
------------- -------------
$ 137,119,821 $ 124,959,716
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,491,743 $ 13,989,065
Current portion of long-term obligations 598,212 609,690
Mortgage payable - current 54,632 53,574
Income taxes payable 2,370,871 1,539,000
Accrued expenses and other current
liabilities 2,949,767 3,743,917
------------- -------------
Total current liabilities 20,465,225 19,935,246
DEFERRED INCOME TAXES 749,000 749,000
REVOLVING CREDIT LOAN 67,705,262 65,887,000
SUBORDINATED DEBT 10,500,000 10,500,000
LONG-TERM CAPITAL LEASES 970,453 1,105,637
MORTGAGE PAYABLE 800,944 814,920
------------- -------------
101,190,884 98,991,803
------------- -------------
STOCKHOLDERS' EQUITY:
Redeemable, convertible preferred stock, $.01
Par value, 2,500,000 shares authorized,
none issued and outstanding at
Sept. 30, 2000 and June 30, 2000 -- --
Common stock, $.01 par value, 10,000,000
shares authorized, 5,835,563 and 4,655,564
issued and outstanding at Sept. 30, 2000
and June 30, 2000, respectively 58,355 46,555
Additional paid-in capital 19,327,692 11,365,207
Retained earnings 17,985,510 15,998,771
Treasury stock at cost, 213,370 at Sept. 30,
2000 and June 30, 2000 (1,442,620) (1,442,620)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 35,928,937 25,967,913
------------- -------------
$ 137,119,821 $ 124,959,716
============= =============
See notes to consolidated financial statements
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended
September 30,
----------------------------
2000 1999
NET SALES $ 88,947,525 $ 61,381,116
COST OF SALES 74,919,418 51,397,315
------------ ------------
GROSS MARGIN 14,028,107 9,983,801
------------ ------------
EXPENSES:
Selling and shipping expenses 6,836,295 5,123,237
General and administrative expenses 1,619,101 1,247,465
------------ ------------
8,455,396 6,370,702
------------ ------------
INCOME FROM OPERATIONS 5,572,711 3,613,099
OTHER (EXPENSE)
Interest expense, net (2,261,972) (1,259,690)
------------ ------------
(2,261,972) (1,259,690)
EARNINGS BEFORE INCOME TAXES 3,310,739 2,353,409
INCOME TAXES 1,324,000 940,000
------------ ------------
NET EARNINGS $ 1,986,739 $ 1,413,409
============ ============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC EARNINGS PER SHARE $ .41 $ .31
============ ============
DILUTED EARNINGS PER SHARE $ .36 $ .27
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 4,821,559 4,480,775
============ ============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 5,564,082 5,206,658
============ ============
See notes to consolidated financial statements.
4
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
September 30,
---------------------------
2000 1999
---- ----
INCREASE (DECREASE) IN CASH:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 1,986,739 $ 1,413,409
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 157,440 150,676
Provision for doubtful accounts -- --
(Increase) decrease in assets:
Accounts receivable (10,904,893) (8,737,228)
Inventories (1,542,264) (2,363,002)
Prepaid expenses and other
current assets (19,777) (525,186)
Other assets 217,375 371,525
Increase (decrease) in liabilities:
Accounts payable 502,678 4,952,499
Income taxes payable 831,871 (767,055)
Accrued expenses and other current
liabilities (794,150) (66,654)
Deferred income taxes -- --
----------- ------------
Net cash used in operating
activities (9,564,981) (5,571,016)
----------- ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for purchase of
property and equipment (569,019) (237,479)
----------- ------------
Net cash used in investing
activities (569,019) (237,479)
----------- ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan $ 28,515,000 $ 24,052,000
Principal payments of revolving credit loan (26,696,738) (16,993,599)
Principal payments of capital leases (146,662) (132,489)
Principal payments of mortgage (12,918) (11,947)
Proceeds from secondary public offering (net) 7,974,285 --
Proceeds from exercise of stock options -- 10,833
Acquisition of treasury stock -- (1,046,250)
------------ ------------
Net cash provided by financing
activities 9,632,967 5,878,548
------------ ------------
NET DECREASE IN CASH (501,033) 70,053
CASH, BEGINNING OF PERIOD 950,121 358,214
------------ ------------
CASH, END OF PERIOD $ 449,088 $ 428,267
============ ============
SUP
Interest $ 2,131,116 $ 1,261,150
Income Taxes $ 492,128 $ 1,673,866
============ ============
Noncash investing and financing transactions:
Purchases of property and equipment through
capital leases $ -- $ --
============ ============
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of September 30, 2000, the
unaudited consolidated statements of earnings for the three month periods
ended September 30, 2000 and 1999, and the unaudited consolidated
statements of cash flows for the three month periods ended September 30,
2000 and 1999 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments (which include normal recurring accruals)
necessary to present fairly the financial position, results of operations
and cash flows at September 30, 2000 and for the three month periods
presented, have been included.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in these quarterly
financial statements. The attached financial statements should be read in
connection with the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended June 30,
2000.
The results of operations or cash flows for the three months ended
September 30, 2000 are not necessarily indicative of the results to be
expected for the entire fiscal year.
2. INVENTORIES
Inventories are summarized as follows:
Sept. 30, 2000 June 30, 2000
-------------- -------------
Finished goods $38,543,140 $38,430,322
Raw materials 13,302,389 11,872,836
Packaging 1,327,078 1,327,185
----------- -----------
$53,172,607 $51,630,343
=========== ===========
3. LONG-TERM REVOLVING CREDIT LOAN
We have a bank revolving credit facility (the "Facility") that, in March
2000, was amended and increased the bank's potential commitment to
$85,000,000. The commitment for the Facility is through February 15, 2004.
The rate of interest on amounts borrowed under the Facility is the adjusted
LIBOR rate, as defined, plus 175 basis points. The Facility is
collateralized by substantially all existing and acquired assets as defined
in the credit facility, and is guaranteed by our subsidiaries, Suprema
Specialties West, Inc., and Suprema Specialties Northeast, Inc., and the
pledge of all of the stock of these subsidiaries. Advances under the
Facility are limited to 85% of eligible accounts receivable and 60% of all
inventory except packaging material, as defined in the agreement. The
Facility Agreement contains restrictive financial covenants, including the
maintenance of consolidated net worth, and the maintenance of leverage and
fixed charge ratios, as defined in the agreement, and a restriction on
dividends to common shareholders. As of September 30, 2000, we were in
compliance with the covenants under the Facility Agreement. Borrowings
under the Facility are required to be used for working capital purposes.
4. ISSUANCE OF COMMON STOCK
In August 2000, we completed an underwritten secondary public offering of
shares of our common stock of which 1,100,000 shares were sold by us and
100,000 shares were sold by certain selling shareholders at a public
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offering price of $8.00 per share. Gross proceeds of the shares sold by us
was $8,800,000 and net proceeds paid to us was $7,832,000 before expenses.
We received no proceeds from the shares sold by the selling shareholders.
In addition, in association with the secondary public offering, the
underwriters were granted an option to purchase up to an additional 80,000
shares of common stock from us and 100,000 shares of common stock from the
selling shareholders to cover over-allotments.
On September 15, 2000 the underwriters exercised the over-allotment option.
Gross proceeds of the over-allotment shares sold by us was $640,000 and net
proceeds to us was $570,000 before expenses. We received no proceeds from
the shares sold by the selling shareholders.
5. EARNINGS PER SHARE
The earnings per share for the three month periods ended September 30, 2000
and 1999 were computed by dividing the weighted average number of shares
outstanding into net earnings.
The weighted average number of issued and outstanding common shares for the
three month period ended September 30, 2000 is based upon the 4,442,193
shares outstanding at the beginning of the year plus a proration of the
1,180,000 shares of common stock issued in connection with our underwritten
secondary public offering and over-allotments completed in August 2000 and
September 2000, respectively. Also included in the weighted average number
of common shares are incremental shares attributable to the assumed
exercise of options and warrants.
The weighted average number of issued and outstanding common shares for the
three months ended September 30, 1999, is based upon the 4,519,621 shares
outstanding at the beginning of the year less a pro-rata portion of the
135,000 shares of treasury stock repurchased during the first quarter of
fiscal year 1999, as well as the pro-rata portion of 3,333 shares issued
upon the exercise of employee stock options. Also included in the weighted
average number of common shares are incremental shares attributable to the
assumed exercise of options and warrants.
Basic and diluted earnings per share for the three month periods ended
September 30, 2000 and September 30, 1999:
<TABLE>
<CAPTION>
Three months ended Sept 30, 2000 Three months ended Sept. 30, 1999
-------------------------------- --------------------------------
Net Income Shares Per Share Net Income Shares Per Share
---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $1,986,739 4,821,559 $.41 $1,413,409 4,480,775 $.31
Effect of assumed conversion
of warrants and employee
stock options 742,523 725,883
---------- --------- ---- ---------- --------- ----
Diluted earnings per share $1,986,739 5,564,082 $.36 $1,413,409 5,206,658 $.27
========== ========= ==== ========== ========= ====
</TABLE>
6. TREASURY STOCK
During the three months ended September 30, 1999, we, in accordance with
our stock repurchase plan, purchased 135,000 shares of our common stock at
a cost of $1,046,250.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking information involves
important known and unknown risks and uncertainties that could significantly
affect our actual results, performance or achievements in the future and,
accordingly, such actual results, performance or achievements may materially
differ from those expressed or implied in any forward-looking statements made by
or on our behalf. These risks and uncertainties include, but are not limited to,
those relating to our growth strategy, customer concentration, outstanding
indebtedness, seasonality, expansion and other activities of competitors,
changes in federal or state laws and the administration of such laws, protection
of trademarks and other proprietary rights, and the general condition of the
economy and its effect on the securities markets and other risks detailed in our
other filings with the Securities and Exchange Commission. The words "believe,"
"expect," "anticipate," "intend," and "plan," and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date the statement
was made.
Results of Operations - Three months ended September 30, 2000 vs. three months
ended September 30, 1999.
Net sales for the three months ended September 30, 2000 were approximately
$88,948,000 as compared to approximately $61,381,000 for the three months ended
September 30, 1999, an increase of approximately $27,567,000 or 44.9%. This
increase reflects an increase in sales volume for food service products
manufactured by us, partially offset by the lower average selling price for
cheese (as a result of the lower CME Block Cheddar Market, the commodity index
on which bulk cheese prices are based).
Our gross margin increased by approximately $4,044,000, from approximately
$9,984,000 for the three months ended September 30, 1999 to approximately
$14,028,000 for the three months ended September 30, 2000, primarily as a result
of an increase in our sales volume for food service products manufactured by us.
Our gross margin as a percentage of sales decreased to 15.8% for the three
months ended September 30, 2000 as compared to 16.3% for the three months ended
September 30, 1999. The decrease in gross margin as a percentage of sales was
due to the lower average selling price for cheese (as a result of the lower CME
Block Cheddar Market, the commodity index on which bulk cheese prices are
based), and to a lesser extent the shift toward lower margin sales associated
with the food service industry.
Selling and shipping expenses increased from approximately $5,123,000 during the
three months ended September 30, 1999 to approximately $6,836,000 during the
three months ended September 30, 2000, an increase of approximately $1,713,000.
This increase was primarily due to an increase in advertising and promotional
allowances, commission expenses, as well as shipping expenses associated with
our increased sales volumes. As a percentage of sales, selling and shipping
expenses decreased to 7.7% for the three months ended September 30, 2000 as
compared to 8.3% for the three month period ended September 30, 1999. The
decrease in selling and shipping expenses as a percentage of sales is primarily
due to the increase in our revenue growth, partially offset by increases in
advertising and promotional expenses, commission expenses and shipping expenses
in support of our increased revenue growth.
General and administrative expenses increased from approximately $1,247,000
during the three months ended September 30, 1999 to approximately $1,619,000 for
the three months ended September 30, 2000, or an increase of approximately
$372,000. The increase in general and administrative expenses is primarily a
result of an increase in personnel and other administrative expenses associated
with our revenue growth. As a percentage of sales, general and administrative
expenses decreased from 2.0% during the three months ended September 30, 1999 to
1.8% for the three months ended September 30, 2000. The decrease in general and
administrative expenses as a percentage of sales is primarily due to the
increase in our revenue growth partially offset by increases in personnel and
other administrative expenses in support of our revenue growth.
Net interest expense increased to approximately $2,262,000 for the three months
ended September 30, 2000 as compared to approximately $1,260,000 for the three
month period ended September 30, 1999, or an increase of approximately
$1,002,000. The increase was the result of our expanded borrowing requirements
necessary for working capital needs.
8
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The provision for income taxes for the three months ended September 30, 2000
increased to $1,324,000 from $940,000 during the three months ended September
30, 1999. The increase is primarily a result of increased taxable income during
the three months ended September 30, 2000.
Net earnings increased approximately $574,000 to approximately $1,987,000 in the
three month period ended September 30, 2000 from approximately $1,413,000 during
the three month period ended September 30, 1999. The increase in net earnings is
due to the increase in gross margin resulting from increased sales, partially
offset by the increases in selling and shipping, general and administrative
expenses and interest expense.
9
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Financial Position, Liquidity and Capital Resources
At September 30, 2000, we had working capital of approximately $107,252,000, as
compared with $95,816,000 at June 30, 2000, an increase of approximately
$11,436,000. The increase in working capital is primarily due to the increase in
accounts receivable and inventory levels in support of our increased sales as
well as an increase in pre-paid expenses and a decrease in accrued expenses and
other current liabilities, partially offset by an increase in accounts payable,
income taxes payable, and a decrease in other assets.
In August 2000 we completed an underwritten secondary public offering of shares
of our common stock of which 1,100,000 shares were sold by us and 100,000 shares
were sold by certain selling shareholders at a public offering price of $8.00
per share. Gross proceeds of the shares sold by us was $8,800,000 and net
proceeds paid to us was $7,832,000 before expenses. We received no proceeds from
the shares sold by the selling shareholders. In addition, in association with
the secondary public offering, the underwriters were granted an option to
purchase up to an additional 80,000 shares of common stock from us and 100,000
shares of common stock from the selling shareholders to cover over-allotments.
On September 15, 2000 the underwriters exercised the over-allotment option.
Gross proceeds of the over-allotment shares sold by us was $640,000 and net
proceeds to us was $570,000 before expenses. We received no proceeds from the
shares sold by the selling shareholders.
In March, 1996, we purchased our Paterson, New Jersey production facility which
we previously had leased. The purchase was financed through a mortgage on the
property. Proceeds of the loan were $1,050,000, of which $686,250 was used to
pay the remaining obligation to the landlord. The balance of the proceeds was
used to complete the expansion of a 7,800 square foot refrigerated storage
facility. The five year note which bore interest at 8.51% per annum was being
amortized at a fifteen year rate and required a balloon payment at the end of
year five of approximately $840,000. On March 29,1999, we refinanced the
mortgage on our Paterson facility for the principal amount of $929,573. The
seven year note which bears interest at 7.85% per annum is being amortized at a
fifteen year rate and requires a balloon payment at the end of year seven of
approximately $501,000. At September 30, 2000, we had outstanding obligations of
approximately $855,576 under the mortgage financing the purchase of the Paterson
facility.
We have a bank revolving credit facility, (the "Facility"), that in March 2000
was amended and increased the bank's potential commitment to $85,000,000 through
February 15, 2004. The rate of interest on amounts borrowed under the Facility
is the LIBOR rate plus 175 basis points. The interest rate at September 30, 2000
was 8.44%. Advances under the Facility are limited to 85% of eligible accounts
receivable, and 60% of most inventory. The agreement contains restrictive
covenants, including the maintenance of consolidated net worth and the
maintenance of leverage and fixed charge ratios as defined in the agreement, and
restriction on dividends to common shareholders. As of September 30, 2000, we
are in compliance with these covenants. At September 30, 2000 our total
outstanding debt to the bank was $67,705,262.
We believe that we have adequate working capital to meet our reasonably
foreseeable cash requirements.
Net cash used in operating activities in the three month period ended September
30, 2000 was approximately $9,565,000 as compared to $5,571,000 in the
comparable period of the prior year. The use of cash in operations was primarily
the result of increases in accounts receivable and inventory levels in support
of our increased sales and prepaid expenses and other current assets as well as
a decrease in accrued expenses and other current liabilities, partially offset
by an increase in net earnings as adjusted for non-cash expenses, increases in
accounts payable and income taxes payable, as well as a decrease in other
assets. The cash used in operations was financed through cash flow from
financing activities. Net cash used in investing activities for the three month
period ended September 30, 2000 was approximately $569,000, as compared to
$237,000 in the three month period ended September 30, 1999 as a result of
continued expenditures for fixed assets. Cash flows provided by financing
activities was approximately $9,633,000 and $5,879,000 in the three months ended
September 30, 2000 and 1999, respectively. In the 2000 period, our secondary
offering generated proceeds of $7,974,000 and net proceeds from our revolving
credit facility were $1,818,000. In the 1999 period, net proceeds from our
revolving credit facility were $7,058,000, offset by cash used in treasury stock
purchases of $1,046,000. As a result, at September 30, 2000 we had cash of
$449,088, as compared to $428,267 at September 30, 1999.
In May 1999, the Board of Directors approved a stock repurchase program to
10
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acquire up to $3,200,000 of our common stock. As of September 30, 2000, we have
repurchased 213,370 shares of our common stock for a cost of approximately
$1,442,620.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
27. Financial Data Schedule
(For SEC only)
Reports on Form 8-K
None
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPREMA SPECIALTIES, INC.
(registrant)
Date: November 9, 2000 By: /s/ Mark Cocchiola
------------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: November 9, 2000 By: /s/ Steven Venechanos
------------------------
Steven Venechanos
Chief Financial Officer &
Secretary
