SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 2001
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
0-19263
(Commission File No.)
SUPREMA SPECIALTIES, INC.
(Exact name of registrant as specified in its charter)
New York 11-2662625
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 East 35th Street, Paterson, New Jersey 07543
(Address of principal executive offices including zip code)
Registrant's Telephone Number, including area code: (973) 684-2900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock Purchase Rights
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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of September 24, 2001 was $51,134,538.
As of September 24, 2001, there were 5,735,112 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference:
None.
PART I
Item 1. Business
General
Suprema Specialties, Inc. and its wholly owned subsidiaries
(hereinafter referred to collectively as "we", "us" or the "Company")
manufacture and market gourmet all natural Italian cheeses. Our product lines
consist primarily, of mozzarella, ricotta, parmesan, romano and provolone
cheeses which we produce domestically, as well as parmesan and pecorino romano
cheeses, which we import. Certain of our domestically produced cheeses include
"lite" and lower fat versions containing less fat and fewer calories.
We sell our cheeses through three channels of distribution in the food
industry: foodservice, food ingredient and retail. Over 95% of our revenue is
derived from the foodservice channel, where we market and sell our bulk cheeses
under the Suprema brand name, as well as under private label, to national and
regional foodservice distributors, which in turn sell our cheeses to
restaurants, hotels, caterers and others. We sell our cheeses to food
manufacturers in the food ingredient channel, who use our cheeses as ingredients
in prepared foods, such as frozen pizza and various pasta dishes. In the retail
distribution channel, we sell our cheeses principally in the Northeast and
Mid-Atlantic regional markets, as well as Florida and the Chicago metropolitan
area, primarily to supermarket chains, grocery stores, delicatessens and gourmet
shops, including Food Town, Shaw's, Giant, King Kullen, Stop'N Shop and Krogers.
We market our cheeses under the Suprema and Suprema Di Avellino(R)
brand names, and are increasing our efforts to build Suprema as a recognized
cheese brand by, among other things, increasing our use of promotional
materials, participating in trade shows and entering into certain co-branding
relationships.
Products, Production Process and Packaging
We domestically produce mozzarella, ricotta, provolone and grated and
shredded parmesan and romano cheeses including "lite" and lower fat versions of
certain of these products which
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contain less fat and fewer calories. We also import parmesan and
pecorino(sheep's milk) romano cheeses for production and resale. Foreign
producers, located principally in Europe and South America, supplied us with 25%
of our bulk cheese requirements in each of fiscal year 2000 and fiscal year
2001. Our cheeses are natural, and do not contain any preservatives, additives,
sweeteners, dehydrated fillers or artificial flavorings. Our cheese products are
premium quality all natural cheeses that meet or exceed all federal and industry
standards for purity, freshness, taste, appearance and texture.
We offer many of our products to the foodservice and food ingredient
groups in shrink-wrapped plastic packaging and in pillow packs which ensure
continued freshness and gourmet quality. In addition to standard sizes, we also
package our products in customized sizes, which can range from five pound to
forty pound blocks, in order to meet the specific needs of our foodservice
distributors and food manufacturer customers. We market and sell our products to
the foodservice and food ingredient groups under the Suprema brand name as well
as under private label.
We offer most of our retail products in convenient, resealable,
tamper-resistant, clear plastic cups and shakers, in order to maximize both
freshness and taste as well as to promote visual appeal. We believe that our
packaging enhances the gourmet quality and image of our cheeses. We offer our
cheeses in a wide variety of retail package sizes ranging from six ounces to
three pounds. We market and sell our products to retail groups under the Suprema
Di Avellino brand name as well as under private label.
Production Facilities
We manufacture our all natural cheeses at our West Coast facility in
Manteca, California, our Northeast facility in Ogdensburg, New York and our
facility in Blackfoot Idaho.
At our Manteca facility, raw milk is purchased from milk cooperatives
and, through our state-of-the-art equipment and our proprietary techniques,
produced into cheese. The Manteca facility, which has shredding capabilities,
whey processing equipment and storage and shipping facilities,
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manufactures the full line of our products, including mozzarella, provolone,
ricotta and domestic parmesan and romano.
Our Ogdensburg facility contains a cheese manufacturing operation as
well as storage and shipping facilities and whey processing equipment. We
manufacture mozzarella and provolone cheeses at this facility.
We purchased our Blackfoot Idaho facility in December 2000. This
facility contains a cheese manufacturing operation, as well as storage and
shipping facilities and whey processing equipment. We manufacture mozzarella,
monterey jack and cheddar cheese at this facility.
We also maintain an East Coast facility in Paterson, New Jersey, which
we own, subject to a mortgage. This facility contains production, storage and
shipping facilities, including state-of-the-art equipment for grating,
shredding, and packaging our products, and has been further expanded to include
a refrigerated/freezer storage facility. At this facility, bulk cheese from our
three manufacturing facilities, as well as imported bulk cheese, is shredded or
grated, packaged and distributed. Our Paterson facility also serves as our
corporate headquarters.
Each of our facilities serves as a distribution point for various
geographic markets throughout the United States. Our Manteca and Ogdensburg
facilities are operating at 80% of production capacity. Our Paterson facility is
operating at approximately 67% of production capacity and our Blackfoot facility
is operating at approximately 20% of capacity.
We employ a Director of Operations at each facility who makes
pre-production inspections and monitors critical manufacturing and processing
functions. We also employ a Director of Quality Control who oversees the Quality
Control Departments at each of our facilities. Our Quality Control Departments
are responsible for testing raw ingredients to ensure that they are free of
contaminants, inspecting production equipment and testing finished products to
ensure both quality compliance with customer specifications. In addition, we
regularly send random samples of each product to outside laboratories, which
perform routine physical, chemical and micro-biological tests.
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Suppliers
Our principal ingredient is raw milk. We have a supplier agreement
with Allied Federated Cooperatives, Inc. that runs through 2017, which provides
that, subject to specified minimum amounts, we will purchase from them all of
our milk requirements used in the manufacture of cheese products at our
Ogdensburg, New York facility. We are also dependent on a limited number of
other suppliers for all of our requirements of raw materials, primarily milk
used in the manufacture of cheese at our Manteca, California facility. We
believe that there are numerous alternative sources of supply available to us,
including for raw milk which is currently provided by our suppliers. For our
fiscal year 2000 and fiscal year 2001, our three largest suppliers accounted
for, in the aggregate, approximately 34% and 36%, respectively, of our product
requirements, with one milk supplier accounting for 14% and 12%, respectively,
of our requirements. Other than our agreement with Allied Federated Cooperatives
Inc., we generally purchase raw milk from dairy cooperatives and other dairy
vendors under one-year purchase agreements.
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Our purchase of bulk cheese are made pursuant to purchase orders
placed in the ordinary course of business. We import certain of our bulk cheeses
directly from Europe and, to a lesser extent, South America. We purchase cheese
supplies in large quantities in order to obtain volume discounts and place
orders for imported bulk cheese approximately four to six months in advance of
anticipated production requirements. For fiscal years ended June 30, 1999, 2000,
and 2001,approximately 18%, 25% and 25%, respectively, of our supply
requirements were imported.
Sales and Marketing
We employ regional sales representatives to market our products as
well as a national account representative who is responsible for our sales to
our customers who have national operations. Senior management is responsible for
planning and coordinating our marketing programs and maintains a hands-on
relationship with select key accounts. In addition, we engage independent
commissioned food brokers throughout the United States for marketing to our
customers. To achieve greater market penetration, we intend to continue to
strengthen and expand our sales force and food broker network.
We believe that product recognition by customers, consumers and food
brokers is an important factor in the marketing of our products. We market our
products and brand name by participating in trade shows, establishing
co-branding relationships, through the use of promotional materials, including
full color product brochures, circulars, free standing product displays,
newspaper inserts and through various co-op advertisement programs. Our Vice
President of Sales is responsible for overseeing our marketing efforts and for
managing and coordinating our sales efforts and supervising our regional sales
representatives brokers.
Customers
We sell our cheeses nationally to foodservice industry distributors
and food manufacturers, principally in bulk. For the years ended June 30, 1999,
2000, and 2001, sales of cheese products to foodservice distributors accounted
for approximately 91%, 91%, and 97%, respectively, of our net sales. Sales to
food manufacturers accounted for approximately 6%, 7%, and 2%, respectively, of
our net sales.
-5-
Our retail products are sold to supermarket chains, grocery stores,
delicatessens and gourmet shops. Our customers include well known chain stores,
such as Food Town, Shaw's, Giant, King Kullen, Stop'N Shop and Krogers. For the
years ended June 30, 1999, 2000, and 2001, sales of cheese products to retailers
accounted for approximately 3%, 2% and 1%, respectively, of our net sales.
We generally sell our cheeses upon receipt of customer purchase orders
and fill orders within approximately seven days. Other than our agreement with
Sbarro's, Inc., we generally do not have long term purchase agreements with our
customers. For the fiscal year ended June 30, 2000, A&J Foods, Inc., Tricon
Commodities International, Inc. and Noble J.G. Cheese Company accounted for 15%,
13% and 12%, respectively, of our net sales. For the fiscal year ended June 30,
2001, Tricon Commodities, A&J Foods, Inc., Battaglia and Company, Noble J.G.
Cheese Company and California Goldfield Cheese Traders accounted for
approximately 17%, 15%, 12%, 10% and 10%, respectively, of our net sales.
Trademarks
In September, 1992, we registered the name Suprema Di Avellino(R) with
the United States Patent and Trademark Office. We have received Notices of
Allowance from the United States Patent Office with respect to the trademarks
"Chez" and "Pizza Chez."
Government Regulation
We are subject to extensive regulation by the United States Food and
Drug Administration (the "FDA"), the United States Department of Agriculture,
and other state and local authorities in jurisdictions in which our products are
manufactured, processed or sold, regarding the importation, manufacturing,
processing, packaging, storage, distribution and labeling of our products.
Applicable statutes and regulations governing cheese products include "standards
of identity" for the content of specific types of cheese; nutritional labeling
and serving size requirements as well as general "Good Manufacturing Practices"
with respect to manufacturing and production processes. Our manufacturing and
processing
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facilities and products are subject to compliance with federal and state
regulations regarding work safety and environmental matters. Our manufacturing
and processing facilities and products are subject to periodic inspection by
federal, state and local authorities. We believe that we are currently in
substantial compliance with all material governmental laws and regulations and
maintain all material permits and licenses relating to our operations.
Amendments to existing statutes and regulations, adoption of new statutes and
regulations as well as our expansion into new operations and jurisdictions will
require us to obtain additional licenses and permits and could require us to
adapt or alter methods of operations at costs which could be substantial.
Advertising relating to our products is subject to review of the
Federal Trade Commission and state agencies to monitor and prevent unfair or
deceptive trade practices.
Competition
We face significant competition in the marketing and sales of our
products. Our foodservice and food ingredient products compete on the basis of
price, quality and service with products of companies such as Dairy Farmers of
America, Beatrice Cheese Company and Stella Foods. Our retail products compete
for brand recognition and shelf space with products of companies that have
achieved significant consumer loyalty, such as Kraft, Sorrento and Sargento, as
well as private label. Many of these companies have greater financial and other
resources than we do which enables them to procure supermarket shelf space and
to implement extensive advertising and promotional programs. We also compete in
all three distribution channels with importers of foreign cheese and companies
manufacturing substitute cheese products.
We believe the principal competitive factors in the marketing of
cheese products are price, quality, freshness, brand recognition and packaging
convenience. Because our current products are positioned as all natural and
gourmet, we generally price them at a premium to certain competitive products.
We are subject to evolving consumer preferences, nutritional and
health-related concerns. We believe that the absence of preservatives,
additives, sweeteners, dehydrated
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fillers or artificial flavorings increases the appeal of our products to
consumers. In addition, in response to certain consumer concerns, we have
certain all natural "lite" and lower fat cheese products which contain less fat
and fewer calories. We expect to see increased competition from other companies
whose products or marketing strategies address these consumer concerns.
Employees
As of September 24, 2001, we had 286 full-time employees, of which 16
are employed in executive capacities and management positions, 28 are engaged in
sales and marketing and administrative capacities and 242 are engaged in
production and operations. Approximately 62% of our total workforce is
represented by a union. We have a contract with our union employees in Manteca,
California and Ogdensburg, New York which expire in December 2004 and November
2003, respectively. We consider our relations with our employees to be
satisfactory.
Item 2. Properties
Our Manteca facility, consists of approximately 110,000 square feet,
which we operate pursuant to a ten year lease that expires in August 2005 and
that may be extended at our option for two additional five year periods. The
basic annual rental (exclusive of insurance and taxes) is $576,000, subject to
adjustment for increases in the Consumer Price Index during the renewal term.
The rent is based on a formula relating to the Landlord's cost of construction
of the additional space.
Our Ogdensburg facility consists of an aggregate of 72,000 square feet
and contains a cheese manufacturing operation as well as storage and shipping
facilities and whey processing equipment. We lease this facility pursuant to a
lease which expires in July 2017, which we may elect to terminate on each fifth
year anniversary of its commencement. Minimum monthly base rental is $4,000 plus
a fee of $.06 per hundred weight of whole milk sold and delivered, provided that
in no event shall the minimum monthly rent exceed $8,000.
-8-
We purchased our Blackfoot Idaho facility in December 2000. This
facility consists of approximately 37,000 square feet and contains a cheese
manufacturing operation, as well as storage and shipping facilities and whey
processing equipment. The acquisition cost was $6 million and was financed
through a leasing transaction.
We also maintain an East Coast facility in Paterson, New Jersey, which
we own, subject to a mortgage, and which consists of approximately 32,000 square
feet. On March 29, 1996, we purchased our Paterson 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 approximately $686,250
was used to pay the remaining obligation to the landlord. In March 1999, we
refinanced our mortgage on the Paterson facility with Fleet Bank for a principal
amount of $929,573. The seven year note bears interest of 8.51% per annum, is
being amortized at a fifteen year rate and requires a balloon payment at the end
of year seven of approximately $500,000.
We believe that our current facilities are adequate to handle our
current sales volume and subsequent growth.
Item 3. Legal Proceedings
We are a party to certain litigation arising in the ordinary course of
business. While any litigation has an element of uncertainty, we believe that
the final resolution of any of these matters will not have a material effect on
our operations.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Shareholders was held on May 2, 2001 at which our
shareholders approved a proposal to increase our authorized shares of Common
Stock to 50,000,000 shares. There were 4,031,214 votes in favor of the proposal;
1,384,775 votes against the proposal and 5,520 absentions. There were no broker
non-votes.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Our Common Stock has been traded in the over-the-counter market and
quoted on the NASDAQ System under the symbol "CHEZ" since April 25, 1991. On
March 22, 1993, our Common Stock commenced trading on the NASDAQ National Market
System. The following table sets forth the high and low sale prices of our
Common Stock for the periods indicated below.
Common Stock
------------
High Low
---- ---
Fiscal Year ending June 30, 2000
--------------------------------
First Quarter 9.125 6.875
Second Quarter 9.750 7.000
Third Quarter 10.500 7.750
Fourth Quarter 10.500 7.938
Fiscal Year ending June 30, 2001
--------------------------------
First Quarter 10.625 7.688
Second Quarter 8.563 7.375
Third Quarter 10.250 7.500
Fourth Quarter 14.990 8.063
As of September 24, 2001, the number of record holders of our Common
Stock was 67. We believe that this number does not include an estimated 1,000
beneficial owners of our Common Stock who currently hold such securities in the
name of depository institutions.
We have neither paid nor declared any cash dividends on our shares of
Common Stock. Our Board of Directors do not presently anticipate that cash
dividends will be paid on our shares of Common Stock in the foreseeable future.
In addition, our agreement with our lending institutions prohibits the payment
of cash
-10-
dividends, other than dividends on shares of preferred stock whose issuance is
permitted under the loan agreement. We anticipate that any funds derived from
operations in the foreseeable future will be required to be devoted to the
development of our business.
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Item 6. Selected Financial Data
The following selected consolidated financial information is derived
from, and should be read in connection with, the consolidated financial
statements of the Company contained elsewhere herein.
Years Ended June 30,
------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands, except per share data)
Earnings Statement Data:
Net Sales $420,363 $278,482 $176,281 $108,140 $ 88,311
Earnings before
Cumulative Effect
of Accounting Change
and Extraordinary loss
on extinguishment of
debt 8,874 6,385 4,208 2,417 121
Net Earnings 8,874 6,385 4,208 1,406 121
Earnings Per Share
before Cumulative
Effect of Accounting
Change and
extraordinary loss
on extinguishment
of debt (Basic) 1.63 1.44 .93 .53 .03
Earnings Per Share
before Cumulative
Effect of Accounting
Change and
extraordinary loss
on extinguishment
of debt (Diluted) 1.41 1.23 .86 .51 .02
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Net earnings per Share
(Basic) 1.63 1.44 .93 .31 .03
Net earnings per Share
(Diluted) 1.41 1.23 .86 .30 .02
Weighed Average Common
Shares Outstanding
(Basic)(1) 5,429 4,432 4,537 4,563 4,552
Weighed Average Common
Shares Outstanding
(Diluted)(2) 6,294 5,186 4,884 4,745 5,040
June 30,
------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Cash and cash equivalents 610 950 358 490 480
Total Assets $190,412 $124,960 $ 81,999 $ 62,081 $ 47,043
Working Capital 143,990 95,816 56,266 43,872 32,546
Long Term Obligations
(including capital
lease obligations
and current portion) 111,686 78,971 44,125 35,494 23,772
Total Liabilities 147,584 98,992 61,488 45,387 31,754
Stockholders' Equity 42,828 25,968 20,511 16,695 15,289
----------
(1) See Footnote 11 to Notes to Consolidated Financial Statements.
(2) See Footnote 11 to Notes to Consolidated Financial Statements.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Certain information included in this report on Form 10-K that are not historical
facts contain forward looking statements that involve a number of known and
unknown risks, uncertainties and other factors that could cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievement expressed or implied by such forward looking
statements. These risks and uncertainties include, but are not limited to, our
dependence on several principal customers, competition, the impact of supply
constraints or difficulties, the amount of our secured indebtedness, our
dependence on key personnel, the possibility of product liability claims,
government regulation of our business, and other risks detailed in our other
Securities and Exchange Commission filings. The words "believe", "expect",
"anticipate" and "seek" 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.
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Overview:
We manufacture and market gourmet all natural Italian cheeses. Our
product lines consist primarily of mozzarella, ricotta, parmesan, romano and
provolone cheeses, which we produce domestically, as well as parmesan and
pecorino romano cheeses, which we import. Certain of our domestically produced
cheeses include "lite" and lower fat versions containing less fat and fewer
calories. In the fiscal years 1999, 2000, and 2001, aggregate sales of parmesan
and romano cheese, which are classified as "hard" cheese, accounted for 37%, 52%
and 62%, respectively, of our revenue. For the fiscal years 1999, 2000 and 2001,
sales of mozzarella cheese which is classified as "soft" cheese, accounted for
approximately 48%, 29% and 22%, respectively, of our revenue.
We sell our cheeses through three channels of distribution in the food
industry: foodservice, food ingredient and retail. For the fiscal years 1999,
2000 and 2001, sales of our cheeses to foodservice companies accounted for
approximately 91%, 91% and 97%, respectively, of our revenues; sales of our
cheeses to food ingredient companies accounted for approximately 6%, 7% and 2%,
respectively, of our revenue; and sales of our cheeses to retailers accounted
for 3%, 2% and 1%, respectively, of our revenue.
We maintain four facilities located in Manteca, California,
Ogdensburg, New York, Blackfoot, Idaho and Patterson, New Jersey. Our cheese
production facilities are located in key milk shed regions, allowing us to
minimize transportation costs for our raw milk supplies and maintain a low cost
infrastructure. Historically, a majority of our cost of goods sold has consisted
of the price we pay for raw milk. We generally purchase raw milk from dairy
cooperatives and other dairy vendors under one-year purchase arrangements. The
price we pay for raw milk under these arrangements is indexed to the CME Block
Cheddar Market, the commodity index on which our bulk cheese prices are based.
As a result, our gross profit margin is largely insulated from fluctuations in
the price of raw milk. However, as the CME Block Cheddar Market index decreases,
reducing the price we receive for our products, our gross margin also decreases
due to the proportionately larger impact of those elements of our cost of goods
sold, the prices of which are fixed or relatively fixed in nature. Conversely,
as the CME Block Cheddar Market increases, our gross margin increases. Over the
past three years ended June 30, 2001, our gross margin
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as a percentage of sales had decreased from approximately 17.0% to 15.0%.
We record revenue when our products are shipped to customers. Our
customers generally do not have the right to return products that have been
shipped.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of revenue represented by certain items reflected in our Statements
of Earnings.
Percentage of Revenue
---------------------
Year Year Year
Ended Ended Ended
June 30, June 30, June 30,
2001 2000 1999
------ ------ ------
Net sales ......................... 100.0% 100.0% 100.0%
Cost of sales ..................... 84.5 83.6 83.0
------ ------ ------
Gross margin ...................... 15.5 16.4 17.0
Selling and shipping
Expenses .......................... 7.5 7.9 8.0
General and administrative expenses 2.1 2.5 2.5
------ ------ ------
Income from operations ............ 5.9 6.0 6.5
Interest expense, net ............. 2.4 2.1 2.5
------ ------ ------
Earnings before income taxes ...... 3.5 3.9 4.0
Income taxes ...................... 1.4 1.6 1.6
------ ------ ------
Net earnings ...................... 2.1% 2.3% 2.4%
====== ====== ======
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Fiscal Year Ended June 30, 2001 Compared to Fiscal Year Ended June 30, 2000.
Net sales for the fiscal year ended June 30, 2001 were approximately
$420,363,000, as compared to approximately $278,482,000 for the fiscal year
ended June 30, 2000, an increase of approximately $141,881,000, or 50.9%. This
increase reflects an increase primarily in sales volume for food service
products manufactured by us, most of which represented sales to existing
customers, partially offset by the lower average selling price for cheese to our
customers, as a result of the lower average CME Block Cheddar Market.
Our gross margin increased by approximately $19,404,000, from
approximately $45,549,000 for the fiscal year ended June 30, 2000 to
approximately $64,953,000 for the fiscal year ended June 30, 2001, primarily as
a result of the increase in sales volume.
Our gross margin as a percentage of sales decreased from 16.4% in the
fiscal year ended June 30, 2000 to 15.5% in the fiscal year ended June 30, 2001.
The decrease in gross margin as a percentage of net sales was primarily due to
the lower average selling price for cheese to our customers (as a result of the
lower average CME Block Cheddar Market) during the fiscal year ended June 30,
2001, and to a lesser extent, the shift toward lower margin sales associated
with the food service markets.
Selling and shipping expenses increased by approximately $9,467,000
from approximately $21,893,000 for the fiscal year ended June 30, 2000 to
approximately $31,360,000 for the fiscal year ended June 30, 2001. The increase
in selling and shipping expenses was primarily due to increases in advertising
and shipping expenses in support of our revenue growth. As a percentage of
sales, selling and shipping expenses decreased from 7.9% for the fiscal year
ended June 30, 2000 to 7.5% in the fiscal year ended June 30, 2001. The decrease
in selling and shipping expenses as a percentage of sales principally reflects
economies of scale realized with additional sales volume, partially offset by
the increases in advertising, commission expenses and shipping expenses in
support of the our revenue growth.
General and administrative expenses increased by approximately
$1,857,000, from approximately $6,914,000 for the fiscal year ended June 30,
2000 to approximately $8,771,000 for the fiscal year ended June 30, 2001. The
increase in general
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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 to 2.1% for
the fiscal year ended June 30, 2001 from 2.5% for the fiscal year ended June 30,
2000, primarily due to the increase in our revenue which was partially offset by
an increase in personnel and other administrative expenses associated with our
revenue growth.
Net interest expense increased to approximately $10,033,000 for the
fiscal year ended June 30, 2001 from approximately $5,921,000 for the fiscal
year ended June 30, 2000. The increase in interest expense was primarily the
result of our expanded borrowing requirements necessary for working capital
needs.
The provision for income taxes for the fiscal year ended June 30, 2001
increased by approximately $1,479,000 as compared to the fiscal year ended June
30, 2000 primarily as a result of increased taxable income.
Net earnings increased by approximately $2,489,000 to approximately
$8,874,000 for the fiscal year ended June 30, 2001 from approximately $6,385,000
for the fiscal year ended June 30, 2000, due to the reasons discussed above.
Fiscal Year Ended June 30, 2000 Compared to Fiscal Year Ended June 30, 1999.
Net sales for the fiscal year ended June 30, 2000 were approximately
$278,482,000, as compared to approximately $176,281,000 for the fiscal year
ended June 30, 1999, an increase of approximately $102,201,000, or 58.0%. This
increase reflects an increase primarily in sales volume for foodservice products
manufactured by us, most of which represented sales to existing customers.
Our gross margin increased by approximately $15,620,000, from
approximately $29,929,000 for the fiscal year ended June 30, 1999 to
approximately $45,549,000 for the fiscal year ended June 30, 2000, primarily as
a result of the increased sales volume. Our gross margin as a percentage of
sales decreased slightly from 17.0% in the fiscal year ended June 30, 1999 to
16.4% in the fiscal year ended June 30, 2000. The decrease in gross margin as a
percentage of net sales was primarily due to the lower average selling price for
cheese to
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our customers (as a result of the lower average CME Block Cheddar Market) during
the fiscal year ended June 30, 2000, and to a lesser extent, the shift toward
lower margin sales associated with the food service markets.
Selling and shipping expenses increased by approximately $7,847,000
from approximately $14,046,000 during the fiscal year ended June 30, 1999 to
approximately $21,893,000 during the fiscal year ended June 30, 2000. The
increase in selling and shipping expenses was primarily due to increases in
advertising, commission expense and shipping expenses in support of our revenue
growth. As a percentage of sales, selling and shipping expenses decreased
slightly from 8.0% for the fiscal year ended June 30, 1999 to 7.9% for the
fiscal year ended June 30, 2000. The decrease in selling and shipping expenses
as a percentage of sales was primarily due to the increase in our revenue
growth, which was partially offset by the increases in advertising and
promotional allowances, commission expense and shipping expenses in support of
our revenue growth.
General and administrative expenses increased by approximately
$2,493,000, from approximately $4,421,000 for the fiscal year ended June 30,
1999 to approximately $6,914,000 for the fiscal year ended June 30, 2000. The
increase in general and administrative expenses was primarily due to an increase
in personnel and other administrative expenses associated with our revenue
growth. As a percentage of sales, general and administrative expenses remained
constant at 2.5% for both the fiscal year ended June 30, 1999 and June 30, 2000.
Net interest expense increased to approximately $5,921,000 for the
fiscal year ended June 30, 2000 from approximately $4,329,000 for the fiscal
year ended June 30, 1999. The increase in interest expense was primarily the
result of our expanded borrowing requirements necessary to finance working
capital needs.
The provision for income taxes for the fiscal year ended June 30, 2000
increased by approximately $1,511,000 compared to fiscal year ended June 30,
1999 primarily as a result of increased taxable income.
Net earnings increased by approximately $2,177,000 to approximately
$6,385,000 in the fiscal year ended June 30, 2000 from approximately $4,208,000
in the fiscal year ended June 30, 1999 due to the reasons discussed above.
-19-
Liquidity and Capital Resources
At June 30, 2001, we had working capital of approximately $143,990,000
as compared to approximately $95,816,000 at June 30, 2000, an increase of
approximately $48,004,000. The increase in working capital is primarily due to
our improved operating results as well as the proceeds from long term borrowings
of approximately $33,378,000 used to support our increased accounts receivable
and inventory levels in support of our increased sales volume.
Net cash used in operating activities for the fiscal year ended June
30, 2001 was approximately $36,617,000, as compared with approximately
$32,649,000 in the fiscal year ended June 30, 2000 and $7,704,000 in the fiscal
year ended June 30, 1999. The increase in the use of cash in operations was
primarily the result of increases in accounts receivable and inventories in
support of our increased sales volume, as well as increases in prepaid expenses
and other current assets, partially offset by net earnings and, for the period
ended June 30, 2001, increases in accounts payable. The percentage increase of
our accounts receivable was greater than the percentage increase of our revenue
primarily as a result of extended payment terms that we grant to certain of our
significant customers to which sales increased at a greater rate than our
aggregate sales. We have not, however, experienced any material bad debt
write-offs and we do not, generally, issue our customers a right of a return
with respect to delivered products. The percentage increase in our inventory,
which increased primarily as a result of our increase in sales volume, was less
than the percentage increase in our revenue. The cash used in operations was
financed through cash flow and from financing activities, primarily proceeds
from existing credit facilities and, for the period ended June 30, 2001, our
underwritten public offering which we completed in August and September 2000.
Net cash used in investing activities for the year ended June 30, 2001 was
approximately $4,084,000 as compared with $677,000 in the fiscal year ended June
30,2000 and $667,000 in the fiscal year ended June 30, 1999. Our investing
activities during the fiscal year ended June 30,2001 related to
-20-
continued expenditures for fixed assets including the purchase from Snake River
Cheese, L.L.C. of land and building located in Blackfoot, Idaho, and capital
equipment utilized in our California and New York manufacturing facilities.
Investing activities during the fiscal year ended June 30, 2000 related to
continued expenditures for fixed assets including capital equipment for our
Manteca and Ogdensburg manufacturing facilities. We intend to finance any
additional significant capital expenditures through operating leases. As a
result, at June 30, 2001, we had cash of approximately $610,000, as compared to
approximately $950,000 at June 30, 2000 and $358,000 at June 30, 1999.
In May, 1999, our Board of Directors approved a stock repurchase
program to acquire up to $3,200,000 of our common stock. As of June 30, 2001, we
have repurchased 224,877 shares of our common stock for a cost of approximately
$1,548,000.
We have a revolving credit facility with several commercial banks. In
September 2001, the line of credit under this facility was increased to
$130,000,000 through February 15, 2004. The rate of interest on amounts borrowed
under the revolving credit facility is the adjusted LIBOR plus 175 basis points.
The interest rate as of June 30, 2001 was 7.5% per annum. The facility is
collateralized by substantially all existing and acquired assets as defined in
the credit facility, and is guaranteed by our subsidiaries and the pledge of all
of the stock of our subsidiaries. Advances under this credit facility are
limited to 85.0% of eligible accounts receivable, and 60.0% of most inventory,
as defined in the agreement. The credit facility 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 a restriction on dividends to common shareholders. As of June 30, 2001, we
were in compliance with these covenants. The credit facility agreement further
provides that the loss of services of Mark Cocchiola may be deemed an event of
default upon which the principal amount borrowed under the facility together
with accrued interest and all other payment obligations may become immediately
due and payable. At June 30, 2001, our total outstanding debt to the banks was
approximately $99,265,000.
In August 2000, we completed an underwritten public offering for
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 were $8,800,000 and we
received net proceeds of approximately $7,404,000. We received no proceeds from
the shares sold by the selling shareholders. In addition, in association with
the public offering, the underwriters were granted an option to purchase up
-21-
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 were $640,000 and
we received net proceeds of $570,000. We received no proceeds from the shares
sold by the selling shareholders.
In March 1998, we entered into a Loan and Security Agreement with
Albion Alliance Mezzanine Fund, L.P. and the Equitable Life Assurance Society of
the United States as the lenders, pursuant to which $10,500,000 was loaned to
us. The loan is unsecured and is subordinated to the revolving credit facility
discussed above. The loan bears interest at 16.5% per annum. Interest is payable
monthly at a rate of 12.0% with the balance deferred until February 1, 2003 when
it is due in full. The loan is payable in three installments of the principal
amount of $3,500,000, together with accrued and unpaid interest thereon, on each
March 1, beginning in the year 2004. The Loan and Security Agreement provides
that upon our loss of the services of Mark Cocchiola, the lenders could require
us to repurchase the principal amount of the subordinated loan. In addition, in
connection with the execution and delivery of the Loan and Security Agreement,
we delivered to the lender a warrant to purchase 105,000 shares of our common
stock at $4.125 per share, the market price at the date of the agreement. The
warrant is exercisable until March 1, 2008. The warrant was exercised pursuant
to a cashless exercise in July 2001.
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 purchase price for the facility. 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 June 30, 2001, we had an outstanding obligations
-22-
of approximately $815,000 under the mortgage for the Paterson facility.
We believe that cash flows from operating activities and borrowings
available under our revolving credit facility will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures until at
least June 30, 2002. Thereafter, we may need to raise additional funds to fund
our operations and potential acquisitions, if any. Any such additional
financing, if needed, might not be available on reasonable terms or at all.
Foreign Currency
We are subject to various risks inherent in dependence on foreign
sources of supply, including economic or political instability, shipping delays,
fluctuations in foreign currency exchange rates, custom duties and import quotas
and other trade restrictions, all of which could have a significant impact on
our ability to obtain supplies and deliver finished products on a timely and
competitive basis. We have no material hedged monetary assets, liabilities or
commitments denominated in currencies other than the United States dollar.
Effect of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 standardizes accounting
and reporting for derivative instruments and for hedging activities. This
statement was adopted for our 2001 fiscal year. SFAS 133 did not have any
significant effect on our financial statements.
In July 2001, SFAS 141, Business Combinations, and SFAS 142, Goodwill
and other Intangible Assets, were issued. SFAS 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. SFAS
142 requires, among other things, that companies no longer amortize goodwill,
but instead test goodwill for impairment at least annually. SFAS 142 is required
to be applied for fiscal years beginning after December 15, 2001. Currently, we
have not recorded any goodwill and we intend to assess how the adoption of SFAS
141 and SFAS 142 will impact our financial position and results of operations
with respect to any future acquisition we may make.
-23-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of the current nature of these instruments. The
carrying amounts reported for revolving credit and long-term debt approximate
fair value because the interest rates on these instruments are subject to
changes with market interest rates.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data of the Company are
included following Part IV of this report.
Item 9. Changes in and Disclosure with Accountants on Accounting and Financial
Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Our current directors and executive officers are as follows:
Name Age Position with Company
---- --- ---------------------
Mark Cocchiola 44 Chairman of the Board, Chief Executive Officer
and President
Steven Venechanos 41 Chief Financial Officer, Secretary and Director
Thomas Egan 59 Senior Vice President
Anthony Distinti 81 Vice President
Marco Cocchiola 76 Director
-24-
Dr. Rudolph Acosta, Jr. 45 Director
Paul DeSocio 58 Director
Barry S. Rutcofsky 43 Director
Mark Cocchiola has been President and a director of Suprema Specialties,
Inc. since our inception in 1983 and Chairman of the Board and Chief Executive
Officer since February 1991. Mark Cocchiola is the son of Marco Cocchiola.
Steven Venechanos has been employed by Suprema since April 1994 and became
Chief Financial Officer and Secretary of Suprema Specialties, Inc. in April
1995. He was appointed a director of Suprema Specialties, Inc. in September
2001. From June 1990 until joining Suprema, he was employed in a variety of
positions at Breed Technologies, a manufacturer of airbag sensors.
Thomas Egan has been Vice President of Suprema Specialties, Inc. since May
1993 and Senior Vice President since June 1995. From May 1992 through May 1993,
he was Sales Manager of Blue Ridge Farms, a salad manufacturer. From October
1990 through May 1992, Mr. Egan was President of TEF Sales Corp., a sales and
marketing consulting firm specializing in the cheese importing business.
Anthony Distinti has been Vice President of Human Resources of Suprema
Specialties, Inc. since November 1997. Mr. Distinti has been employed in the
food industry most of his life in various capacities and has more than forty
years experience in human resources.
Marco Cocchiola has been a director of Suprema Specialties, Inc. since
February 1991 and Operations Manager since our inception in 1983. Mr. Cocchiola
was Secretary of Suprema from February 1991 to June 1993. Marco Cocchiola is the
father of Mark Cocchiola.
Rudolph Acosta, Jr., M.D. has been a director of Suprema Specialties, Inc.
since August 1993. He has been engaged in the private practice of medicine since
August 1986.
Paul DeSocio has been a director of Suprema Specialties, Inc. since August
1993. He has been the President and a director of Autoprod, Inc., a manufacturer
of food packaging machinery since May 1989. From 1980 through May 1989, Mr.
DeSocio was a Vice President of Autoprod, Inc.
-25-
Barry S. Rutcofsky has been a director of Suprema Specialties, Inc. since
February 2001. He has served as an Executive Vice President of Take-Two
Interactive Software, Inc., a developer, publisher and distributor of
interactive software games since May 2001. He was Co-Chairman of the Board of
Take Two Interactive, Inc. from July 2000 to May 2001 and was President of
Take-Two Interactive from August 1999 to July 2000. Prior to joining Take-Two,
Mr. Rutcofsky was a partner of the New York law firm of Tenzer Greenblatt LLP
(now known as Blank Rome Tenzer Greenblatt LLP). Mr. Rutcofsky joined Tenzer
Greenblatt LLP in April 1987.
Paul Lauriero, a director and Executive Vice President and a co-founder of
Suprema Specialties, Inc. passed away on August 27, 2001. Mr. Lauriero was
primarily responsible for overseeing the procurement of raw materials for
production and the general operations of our facilities. Mark Cocchiola has
assumed these responsibilities on an interim basis. We cannot, at this time,
determine the impact of the loss of Mr. Lauriero's services on our operations.
We are the beneficiary of a key-man life insurance policy we had obtained on the
life of Mr. Lauriero in the amount of $1.0 million, and we anticipate receiving
the proceeds from this policy.
Our directors are elected at the annual meeting of shareholders to hold
office until the annual meeting of shareholders for the ensuing year or until
their successors have been duly elected and qualified.
Officers are elected annually by our directors and serve at the discretion
of the Board.
Compensation of Directors
Non-employee directors receive compensation in the amount of $500 for each
meeting attended in person and $250 for each meeting attended by telephone
conference call for serving on the Board. Directors are reimbursed for all
out-of-pocket expenses incurred in attending Board meetings.
In addition, under our 1991 and 1998 stock option plans and 1999 stock
incentive plan, non-employee directors, other than directors who become members
of a stock option committee appointed by our Board pursuant to a stock option or
incentive plan, are eligible to be granted non-qualified stock options.
Directors who are employees, and are not members of a stock option committee,
are eligible to be granted incentive stock
-26-
options and non-qualified stock options under our stock option plans. Our Board
or the compensation committee of the Board has discretion to determine the
number of shares subject to each incentive stock option, the exercise price and
other terms and conditions thereof, but their discretion as to the exercise
price, the term of each incentive stock option and the number of incentive stock
options that may vest in any year, is limited by the terms of the stock option
or incentive plans and the Internal Revenue Code of 1986, as amended. In
addition, the 1999 stock incentive plan provides for the grant of other
stock-based awards as may be determined by our Board or the compensation
committee.
Board Committees
We have established a compensation committee that is currently composed of
Dr. Rudolph Acosta and Mr. Paul DeSocio. The function of the compensation
committee is to evaluate and determine the compensation of our executive
officers pursuant to recommendations made by Mark Cocchiola, our Chief Executive
Officer.
We have established an audit committee that is currently composed of
Messrs. DeSocio and Rutcofsky and Dr. Acosta. The function of the audit
committee is to review and monitor our corporate financial reporting, external
audits, internal control functions and compliance with laws and regulations that
could have a significant effect on our financial condition or results of
operations. In addition, the audit committee has the responsibility to consider
and recommend the appointment of, and to review fee arrangements with, our
independent auditors.
-27-
Item 11. Executive Compensation
Summary Compensation. The following table discloses compensation awarded by
Suprema for the fiscal years ended June 30, 2001, 2000 and 1999, to our Chief
Executive Officer, Executive Vice President, Senior Vice President, Chief
Financial Officer and Vice President, the "Named Executives," who are the only
executive officers whose salary and bonus exceeded $100,000 during the fiscal
year ended June 30, 2001.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term
----------------------------------- Compensation
------------
Number of
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation(1)
--------------------------- ---- ------ ----- ------- ---------------
<S> <C> <C> <C> <C> <C>
Mark Cocchiola, Chairman of the 2001 $250,000 $706,984 100,000 $17,716
Board, Chief Executive Officer and 2000 250,000 508,594 100,000 15,615
President 1999 252,700 324,201 50,000 15,010
Paul Lauriero, Executive Vice 2001 250,000 706,984 100,000 16,616
President(2) 2000 250,000 508,594 100,000 13,679
1999 252,700 324,201 50,000 12,648
Thomas Egan, Senior Vice President 2001 164,903 -- 10,000 6,000
2000 153,750 -- 15,000 9,196
1999 133,077 -- 30,000 6,000
Steven Venechanos, Chief Financial 2001 154,807 60,000 92,000 6,000
Officer and Secretary 2000 153,750 -- 25,000 13,500
1999 120,000 -- 30,000 6,000
Anthony Distini, Vice President 2001 125,000 20,000 -- --
2000 119,731 -- -- --
1999 96,500 -- -- --
</TABLE>
----------
(1) Consists of automobile allowance, medical insurance premium reimbursement
and compensation paid in lieu of vacation.
(2) Mr. Lauriero passed away on August 27, 2001. Mark Cocchiola has assumed the
duties previously performed by Mr. Lauriero on an interim basis.
-28-
Option Grants in Last Fiscal Year. The following table discloses
information concerning options granted in fiscal year 2001 to the Named
Executives. The options granted to Mark Cocchiola and Mr. Lauriero were
exercisable in full from the date of grant. The options granted to Mr. Egan and
Mr. Venechanos vest in three annual installments commencing one year from the
original date of grant of the options.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------
Percent of
Number of Total Options Potential Realizable
Securities Granted to Exercise Value At Assumed Annual
Underlying Employees in Price Rates of Stock Price
Name Options Granted Fiscal Year ($/Sh) Expiration Date Appreciation for Option Term
---- --------------- ----------- ------ --------------- ----------------------------
5% 10%
------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark Cocchiola 100,000 25.2% $7.50 01/02/11 $471,671 $1,195,307
Paul Lauriero 100,000 25.2 7.50 01/02/11 471,671 1,195,307
Thomas Egan 10,000 2.6 7.50 01/02/11 47,167 119,531
Steven Venechanos 92,000 23.2 7.50 01/02/11 198,101 1,099,685
Anthony Distinti -- -- -- -- -- --
</TABLE>
Amounts reported in the "potential realizable value" columns above are
hypothetical values that may be realized upon exercise of the options
immediately prior to the expiration of their term, calculated assuming
appreciation at the indicated annual rate compounded annually for the entire
term of the option (ten years). The 5% and 10% assumed rates of appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock price. The gains
shown are net of the option exercise price, but do not include deductions for
taxes or other expenses associated with the exercise of the option or the sale
of the underlying shares.
Aggregated Option Exercises and Fiscal Year-End Option Values. The
following table sets forth information concerning the number of options owned by
the Named Executives and the value of unexercised stock options held by the
Named Executives as of June 30, 2001. No stock options were exercised by the
Named Executives during fiscal year 2001. The year-end values in the table
represents the difference between the exercise
-29-
price of such options and the fiscal year-end fair market value of our common
stock. The last sale price, or fair market value, of our common stock on June
29, 2001, the last trading day prior to June 30, 2001, was $14.75 per share.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at June 30, 2001 at June 30, 2001($)
---------------------------- ----------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark Cocchiola -- -- 475,000 -- 4,603,853 --
Paul Lauriero -- -- 455,000 -- 4,373,313 --
Thomas Egan -- -- 90,000 30,000 1,005,760 331,631
Steven Venechanos -- -- 131,334 118,666 1,466,663 1,082,140
Anthony Distinti -- -- 10,000 -- 115,000 --
</TABLE>
Employment Agreements
Mark Cocchiola has entered into an employment agreement with us that currently
expires in May 2006 and which may be automatically extended for one-year periods
after the initial term. The agreement provides for the full-time employment of
Mr. Cocchiola at an annual salary of $250,000 and an annual bonus equal to 5% of
our pre-tax profits in excess of $650,000 for the preceding year. Mr. Cocchiola
received a bonus of $324,201 in fiscal year 1999, $508,574 in fiscal year 2000
and $706,984 in fiscal year 2001. The agreement provides that Mr. Cocchiola will
not compete with Suprema during the term of his employment and for a period of
one year following termination by either us or Mr. Cocchiola for any reason. The
agreement also provides that if Mr. Cocchiola's employment is terminated under
certain circumstances, including a "change of control," he will be entitled to
receive severance pay equal to the higher of (i) $1,250,000 or (ii) five times
the total compensation paid to him by Suprema (including salary, bonus,
perquisites and the value of options granted to Mr. Cocchiola) during the 12
month period prior to the date of termination.
-30-
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of September 24,
2001, based on information obtained from the persons named below, with respect
to the beneficial ownership of shares of Common Stock by (i) each person known
by the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock, (ii) each of the Named Executives, (iii)
each of the Company's directors and (iv) all executive officers and directors of
the Company as a group:
Amount and Nature Percentage of
Name and Address of of Beneficial Outstanding
Beneficial Owner (1) Ownership (2) Shares Owned (3)
-------------------- ------------- ----------------
Mark Cocchiola 1,100,635(4) 17.4
Steven Venechanos 138,000(5) 2.4
Thomas Egan 96,666(5) 1.7
Anthony Distinti 10,000(5) *
Marco Cocchiola 56,666(6) *
Dr. Rudolph Acosta 5,000(5)(9) *
Paul DeSocio 5,000(5) *
Barry S. Rutcofsky -- --
Estate of Paul Lauriero(7) 675,619(8) 10.9
FMR Corp 506,100(10) 8.8
Wellington Management Company, LLP 417,500(11) 7.3
Oberweis Asset Management, Inc.
James D. Oberweis 316,000(12) 5.5
Special Situations Fund III, L.P.
Special Situations Cayman Fund, L.P.
Austin W. Marxe and
David Greenhouse 371,451(13) 6.5
All executive officers and directors
as a group (eight persons) 1,411,967(14) 21.3
---------------
* Less than one percent.
(1) Unless otherwise noted, the address of each beneficial owner is in care of
Suprema Specialties, Inc., 510 East 35th Street, Paterson, New Jersey
07543.
-31-
(2) Unless otherwise noted, we believe that all persons referred to in the
table have sole voting and investment power with respect to all shares of
our Common Stock reflected as beneficially owned by them.
(3) Options to purchase our Common Stock which are currently exercisable or
become exercisable by the listed person within 60 days are included in the
number of shares beneficially owned by the listed person and that person's
percentage ownership calculation.
(4) Includes (i) 575,000 shares that may be purchased upon exercise of
exercisable options owned by Mr. Cocchiola, (ii) 8,333 shares that may be
purchased upon exercise of exercisable options owned by Mr. Cocchiola's
wife and (iii) 2,000 shares held of record by Mr. Cocchiola's wife.
(5) Represents shares that may be purchased upon exercise of exercisable
options.
(6) Includes 50,000 shares that may be purchased upon exercise of exercisable
options.
(7) Paul Lauriero, formerly an officer and director of Suprema passed away on
August 27, 2001. The shares of our common stock previously beneficially
owned by Mr. Lauriero are currently owned and administered by his estate.
(8) Includes (i) 455,000 shares that may be purchased upon the exercise of
exercisable options, (ii) 22,539 shares held of record by Mr. Lauriero's
wife and (iii) 45,079 shares held of record by Mr. Lauriero's children.
(9) Does not include 800 shares owned by Dr. Acosta's children, with respect to
which Dr. Acosta disclaims any beneficial interest.
(10) According to a Schedule 13G filed with the Securities and Exchange
Commission, the shares are owned by Fidelity Low Priced Stock Fund, an
investment company registered under the Investment Company Act of 1940
("Fidelity Fund"). Fidelity Management Research Company ("Fidelity
Management"), a wholly owned subsidiary of FMR Corp. is the investment
adviser to Fidelity Fund. Edward C. Johnson 3d the Chairman of FMR Corp.,
FMR Corp. through its control of Fidelity Management and Fidelity
Management each has sole investment power over the shares. The address for
each of FMR Corp., Fidelity Management and Mr. Johnson is 82 Devonshire
Street, Boston, Massachusetts 02109.
-32-
(11) According to a Schedule 13G filed with the Securities and Exchange
Commission, the shares were acquired by and held for the accounts of
Wellington Trust Company, NA, a wholly owned subsidiary of Wellington
Management Company, LLP ("Wellington"). Wellington has shared investment
power with respect to 417,000 shares and shared voting power with respect
to 360,100 shares. The address for Wellington is 75 State Street, Boston,
Massachusetts 02109.
(12) According to a Schedule 13G filed with the Securities and Exchange
Commission, the shares are held by The Oberweis Fund for which Oberweis
Asset Management, Inc. ("OAM"), an investment adviser registered under
Section 203 of the Investment Advisors Act of 1940, acts as investment
advisor. The Oberweis Fund has delegated shared voting and investment power
over the shares to OAM. James D. Oberweis is the principal shareholder of
OAM. The address for OAM and Mr. Oberweis is 951 Ice Cream Drive, Suite
200, North Aurora, Illinois 60542.
(13) According to a Schedule 13G filed with the Securities and Exchange
Commission, 283,451 shares are owned by Special Situations Fund III, L.P.,
a Delaware limited partnership ("Special Fund III") and 88,000 shares are
owned by Special Situations Cayman Fund, L.P., a Cayman Islands limited
partnership ("Special Cayman Fund"). August W. Marxe and David Greenhouse
serve as officers, directors and members or principal shareholders of (i)
MGP Advisers Limited Partnership, a Delaware limited partnership ("MGP")
and the general partner and investment to Special Fund III, and (ii) AWM
Investment Company, Inc., a Delaware corporation, the general partner of
MGP and the general partner and investment advisor to Special Cayman Fund.
Messrs. Marxe and Greenhouse share voting and investment power over the
shares held by each of Special Fund III and Special Cayman Fund. Their
address is 153 East 53rd Street, New York, New York 10022.
(14) Includes an aggregate of 887,999 shares issuable upon exercise of options
beneficially owned by the Company's executive officers and directors.
Item 13. Certain Relationships and Related Transactions
Not Applicable.
-33-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements Page
----
Index to Financial Statements F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - June 30, 2001 and 2000 F-3
Consolidated Statements of Earnings - For the
Years Ended June 30, 2001, 2000 and 1999 F-4
Consolidated Statements of Stockholders' Equity -
For the Years Ended June 30, 2001, 2000
and 1999 F-5
Consolidated Statements of Cash Flows - For the
Years Ended June 30, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-7 - F-19
(a) 2. Financial Statement Schedules
Report of Independent Certified Public Accountants
on Supplemental Schedules F-20
Schedule II - Valuation and Qualifying Accounts
and Reserves - For the Years Ended June 30,
2001, 2000 and 1999 F-21
-34-
Exhibits
3.1 Certificate of Incorporation as amended in February 1991. (1)
3.2 Amendment to Certificate of Incorporation. (6)
3.3 Amendment to Certificate of Incorporation. (16)
3.4 Amended and Restated By-Laws. (16)
4.1 Rights Agreement dated as of March 6, 1996, between the Company and
Continental Stock Transfer & Trust Company. (7)
10.1 1991 Stock Option Plan. (1)+
10.2 Amended and Restated Employment Agreement by and between the Company and
Mark Cocchiola. (16)+
10.3 Revolving Loan, Guaranty and Security Agreement by and among the Company,
Suprema Specialties West, Inc. and National Westminster Bank NJ dated as
of February 15, 1994, as amended. (9)
10.4 Lease between DeGroot & Sons, a California partnership and the Company
dated as of December 13, 1994.(17)
10.5 Lease between Cape Vincent Milk Producers Cooperative, Inc., Marble City
Bulk Milk Producers Cooperative, Inc., Northern New York Bulk Milk
Producers Cooperative, Inc., Seaway Bulk Milk Producers Cooperative Inc.,
and the Company, dated May 21, 1996. (5)
10.6 Master Equipment Lease Agreement No. 32399 between Fleet Capital
Corporation and the Company dated May 29, 1997. (4)
10.7 Securities Purchase Agreement, dated as of March 9, 1998, between the
Company and Alliance Capital Management, L.P. (without exhibits). (3)
10.8 Note Agreement, dated as of March 9, 1998, between the Company and each
of Albion Alliance Mezzanine Fund, L.P. and The Equitable Life Assurance
Society of the United States. (3)
10.9 Warrant Agreement, dated as of March 9, 1998, between the Company and
Albion Alliance Mezzanine Fund, L.P. and the Equitable Life Assurance
Society of the United States. (3)
10.10 Second Amended and Restated Revolving Loan, Guaranty and Security
Agreement among the Company, Fleet Bank, N.A. (as successor to Natwest
Bank N.A. and National Westminster Bank, NJ), Sovereign Bank, Suprema
Specialties West, Inc. and Suprema Northeast, Inc., dated as of December
16, 1998. (2)
10.11 Mortgage and Security Agreement by the Company to Fleet Bank, N.A., as
agent, dated December 16, 1998. (2)
10.12 Third Modification Agreement between the Company and Fleet Bank, N.A.
(formerly known as Natwest Bank N.A.), dated December 16, 1998. (2)
-35-
10.13 First Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated May 28, 1999. (2)
10.14 Second Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated June 30, 1999. (2)
10.15 Third Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated July 22, 1999. (2)
10.16 Third Amended and Restated Revolving Loan, Guaranty and Security
Agreement among the Company, Fleet Bank, N.A. (as successor to Natwest
Bank N.A. and National Westminster Bank NJ), Sovereign Bank, Mellon Bank,
N.A., Suprema Specialties West, Inc., and Suprema Specialties Northeast,
Inc., dated as of September 23, 1999. (11)
10.17 Amendment No. 1 and Assignment Agreement dated as of March 10, 2000 to
Third Amended and Restated Revolving Loan, Guaranty and Security
Agreement among Fleet Bank, National Association, Sovereign Bank, Mellon
Bank, N.A., European American Bank, PNC Bank, National Association,
National City Bank, Suprema Specialties, Inc., Suprema Specialties West,
Inc. and Suprema Specialties Northeast, Inc. (10)
10.18 1998 Stock Option Plan. (13)+
10.19 1999 Stock Incentive Plan. (14)+
10.20 Pledge Agreement between the Company and Fleet Bank, N.A. dated May 31,
2000. (15)
10.21 Increase Supplement dated as of February 15, 2001 to Third Amended and
Restated Revolving Loan, Guaranty and Security Agreement among Fleet
Bank, N.A., Sovereign Bank, Mellon Bank, N.A., European American Bank,
N.A., PNC Bank, N.A., National City Bank, Suprema Specialties Northeast,
Inc., and Suprema Specialties Northwest, Inc. (8)
10.22 Amendment No. 2 to Third Amendment and Restated Revolving Loan, Guaranty
and Security Agreement among Fleet Bank, N.A., Sovereign Bank, Mellon
Bank, N.A., European American Bank, N.A., PNC Bank, N.A., National City
Bank, Suprema Specialties Northeast, Inc., and Suprema Specialties
Northwest, Inc. (9)
10.23 Asset Purchase Agreement dated as of November 27, 2000 by and among Snake
River Cheese, L.L.C. and Suprema Specialties Northwest, Inc. (9)
10.24 Master Lease Agreement dated December 28, 2000 by and between PNC Leasing
and Suprema Specialties Northwest, Inc. and supplement. (9)
-36-
21 Subsidiaries of the Company. (16)
23 Consent of BDO Seidman, LLP.
-----------------
(1) Incorporated by reference to the exhibit filed with the Company's
registration statement on Form S-18, SEC File No. 33-39076-NY.
(2) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the year ended June 30, 1999.
(3) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K, as amended, for the year ended June 30, 1998.
(4) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the year ended June 30, 1997.
(5) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.
(6) Incorporated by reference to the exhibit filed with the Company's Annual
Report on Form 10-K for the year ended June 30, 1994.
(7) Incorporated by reference to the exhibit filed with the Company's
registration Current Report on Form 8-K dated March 18, 1996.
(8) Incorporated by reference to the exhibit files with the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001.
(9) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 2000.
(10) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000.
(11) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999.
(12) Incorporated by reference to the exhibit filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995.
(13) Incorporated by reference to Exhibit A filed with the Company's Definitive
Proxy Statement dated December 30, 1998.
(14) Incorporated by reference to Exhibit A filed with the Company's Definitive
Proxy Statement dated October 22, 1999.
(15) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-2, SEC File no. 333-36716.
(16) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-2, SEC file no. 333-69514
-37-
(17) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-2, SEC file no. 333-3862
+ Denotes management contract, plan or arrangement.
(b) Report on Form 8-K.
No reports on Form 8-K were filed by the Company during its fiscal quarter
ended June 30, 2001.
-38-
PART IV
Suprema Specialties, Inc. and Subsidiaries Index to
Consolidated Financial Statements
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of June 30, 2000 and 2001 F-3
Consolidated Statements of Earnings for the Fiscal Years
Ended June 30, 1999, 2000 and 2001 F-4
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended June 30, 1999, 2000 and 2001 F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended June 30, 1999, 2000 and 2001 F-6
Notes to Consolidated Financial Statements F-7-F-19
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Suprema Specialties, Inc.
Paterson, New Jersey
We have audited the accompanying consolidated balance sheets of Suprema
Specialties, Inc. and Subsidiaries, as of June 30, 2000 and 2001, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three years in the period ended June 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Suprema Specialties,
Inc. and Subsidiaries as of June 30, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2001, in conformity with accounting principles generally accepted in
the United States of America.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
August 7, 2001
F-2
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
===================================================================
<TABLE>
<CAPTION>
June 30,
------------------------------
2000 2001
------------- -------------
<S> <C> <C>
ASSETS
Current:
Cash $ 950,121 $ 609,527
Accounts receivable, net of allowances of $770,290 at
June 30, 2000 and 2001, respectively 62,326,908 101,882,264
Inventories 51,630,343 74,514,662
Prepaid expenses and other current assets 755,067 985,627
Deferred income taxes 89,000 308,000
------------- -------------
TOTAL CURRENT ASSETS 115,751,439 178,300,080
PROPERTY, PLANT AND EQUIPMENT, net 7,181,208 10,560,513
OTHER ASSETS 2,027,069 1,551,696
------------- -------------
$ 124,959,716 $ 190,412,289
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $ 13,989,065 $ 26,434,121
Current portion of capital leases 609,690 510,155
Mortgage payable - current 53,574 57,785
Income taxes payable 1,539,000 2,587,759
Accrued expenses and other current liabilities 3,743,917 4,720,335
------------- -------------
TOTAL CURRENT LIABILITIES 19,935,246 34,310,155
DEFERRED INCOME TAXES 749,000 780,900
REVOLVING CREDIT LOAN 65,887,000 99,265,262
SUBORDINATED DEBT 10,500,000 10,500,000
LONG-TERM CAPITAL LEASES 1,105,637 595,481
MORTGAGE PAYABLE 814,920 757,661
OTHER LIABILITIES -- 1,375,001
------------- -------------
98,991,803 147,584,460
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,500,000 shares authorized:
Series A redeemable convertible preferred stock;
500,000 shares designated; none
issued and outstanding at June 30, 2000 and 2001 -- --
Common stock $.01 par value; 50,000,000 shares authorized;
4,655,564 and 5,867,920 shares issued and outstanding at
June 30, 2000 and 2001, respectively 46,555 58,679
Additional paid-in capital 11,365,207 19,444,319
Retained earnings 15,998,771 24,872,451
Treasury stock at cost, 213,370 at June 30, 2000 and 224,877
shares at June 30, 2001 (1,442,620) (1,547,620)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 25,967,913 42,827,829
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 124,959,716 $ 190,412,289
============= =============
</TABLE>
See accompanying notes to consolidated financial statements. F-3
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
===================================================================
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
1999 2000 2001
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 176,281,035 $ 278,481,969 $ 420,363,142
Cost of sales 146,351,545 232,932,864 355,409,651
------------- ------------- -------------
Gross margin 29,929,490 45,549,105 64,953,491
------------- ------------- -------------
Expenses:
Selling and shipping expenses 14,045,503 21,892,885 31,360,045
General and administrative expenses 4,421,124 6,913,721 8,770,662
------------- ------------- -------------
18,466,627 28,806,606 40,130,707
------------- ------------- -------------
Income from operations 11,462,863 16,742,499 24,822,784
Interest - net (4,328,838) (5,920,618) (10,033,104)
------------- ------------- -------------
Earnings before income taxes 7,134,025 10,821,881 14,789,680
Income taxes 2,926,000 4,437,000 5,916,000
------------- ------------- -------------
Net earnings $ 4,208,025 $ 6,384,881 $ 8,873,680
============= ============= =============
Basic earnings per share $ 0.93 $ 1.44 $ 1.63
============= ============= =============
Diluted earnings per share $ 0.86 $ 1.23 $ 1.41
============= ============= =============
Basic weighted average shares outstanding 4,536,605 4,431,850 5,429,122
============= ============= =============
Diluted weighted average shares outstanding 4,883,685 5,185,809 6,294,250
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements. F-4
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
=========================================================================
<TABLE>
<CAPTION>
Common stock Additional Treasury stock
--------------------------- paid-in --------------------------- Retained
Shares Amount capital Shares Amount earnings
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 4,562,800 $ 45,628 $ 11,243,347 78,370 $ (396,370) $ 5,405,865
Exercise of stock options and warrants 1,667 16 4,151 -- --
Exercise of warrants 34,430 344 (344) -- -- --
Net earnings -- -- -- -- -- 4,208,025
Acquisition of treasury stock -- -- -- 78,370 (396,370) --
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 4,598,897 45,988 11,247,154 78,370 (396,370) 9,613,890
Exercise of stock options and warrants 26,667 267 118,353 -- -- --
Exercise of warrants 30,000 300 (300) -- -- --
Net earnings -- -- -- -- -- 6,384,881
Acquisition of treasury stock -- -- -- 135,000 (1,046,250) --
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2000 4,655,564 46,555 11,365,207 213,370 (1,442,620) 15,998,771
Public offering of common stock 1,200,000 12,000 7,962,161 -- -- --
Exercise of stock options and warrants 12,356 124 116,951 -- -- --
Net earnings -- -- -- -- -- 8,873,680
Acquisition of treasury stock -- -- -- 11,507 (105,000) --
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2001 5,867,920 $ 58,679 $ 19,444,319 224,877 $ (1,547,620) $ 24,872,451
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements. F-5
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
===================================================================
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
1999 2000 2001
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,208,025 $ 6,384,881 $ 8,873,680
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 876,875 1,431,340 1,330,042
Provision for doubtful accounts 100,000 200,000 --
Deferred income tax provision (recovery) 122,000 (232,000) (187,100)
Changes in operating assets and liabilities:
Accounts receivable (12,867,732) (26,519,366) (39,555,356)
Inventories (7,406,790) (15,711,623) (22,884,319)
Prepaid expenses and other current assets 92,094 (159,044) (230,560)
Prepaid income taxes 235,348 -- --
Other assets (371,770) (1,072,541) (149,627)
Accounts payable 4,653,677 1,865,966 12,445,056
Income taxes payable 1,710,000 (171,000) 1,048,759
Accrued expenses and other current liabilities 944,619 1,334,078 976,418
Other liability -- -- 1,375,001
------------- ------------- -------------
Net cash used in operating activities (7,703,654) (32,649,309) (36,958,006)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (667,270) (676,600) (4,084,347)
------------- ------------- -------------
Net cash used in investing activities (667,270) (676,600) (4,084,347)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan 54,302,599 85,920,000 144,934,999
Repayment of revolving credit loan (45,123,000) (50,474,599) (111,556,737)
Principal payments of mortgage (47,182) (49,194) (53,048)
Principal payments of capital leases (500,966) (550,761) (609,691)
Proceeds from public offering (net) -- -- 7,974,161
Proceeds from exercise of stock options 4,167 118,620 117,075
Acquisition of treasury stock (396,370) (1,046,250) (105,000)
------------- ------------- -------------
Net cash provided by financing activities 8,239,248 33,917,816 40,701,759
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (131,676) 591,907 (340,594)
CASH, beginning of year 489,890 358,214 950,121
------------- ------------- -------------
CASH, end of year $ 358,214 $ 950,121 $ 609,527
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,774,024 $ 5,413,000 $ 9,501,000
============= ============= =============
Income taxes $ 830,000 $ 4,858,000 $ 5,054,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements. F-6
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS DESCRIPTION
Suprema Specialties, Inc., a New York corporation incorporated on August 15,
1983, and its wholly-owned subsidiaries ("Suprema" or the "Company")
manufacture, process and market a variety of premium, gourmet natural Italian
cheese products. The Company operates in a single business segment. The Company
sells its product to food service, food service manufacturers, and retail
customers. Sales to food service customers accounted for approximately 91%, 91%,
and 97% of the Company's sales for the year ended June 30, 1999, 2000 and 2001,
respectively. Sales to food manufacturers accounted for approximately 6%, 7%,
and 2% for the year ended June 30, 1999, 2000, and 2001, respectively. Sales to
retail customers accounted for 3%, 2%, and 1% of net sales for the years ended
June 30, 1999, 2000, and 2001, respectively.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the financial statements of
Suprema Specialties, Inc. and its wholly-owned subsidiaries, Suprema Specialties
West, Inc. ("West"), Suprema Specialties Northeast, Inc. ("Northeast") and
Suprema Specialties Northwest, Inc. ("Northwest"). All intercompany transactions
and balances have been eliminated in consolidation.
Inventory
Inventories are valued at the lower of cost (determined by the first-in,
first-out method) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is being provided
by use of the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the shorter of the
term of the lease, including renewal options that are probable of exercise, or
the useful lives of the assets. Equipment under capitalized leases is being
amortized over the useful lives of the assets.
Long-Lived Assets
Long-lived assets, such as property, plant and equipment, are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When such impairment exists, the
related assets will be written down to fair value. No impairment losses have
been recorded in each of the three years in the period ended June 30, 2001.
Financing Costs
The Company amortizes the deferred financing costs incurred in connection with
the Company's borrowings over the life of the related indebtedness (3-10 years).
Such net costs amounted to $1,734,494 and $1,209,000 at June 30, 2000 and 2001,
respectively. These amounts are included in other current assets and other
assets.
Revenue Recognition
The Company records revenues when products are shipped. Customers generally do
not have the right to return products shipped.
F-7
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company adopted Emerging Issue Task Force (EITF) 00-25, "Vendor Income
Statement Characterization of Consideration from a Vendor to a Retailer." The
impact of adopting this policy had an immaterial effect on the Company's net
sales.
Shipping and Handling Costs
During fiscal year 2001, the Company adopted EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs." Shipping and handling costs charged to
customers are included in the Company's net sales. All other shipping and
handling costs, which approximated $3,000,000, were charged to selling and
shipping expenses.
Advertising Costs
The Company expenses advertising costs as incurred.
Stock-Based Compensation
The Company accounts for its stock option awards to employees under the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. The Company provides pro
forma disclosures of earnings and earnings per share as if the fair value based
method of accounting had been applied as required by Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation".
Income Taxes
Income taxes are recorded using the liability method, which requires recognition
of deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Instruments
The carrying amounts of financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities, approximate fair value
because of the current nature of these instruments. The carrying amounts
reported for revolving credit and long-term debt approximate fair value because
the interest rates on these instruments are subject to changes with market
interest rates or approximate rates for loans with similar terms and maturities.
F-8
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Computation of Earnings Per Share
Basic earnings per share has been computed using the weighted average number of
shares of common stock outstanding. Diluted earnings per share includes the
assumed exercise of stock options and warrants using the treasury stock method
that could potentially dilute earnings per share.
Effect of New Accounting Pronouncements
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133, as amended by SFAS 137, was adopted for the
Company's 2001 fiscal year. The adoption of SFAS 133 did not have any effect on
the Company's financial statements.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141. Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. This
SFAS requires, among other things, that companies no longer amortize goodwill,
but instead test goodwill for impairment at least annually. SFAS 142 is required
to be applied for fiscal years beginning after December 15, 2001. Currently, the
Company has not recorded any goodwill and will assess how the adoption of SFAS
141 and SFAS 142 will impact its financial position and results of operations in
any future acquisitions.
NOTE 3 - INVENTORIES
Inventories consist of the following:
June 30,
------------------------
2000 2001
----------- -----------
Raw materials $11,872,836 $23,879,855
Finished goods 38,430,322 48,986,084
Packaging 1,327,185 1,648,723
----------- -----------
$51,630,343 $74,514,662
=========== ===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
June 30,
------------------------
2000 2001
----------- -----------
Property and plant $ 1,577,696 $ 3,220,497
Equipment 5,857,907 7,491,653
Leasehold improvements 1,102,952 1,951,592
Furniture and fixtures 215,015 227,832
Delivery equipment 2,739 2,639
Construction in progress 700,537 646,982
----------- -----------
9,456,846 13,541,195
Less: Accumulated depreciation and amortization 2,275,638 2,980,682
----------- -----------
$ 7,181,208 $10,560,513
=========== ===========
F-9
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In May 1997, the Company entered into a sale-leaseback transaction whereby fixed
assets with a net book value of $10,824,082 were sold for $9,565,000 and leased
back under operating leases. In connection with this transaction, $4,847,382 of
capital leases were paid in full. The Company incurred costs of $1,088,436
primarily related to prepayment penalties on the capital leases. These direct
costs have been included in other assets and are being amortized over eight
years, the life of the operating lease.
In December 2000, the Company entered into a sale-leaseback transaction whereby
production equipment related to the Blackfoot Idaho facility with a net book
value of $4,500,000 was sold for $6,000,000 and leased back under an operating
lease. This transaction resulted in a gain of $1,500,000 which will be
recognized to income in proportion to rental expense over 7 years, the life of
the operating lease. The deferred gain as of June 30, 2001, of $1,375,001, is
included in other liabilities.
Included in property, plant and equipment are plant and equipment acquired under
capital leases with an initial cost of $3,419,067 and accumulated amortization
of $1,125,654 and $1,466,274 as of June 30, 2000 and 2001, respectively.
NOTE 5 - INCOME TAXES
The provision for income taxes consists of the following:
Fiscal Years Ended June 30,
------------------------------------
1999 2000 2001
---------- ---------- ----------
Current:
Federal $2,243,000 $3,735,000 $4,883,100
State 561,000 934,000 1,220,000
---------- ---------- ----------
2,804,000 4,669,000 6,103,100
---------- ---------- ----------
Deferred:
Federal 104,000 (213,000) (172,000)
State 18,000 (19,000) (15,100)
---------- ---------- ----------
122,000 (232,000) (187,100)
---------- ---------- ----------
Provision for income taxes $2,926,000 $4,437,000 $5,916,000
========== ========== ==========
The following reconciles income taxes at the U.S. statutory rate to the
provision for income taxes:
Fiscal Years Ended June 30,
------------------------------------
1999 2000 2001
---------- ---------- ----------
Computed tax expense at statutory rates $2,425,600 $3,679,000 $5,029,000
State taxes, net of federal tax benefit 382,100 555,000 776,000
Travel and entertainment expenses not
deductible 34,000 43,000 34,000
Officers life insurance not deductible 5,500 7,000 8,000
Other, net 78,800 153,000 69,000
---------- ---------- ----------
$2,926,000 $4,437,000 $5,916,000
========== ========== ==========
F-10
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Significant components of the Company's deferred tax assets and liabilities are
as follows:
June 30,
------------------------
Deferred tax liabilities: 2000 2001
--------- ---------
Depreciation $ 240,000 $ 225,000
Product introduction costs 46,000 --
Deferred sale leaseback costs 286,000 186,000
Financing fees 396,000 369,900
--------- ---------
Total deferred tax liabilities: 968,000 780,900
--------- ---------
Deferred tax assets:
Accounts receivable reserve (308,000) (308,000)
--------- ---------
$ 660,000 $ 472,900
========= =========
NOTE 6 - LONG-TERM DEBT
Revolving Credit Loan
In January 2001, the long-term revolving credit facility (the "Facility")
between the Company and its commercial bank was amended to increase the Facility
to $125,000,000. The commitment for the revolving credit 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 (7.50% per annum
at June 30, 2001). The Facility is collateralized by all existing and acquired
assets of the Company, as defined in the Facility agreement, and is guaranteed
by all of the Company's subsidiaries. Advances under this Facility are limited
to 85.0% of eligible accounts receivable and 60.0% of all inventory except
packaging material, as defined in the Facility 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 June 30, 2001, the Company was in compliance with the
covenants under the Facility agreement. Borrowings under the facility are
required to be used for working capital purposes.
At June 30, 2001, the Company had approximately $25,700,000 available for
additional borrowings under the Facility.
Subordinated Debt Facility
In March 1998, the Company entered into a Loan and Security Agreement with
Albion Alliance Mezzanine Fund, L.P. and The Equitable Life Assurance Society of
the United States (collectively, the "Funds") pursuant to which the Funds loaned
$10,500,000 to the Company. The loan is unsecured and is subordinated to the
loan of the Company's senior lender. The loan bears interest at 16.50% per
annum. Interest is payable monthly at the rate of 12.0% per annum with the
balance deferred until February 1, 2003 when it is due in full. The loan is
payable in three installments of the principal amount of $3,500,000 together
with accrued and unpaid interest thereon on each March 1, beginning in the year
2004. In addition, in connection with the execution and delivery of the Loan
Agreement, the Company delivered to the Funds, a warrant to purchase 105,000
shares of the Company's common stock exercisable at $4.125 (the market price at
the date of the agreement). In July 2001, the warrant was exercised. The values
ascribed to such warrants and the related amortization expense were not
material. The warrant is exercisable through March 1, 2008.
F-11
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Mortgage Payable
On March 29, 1996, the Company purchased its Paterson, New Jersey production
facility which it 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 bore interest at 8.51% per
annum. On March 29, 1999, the Company refinanced the mortgage 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.
Debt Maturities
Principal payments on long-term debt over the next five years ended June 30, and
thereafter are as follows:
2001 $ 57,785
2002 62,650
2003 67,748
2004 102,837,587
2005 4,053,070
Thereafter 3,500,000
NOTE 7 - CAPITAL LEASES
There are various equipment and furniture and fixtures financed under capital
leases. These leases have interest rates ranging from 6.70% to 11.50% per annum.
At June 30, 2001, the Company's future minimum lease payments under capital
leases are as follows:
2002 $ 642,431
2003 590,629
2004 91,701
------------
Total minimum lease payments 1,324,761
Less: amount representing interest 219,125
------------
Present value of minimum lease payments 1,105,636
Less: current portion 510,155
------------
Long-term portion of capital leases $ 595,481
============
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Leases
The Company rents certain production facilities and equipment under lease
arrangements classified as operating leases. The lease for the production
facilities in Manteca, California, which was renewed in December 1994, expires
ten years from the date of completion of construction of each segment of the
facility with two five year renewal options. The Company also leases its
Blackfoot, Idaho facility. The lease is for five years with three five year
renewals at the Company's option. The Company also leases its Ogdensburg, New
York facility. The lease is for 17 years with options to terminate the lease
each five years at the Company's option. Rent expense was approximately
$2,971,000, $4,107,000 and $5,182,000 for the years ended June 30, 1999, 2000
and 2001, respectively. Future minimum rental payments under non-cancelable
operating leases are approximately: 2002 - $5,792,000; 2003 - $5,792,000; 2004 -
$5,792,000; 2005 - $4,857,000; 2006 - $3,410,000 and thereafter $3,415,000.
F-12
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Employment Agreements
The Company has entered into an employment agreement with Mark Cocchiola, its
President and CEO, that currently expires in May 2006. The agreement provides
for the full-time employment of Mr. Cocchiola at an annual salary of $250,000,
and an annual bonus equal to 5% of pre-tax profits in excess of $650,000. The
agreement also provides that if employment is terminated under certain
circumstances, including a "change of control," he will be entitled to receive
severance pay equal to the higher of (i) $1,250,000 or (ii) five times the total
compensation paid to him by the Company (including salary, bonus, perquisities
and the value of options granted to Mr. Cocchiola) during the 12 month period
prior to the date of termination.
Contingencies
On or about April 26, 2001, an employee at the Manteca facility filed an
Application before the Workers' Compensation Appeals Board for the State of
California against the Company alleging "serious and willful misconduct" on the
Company's part in its alleged failure to accommodate his limited ability to work
as a result of his alleged injury arising out of employment. Thereafter, on or
about August 2, 2001, a second employee at the Manteca facility filed an
Application before the same Workers' Compensation Appeals Board against the
Company claiming injuries sustained while employed. The second employee alleges
"serious and willful misconduct" while employed. If the Application's are
granted, the employees will be entitled to receive additional benefits
consisting of one-half of the compensation otherwise recoverable under the
Workers' Compensation laws. Management believes that it has valid defenses to
the Applications and will vigorously defend the claims made by the employees.
The Company is a party to legal proceedings arising in the normal conduct of
business. Management believes that the final outcome of these proceedings
including the proceedings discussed in the paragraph immediately above will not
have a material adverse effect on the Company's financial position, results of
operations, and cash flows.
NOTE 9 - SHAREHOLDERS' EQUITY
Stock Offering
In August 2000, the Company completed a public offering for 1,200,000 shares of
its $.01 par value common stock of which 1,100,000 shares were issued by the
Company and 10,000 shares were offered by selling shareholders. Gross proceeds
from the offering were approximately $8,000,000. The Company received no
proceeds from the shares issued during the offering from those shares offered by
the selling shareholders.
Stock Option Plan
On February 11, 1991, the Company adopted the 1991 Stock Option Plan. In
December 1998, the Company adopted the 1998 Stock Option Plan. In February 2001,
the Company adopted the 1999 stock option plan (collectively, the "Plans").
Under the Plans, officers, directors and key employees of the Company are
eligible to receive up to 900,000, 500,000, and 500,000 incentive and/or
non-qualified stock options, respectively. The Plans, which expire in February
2001, November 2008, and February 2011, respectively, are administered by the
board of directors. The selection of participants, allotment of shares,
determination of price and other conditions of the grant of options are
determined by the board of directors at its sole discretion in order to attract
and retain persons instrumental to the success of the Company. Incentive stock
options granted under the Plans vest evenly over the first three years and are
exercisable for a period of up to ten years from the date of grant at an
F-13
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
exercise price which is not less than the fair market value of the common stock
on the date of grant, except that the term of an incentive stock option granted
under the Plan to a shareholder owning more than 10% of the outstanding common
stock may not exceed five years and its exercise price may not be less than 110%
of the fair market value of the common stock on the date of the grant.
Stock option transactions under the Plan are summarized as follows:
Weighted
Average 1991
Exercise Plan
Price Per Share ($) Shares
------------------- ------
Outstanding at June 30, 1998 $3.58 751,500
Granted 3.17 134,250
Exercised or forfeited 2.50 (1,667)
----- --------
Outstanding at June 30, 1999 3.52 884,083
Granted 7.66 --
Exercised or forfeited 5.46 (26,917)
----- --------
Outstanding at June 30, 2000 4.97 857,166
=====
Granted -- --
Exercised or forfeited 7.50 (30,000)
--------
Outstanding at June 30, 2001 3.25 827,166
===== ========
--------------------------------------------------------------------------------
Weighted
Average 1998
Exercise Plan
Price Per Share ($) Shares
------------------- ------
Outstanding at June 30, 1998 $ -- --
Granted 4.63 143,000
Exercised or forfeited -- --
----- --------
Outstanding at June 30, 1999 4.63 143,000
Granted -- 356,000
Exercised or forfeited -- --
----- --------
Outstanding at June 30, 2000 4.63 499,000
=====
Granted 7.50 30,000
Exercised or forfeited 4.63 (31,833)
----- --------
Outstanding at June 30, 2001 6.68 497,167
===== ========
--------------------------------------------------------------------------------
Weighted
Average 1999
Exercise Plan
Price Per Share ($) Shares
------------------- ------
Outstanding at June 30, 1998 -- --
Granted -- --
Exercised or forfeited -- --
----- --------
Outstanding at June 30, 1999 -- --
Granted -- --
Exercised or forfeited -- --
----- --------
Outstanding at June 30, 2000 -- --
=====
Granted 7.50 367,000
Exercised or forfeited 7.50 --
----- --------
Outstanding at June 30, 2001 7.50 367,000
===== ========
--------------------------------------------------------------------------------
F-14
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The weighted average fair value of options granted under all plans during:
1999 $1.79
2000 4.39
2001 4.71
F-15
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table summarizes information about stock options outstanding at
June 30, 2001:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ------------------------
Weighted-
Average Weighted- Weighted-
Range of Number of Remaining Average Average
Exercise Options Contractual Exercise Number Exercise
Prices ($) Outstanding Life (Years) Price ($) Exercisable price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1991 Plan:
2.50 to 3.50 827,166 5.40 years $3.21 787,206 $3.22
1998 Plan:
4.63 to 7.00 111,000 7.75 years $5.96 74,037 $5.96
7.00 to 9.00 386,167 8.50 years $7.64 121,097 $7.66
----------------------------------------------------------------------------------------
4.63 to 9.00 497,167 8.30 years $6.68 195,134 $7.01
1999 Plan:
7.50 367,000 9.50 years $7.50 200,000 $7.50
----------------------------------------------------------------------------------------
</TABLE>
Under the accounting provisions of SFAS 123, the Company's net earnings and
earnings per share would have been:
Fiscal Years Ended June 30,
-------------------------------------------
1999 2000 2001
---- ---- ----
Earnings:
- as reported $ 4,208,025 $ 6,384,881 $ 8,873,680
- pro forma 3,999,219 5,997,267 8,378,291
Basic earnings per share:
- as reported $ 0.93 $ 1.44 $ 1.63
- pro forma 0.88 1.35 1.54
Diluted earnings per share:
- as reported $ 0.86 $ 1.23 $ 1.41
- pro forma 0.82 1.16 1.33
The pro forma effect on net earnings and earnings per share for fiscal years
2001, 2000 and 1999 may not be representative of the pro forma effect in future
years because it includes compensation cost on a straight-line basis over the
vesting periods of the grants and does not take into consideration the pro forma
compensation costs for grants made prior to 1996. The fair market value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants:
expected volatility of 44% in 2001, 46% in 2000 and 44% in 1999; risk free
interest rate of 5.2% in 2001, 6.4% in 2000 and 5.0% in 1999; expected lives of
10 years; and no dividend yield.
Warrants
In connection with the Company's 1999 public offering, the Company issued the
underwriter warrants to purchase 150,000 shares of common stock exercisable
until September 30, 2001 at an exercise price of $6.875 per share. In connection
with the Company's public offering, the Company granted warrants to the
underwriters of such offering to purchase 120,000 shares of common stock;
exercisable at $11.20 per share through August 2010. In March 2001, the Company
issued warrants to purchase 10,000 shares of common stock to its public
relations firm, at an exercise price of $8.25 per share, exercisable from March
2002 through March 2011. The exercise price of all of the foregoing warrants was
no less than the fair market value of the common stock on the date of their
respective issuance.
F-16
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Stock Repurchase Program
In May 1999, the Board of Directors approved a stock repurchase program to
acquire up to $3,200,000 of the Company's common stock. As of June 30, 2001, the
Company has repurchased 224,877 shares of its common stock for a cost of
approximately $1,548,000.
Treasury Stock
During the fiscal years ended June 30, 2001 and 2000, the Company, pursuant with
its stock repurchase plan, purchased 11,507 and 135,000 shares of its common
stock at a cost of $105,000 and $1,046,250, respectively.
NOTE 10 - EARNINGS PER SHARE
Basic and diluted earnings per share for each of the three years ended June 30,
1999, 2000 and 2001 are calculated as follows:
<TABLE>
<CAPTION>
Net Earnings Shares Per share
(Numerator) (Denominator) Amount
----------------------------------------
<S> <C> <C> <C>
For the year ended June 30, 1999:
Basic earnings per share $4,208,025 4,536,605 $0.93
Effect of assumed conversion of employee stock
options -- 347,080 (0.07)
----------------------------------------
Diluted earnings per share $4,208,025 4,883,685 $.86
========================================
For the year ended June 30, 2000:
Basic earnings per share $6,384,881 4,431,850 $1.44
Effect of assumed conversion of employee stock
options and warrants -- 753,959 (0.21)
----------------------------------------
Diluted earnings per share $6,384,881 5,185,809 $1.23
========================================
For the year ended June 30, 2001:
Basic earnings per share $8,873,680 5,429,122 $1.63
Effect of assumed conversion of employee stock
options and warrants -- 865,128 (0.22)
----------------------------------------
Diluted earnings per share $8,873,680 6,294,250 $1.41
========================================
</TABLE>
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company provides credit to customers on an unsecured basis after evaluating
customer creditworthiness. The Company grants extended payment terms to its
largest customers.
The Company also provides an allowance for bad debts for accounts receivable
where there is a possibility for loss.
The Company maintains demand deposits with major banks. At June 30, 2000 and
2001, all of the Company's cash was held with these major banks.
NOTE 12 - MAJOR CUSTOMERS
During the fiscal year ended June 30, 1999, the Company had sales to A&J Foods,
Inc. representing approximately 18% of net sales.
F-17
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
During the fiscal year ended June 30, 2000, the Company had sales to A&J Foods,
Inc., Tricon Commodities International, Inc. and Noble J.G. Cheese Company
representing approximately 15%, 13% and 12% of net sales, respectively.
During the fiscal year ended June 30, 2001, the Company had sales to A&J Foods,
Inc., Tricon Commodities International, Inc., Battaglia and Company, Noble J.G.
Cheese Company, and California Goldfield Cheese Traders of approximately 17%,
15%, 12%, 10%, and 10% of net sales, respectively. At June 30, 2001, these five
customers represented 20%, 20%, 15%, 13% and 13% of net accounts receivable,
respectively.
NOTE 13 - EMPLOYEE BENEFITS
In July 1998, the Company instituted a 401(k) plan for all employees who are not
covered under the collective bargaining agreement. Under the plan, the Company
matches each eligible employees' contribution up to 25% of the employee's first
8% of contributions. Contributions made by the Company during the year amounted
to approximately $40,000 for each of the years ended June 30, 1999, 2000 and
2001.
NOTE 14 - SUBSEQUENT EVENT
In August 2001, the Company's Executive Vice President passed away. The Company
has not been able to determine the impact of the loss of his services on
operations. The Company is the beneficiary of a $1,000,000 key man life
insurance policy on the life of the former Executive Vice President and
anticipates receiving the proceeds from this policy.
F-18
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 15- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the 2001 and
2000 fiscal years (in thousands of dollars except per share data):
<TABLE>
<CAPTION>
2000 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
Net sales $61,381 $65,323 $75,564 $76,214
Gross profit 9,984 11,171 12,092 12,302
Income from operations 3,613 4,005 4,336 4,788
Net earnings 1,413 1,504 1,622 1,846
Basic earnings per share 0.31 0.34 0.37 0.42
Diluted earnings per share 0.27 0.29 0.31 0.35
==============================================================================================
2001
----------------------------------------------------------------------------------------------
Net sales $88,948 $92,742 $108,636 $130,038
Gross profit 14,028 14,369 16,638 19,918
Income from operations 5,573 5,758 5,893 7,598
Net earnings 1,987 2,068 2,196 2,623
Basic earnings per share 0.41 0.37 0.39 0.46
Diluted earnings per share 0.36 0.33 0.34 0.38
==============================================================================================
</TABLE>
F-19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Suprema Specialties, Inc.
Paterson, New Jersey
The audits referred to in our report dated August 7, 2001 relating to the
accompanying consolidated financial statements of Suprema Specialties, Inc. and
Subsidiaries, which are contained in Item 8 of this Form 10-K, included the
audits of the June 30, 1999, 2000 and 2001 financial statement schedule listed
in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
August 7, 2001
F-20
Schedule II
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED JUNE 30, 2001, 2000 AND 1999
<TABLE>
<CAPTION>
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Description Period Expenses (1) Accounts Deductions (2) End of Period
-------------------------------- ------------ ------------ ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1999
Accounts receivable allowance $470,290 $100,000 $ -- $ -- $570,290
========== ========== ======== ======== ==========
FISCAL YEAR ENDED JUNE 30, 2000
Accounts receivable allowance $570,290 $200,000 $ -- $ -- $770,290
========== ========== ======== ======== ==========
FISCAL YEAR ENDED JUNE 30, 2001
Accounts receivable allowance $770,290 $ -- $ -- $ -- $770,290
========== ========== ======== ======== ==========
</TABLE>
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
F-21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Mark Cocchiola
--------------------------
Mark Cocchiola, President
Dated: September 23 , 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Mark Cocchiola Chairman of the Board, Sept. 23, 2001
------------------ President, Chief
Mark Cocchiola Executive Officer and
Director (Principal
Executive Officer)
/s/ Steven Venechanos Chief Financial Sept. 23, 2001
--------------------- Officer, Secretary and Director
Steven Venechanos (Principal Financial and
Accounting Officer)
/s/ Marco Cocchiola Director Sept. 23, 2001
----------------------
Marco Cocchiola
/s/ Rudolph Acosta Director Sept. 23, 2001
----------------------
Rudolph Acosta
/s/ Paul DeSocio Director Sept. 23, 2001
----------------------
Paul DeSocio
/s/ Barry Rutcofsky Director Sept. 23, 2001
--------------------
Barry Rutcofsky
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Suprema Specialties Inc.
Paterson, New Jersey
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (No. 333-06599 and No.333-60212) of Suprema Specialties,
Inc. of our reports dated August 7, 2001 relating to the financial statements
and schedule of Suprema Specialties, Inc. appearing in the Company's Annual
Report on Form 10-K for the year ended June 30, 2001.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Woodbridge, New Jersey
September 26, 2001