UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to ________
Commission file number 0-19263
SUPREMA SPECIALTIES, INC.
(Exact Name of Registrant as
specified in its charter)
New York 11-2662625
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
510 EAST 35TH STREET
PATERSON, NEW JERSEY 07543
(Address of principal executive offices)
(Zip Code)
(973) 684-2900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of November 14, 2001 there were 9,792,538 shares of the registrant's Common
Stock $.01 par value outstanding excluding an additional 224,877 treasury shares
which have been issued but repurchased by the registrant.
1
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of 3
September 30, 2001 and June 30, 2001
Consolidated Statements of Earnings 4
For The Three Month Periods Ended
September 30, 2001 and 2000
Consolidated Statements of Cash Flows 5
For the Three Month Periods Ended
September 30, 2001 and 2000
Notes to Consolidated Financial 6
Statements
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of
Operations
ITEM 3. Quantitative and Qualitative Disclosures 10
About Market Risk.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 10
2
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, June 30,
2001 2001
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 142,857 $ 609,527
Accounts receivable, net of allowances
of $770,290 at Sept. 30, 2001 and
June 30, 2001 112,500,553 101,882,264
Inventories 80,588,628 74,514,662
Prepaid expenses and other current assets 1,167,652 985,627
Deferred income taxes 308,000 308,000
------------- -------------
Total current assets 194,707,690 178,300,080
PROPERTY AND EQUIPMENT, NET 10,858,701 10,560,513
OTHER ASSETS 1,538,081 1,551,696
------------- -------------
$ 207,104,472 $ 190,412,289
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 23,621,326 $ 26,434,121
Current portion of long-term obligations 503,536 510,155
Mortgage payable - current 59,078 57,785
Income taxes payable 4,509,962 2,587,759
Accrued expenses and other current
liabilities 4,322,671 4,720,335
------------- -------------
Total current liabilities 33,016,573 34,310,155
DEFERRED INCOME TAXES 780,900 780,900
REVOLVING CREDIT LOAN 113,775,262 99,265,262
SUBORDINATED DEBT 10,500,000 10,500,000
LONG-TERM CAPITAL LEASES 466,916 595,481
MORTGAGE PAYABLE 742,846 757,661
OTHER LIABILITES 1,321,430 1,375,001
------------- -------------
$ 160,603,927 $ 147,584,460
------------- -------------
STOCKHOLDERS' 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 Sept. 30, 2001 and June
30, 2001, respectively -- --
Common stock, $.01 par value, 50,000,000
shares authorized, 5,967,415 and 5,867,920
issued and outstanding at Sept. 30, 2001
and June 30, 2001, respectively 59,674 58,679
Additional paid-in capital 19,550,166 19,444,319
Retained earnings 28,438,325 24,872,451
Treasury stock at cost, 224,877 at Sept. 30,
2001 and at June 30, 2001 (1,547,620) (1,547,620)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 46,500,545 42,827,829
------------- -------------
$ 207,104,472 $ 190,412,289
============= =============
</TABLE>
See notes to consolidated financial statements
3
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------------
2001 2000
------------- ------------
<S> <C> <C>
NET SALES $ 142,650,042 $ 88,947,525
COST OF SALES 121,131,564 74,919,418
------------- ------------
GROSS MARGIN 21,518,478 14,028,107
------------- ------------
EXPENSES:
Selling and shipping expenses 11,440,114 6,836,295
General and administrative expenses 2,324,017 1,619,101
------------- ------------
13,764,131 8,455,396
------------- ------------
INCOME FROM OPERATIONS 7,754,347 5,572,711
OTHER (EXPENSE)/ INCOME
Interest expense, net (3,152,481) (2,261,972)
Other Income 1,008,008 --
------------- ------------
(2,144,473) (2,261,972)
EARNINGS BEFORE INCOME TAXES 5,609,874 3,310,739
INCOME TAXES 2,044,000 1,324,000
------------- ------------
NET EARNINGS $ 3,565,874 $ 1,986,739
============= ============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC EARNINGS PER SHARE $ .62 $ .41
============= ============
DILUTED EARNINGS PER SHARE $ .52 $ .36
============= ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 5,710,144 4,821,559
============= ============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 6,805,050 5,564,082
============= ============
</TABLE>
See notes to consolidated financial statements.
4
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------------
2001 2000
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 3,565,874 $ 1,986,739
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 381,062 157,440
(Increase) decrease in assets:
Accounts receivable (10,618,289) (10,904,893)
Inventories (6,073,966) (1,542,264)
Prepaid expenses and other
current assets (182,025) (19,777)
Other assets (145,344) 217,375
Increase (decrease) in liabilities:
Accounts payable (2,812,795) 502,678
Income taxes payable 1,922,203 831,871
Accrued expenses and other current
liabilities (397,664) (794,150)
Other liabilities (53,571) --
------------ ------------
Net cash used in operating
activities (14,414,515) (9,564,981)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for purchase of
property and equipment (520,291) (569,019)
------------ ------------
Net cash used in investing
activities (520,291) (569,019)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan $ 43,790,000 $ 28,515,000
Principal payments of revolving credit loan (29,280,000) (26,696,738)
Principal payments of capital leases (135,184) (146,662)
Principal payments of mortgage (13,522) (12,918)
Proceeds from secondary public offering (net) -- 7,974,285
Proceeds from exercise of stock options 106,842 --
------------ ------------
Net cash provided by financing
activities 14,468,136 9,632,967
------------ ------------
NET DECREASE IN CASH (466,670) (501,033)
CASH, BEGINNING OF PERIOD 609,527 950,121
------------ ------------
CASH, END OF PERIOD $ 142,857 $ 449,088
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 3,015,539 $ 2,131,116
Income Taxes $ 121,825 $ 492,128
</TABLE>
5
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of September 30, 2001, the
unaudited consolidated statements of earnings for the three month periods
ended September 30, 2001 and 2000, and the unaudited consolidated
statements of cash flows for the three month periods ended September 30,
2001 and 2000 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments (which include normal recurring accruals)
necessary to present fairly the financial position, results of operations
and cash flows at September 30, 2001 and for the three month periods
presented, have been included.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in these quarterly
financial statements. The attached financial statements should be read in
connection with the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended June 30,
2001.
The results of operations or cash flows for the three months ended
September 30, 2001 are not necessarily indicative of the results to be
expected for the entire fiscal year.
2. INVENTORIES
Inventories are summarized as follows:
Sept. 30, 2001 June 30, 2001
-------------- -------------
Finished goods $53,582,498 $48,986,084
Raw materials 25,259,870 23,879,855
Packaging 1,746,260 1,648,723
----------- -----------
$80,588,628 $74,514,662
=========== ===========
3. LONG-TERM REVOLVING CREDIT LOAN
In October 2001, the long-term revolving credit facility (the "Facility")
between us and certain commercial banks was amended to increase the
facility to $140,000,000. The commitment for the Facility is through
February 15, 2004. The rate of interest on amounts borrowed under the
Facility is the adjusted LIBOR rate, as defined, plus 175 basis points. The
6
Facility is collateralized by substantially all existing and acquired
assets as defined in the Facility agreement, and is guaranteed by our
subsidiaries, Suprema Specialties West, Inc., Suprema Specialties
Northeast, Inc., and Suprema Specialties Northwest Inc, and the pledge of
all of the stock of these subsidiaries. Advances under the Facility are
limited to 85% of eligible accounts receivable and 60% of all inventory
except packaging material, as defined in the agreement. The Facility
agreement contains restrictive financial covenants, including the
maintenance of consolidated net worth, and the maintenance of leverage and
fixed charge ratios, as defined in the agreement, and a restriction on
dividends to common shareholders. As of September 30, 2001, we were in
compliance with the covenants under the Facility agreement. Borrowings
under the Facility are required to be used for working capital purposes.
4. EARNINGS PER SHARE
Basic and diluted earnings per share for the three month periods ended
September 30, 2001 and September 30, 2000:
<TABLE>
<CAPTION>
Three months ended Sept 30, 2001 Three months ended Sept. 30, 2000
---------------------------------- ----------------------------------
Net Income Shares Per Share Net Income Shares Per Share
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $3,565,874 5,710,144 $ .62 $1,986,739 4,821,559 $ .41
Effect of assumed conversion
of warrants and employee
stock options 1,094,906 (.10) 742,523 (.05)
---------- --------- ----- ---------- --------- -----
Diluted earnings per share $3,565,874 6,805,050 $ .52 $1,986,739 5,564,082 $ .36
========== ========= ===== ========== ========= =====
</TABLE>
5. OTHER INCOME
In September 2001, we received proceeds of approximately $1,008,000 from
the key man life insurance policy on the life of our former Executive Vice
President.
6. SUBSEQUENT EVENT
On November 14, 2001, we completed an underwritten public offering of
shares of our common stock of which 3,500,000 shares were sold by us and
550,000 shares were sold by certain selling shareholders at a public
offering price of $12.75 per share. Gross proceeds of the shares sold by us
was $44,625,000 and net proceeds paid to us after deducting underwriting
discounts and commissions but before deducting other expenses of the
offering was $41,510,000. In addition, in association with the public
offering, the underwriters were granted a 30 day option to purchase up to
an additional 357,500 shares of common stock from us and 250,000 shares of
common stock from the selling shareholders to cover any over-allotments. We
anticipate the
7
majority of the proceeds from this offering will be used to pay down the
revolving credit facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking information involves
important known and unknown risks and uncertainties that could significantly
affect our actual results, performance or achievements in the future and,
accordingly, such actual results, performance or achievements may materially
differ from those expressed or implied in any forward-looking statements made by
or on our behalf. These risks and uncertainties include, but are not limited to,
those relating to our growth strategy, customer concentration, outstanding
indebtedness, seasonality, expansion and other activities of competitors,
changes in federal or state laws and the administration of such laws, protection
of trademarks and other proprietary rights, and the general condition of the
economy and its effect on the securities markets and other risks detailed in our
other filings with the Securities and Exchange Commission. The use of words such
as "believe," "expect," "anticipate," "intend," and "plan," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
the date the statements were made.
Results of Operations - Three months ended September 30, 2001 vs. three months
ended September 30, 2000.
Net sales for the three months ended September 30, 2001 were approximately
$142,650,000 as compared to approximately $88,948,000 for the three months ended
September 30, 2000, an increase of approximately $53,702,000 or 60%. This
increase reflects an increase in sales for food service products, most of which
represented sales to existing customers, as well as a higher average selling
price for cheese (as a result of the higher CME Block Cheddar Market, the
commodity index on which bulk cheese prices are based).
Our gross margin increased by approximately $7,490,000, from approximately
$14,028,000 for the three months ended September 30, 2000 to approximately
$21,518,000 for the three months ended September 30, 2001, primarily as a result
of an increase in our sales for food service products. Our gross margin as a
percentage of sales decreased to 15.1% for the three months ended September 30,
2001 as compared to 15.8% for the three months ended September 30, 2000. The
decrease in gross margin as a percentage of sales was primarily due to the
higher cost of raw materials in fiscal 2001 as well as higher cost of production
associated with our Blackfoot, Idaho plant, and to a lesser extent the shift
toward lower margin sales associated with the food service industry.
Selling and shipping expenses increased from approximately $6,836,000 during the
three months ended September 30, 2000 to approximately $11,440,000 during the
three months ended September 30, 2001. This increase was primarily due to an
increase in advertising, commission expenses, and shipping and warehouse
expenses in support of our increased sales growth. As a percentage of sales,
selling and shipping expenses increased to 8.0% for the three months ended
September 30, 2001 as compared to 7.7% for the three month period ended
September 30, 2000. The increase in selling and shipping expenses as a
percentage of sales is primarily due to the increases in advertising expenses,
commission expenses and shipping and warehouse expenses in support of our
increased sales growth.
8
General and administrative expenses increased from approximately $1,619,000
during the three months ended September 30, 2000 to approximately $2,324,000 for
the three months ended September 30, 2001, or an increase of approximately
$705,000. The increase in general and administrative expenses is primarily a
result of an increase in personnel and other administrative expenses associated
with increased sales growth. As a percentage of sales, general and
administrative expenses decreased from 1.8% during the three months ended
September 30, 2000 to 1.6% for the three months ended September 30, 2001. The
decrease in general and administrative expenses as a percentage of sales is
primarily due to the increase in our sales growth partially offset by increases
in personnel and other administrative expenses in support of our increased sales
growth.
Net interest expense increased to approximately $3,152,000 for the three months
ended September 30, 2001 as compared to approximately $2,262,000 for the three
month period ended September 30, 2000, or an increase of approximately $890,000.
The increase was the result of our expanded borrowing requirements necessary for
working capital needs.
Other income increased to approximately $1,008,000 for the three months ended
September 30, 2001 primarily as a result of the proceeds received from the key
man life insurance policy on the life of our former Executive Vice President.
The provision for income taxes for the three months ended September 30, 2001
increased to $2,044,000 from $1,324,000 during the three months ended September
30, 2000. The increase is primarily a result of increased taxable income during
the three months ended September 30, 2001.
Net earnings increased approximately $1,579,000 to approximately $3,566,000 in
the three month period ended September 30, 2001 from approximately $1,987,000
during the three month period ended September 30, 2000 due to the reasons set
forth above
Financial Position, Liquidity and Capital Resources
At September 30, 2001, we had working capital of approximately $161,691,000, as
compared with $143,990,000 at June 30, 2001, an increase of approximately
$17,701,000. The increase in working capital is primarily due to our improved
operating results as well as proceeds from long term borrowings of $14,510,000
used to support our increased accounts receivable and inventory levels in
support of our increased sales volume.
We have a revolving credit facility, (the "Facility"), with several commercial
banks. In October 2001 the line of credit under the Facility was increased to
$140,000,000 through February 15, 2004. The Facility is collateralized by
substantially all existing and acquired assets as defined in the Facility
agreement,and is guaranteed by our subsidiaries and the pledge of all of the
stock of our subsidiaries. The rate of interest on amounts borrowed under the
Facility is the LIBOR rate plus 175 basis points. The interest rate at September
30, 2001 was 6.75%. Advances under the Facility are limited to 85% of eligible
accounts receivable, and 60% of most inventory. The 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 restriction on dividends to common shareholders. As of September 30, 2001,
we are in compliance with these covenants. At September 30, 2001 our total
outstanding debt to the banks was $113,775,262.
9
We believe that we have adequate working capital to meet our reasonably
foreseeable cash requirements.
Net cash used in operating activities in the three month period ended September
30, 2001 was approximately $14,414,000 as compared to $9,565,000 in the
comparable period of the prior year. The use of cash in operations was primarily
the result of increases in accounts receivable and inventory levels in support
of our increased sales and prepaid expenses and other current assets as well as
a decrease in accounts payable, accrued expenses and other current liabilities,
and other liabilities, partially offset by an increase in net earnings as
adjusted for non-cash expenses, and increases in income taxes payable. The cash
used in operations was financed through cash flow from financing activities. Net
cash used in investing activities for the three month period ended September 30,
2001 was approximately $520,291, as compared to $569,000 in the three month
period ended September 30, 2000 as a result of continued expenditures for fixed
assets. Cash flows provided by financing activities was approximately
$14,468,000 and $9,633,000 in the three months ended September 30, 2001 and
2000, respectively. In the 2001 period, net proceeds from our revolving credit
facility were $14,510,000. In the 2000 period, our secondary offering generated
proceeds of $7,974,000 and net proceeds from our revolving credit facility were
$1,818,000. As a result, at September 30, 2001 we had cash of $142,857, as
compared to $449,088 at September 30, 2000.
In March, 1996, we purchased our Paterson, New Jersey production facility which
we previously had leased. The purchase was financed through a mortgage on the
property. Proceeds of the loan were $1,050,000, of which $686,250 was used to
pay the remaining obligation to the landlord. The balance of the proceeds was
used to complete the expansion of a 7,800 square foot refrigerated storage
facility. The five year note which bore interest at 8.51% per annum was being
amortized at a fifteen year rate and required a balloon payment at the end of
year five of approximately $840,000. On March 29,1999, we refinanced the
mortgage on our Paterson facility for the principal amount of $929,573. The
seven year note which bears interest at 7.85% per annum is being amortized at a
fifteen year rate and requires a balloon payment at the end of year seven of
approximately $501,000. At September 30, 2001, we had outstanding obligations of
approximately $801,924 under the mortgage financing the purchase of the Paterson
facility.
In May 1999, the Board of Directors approved a stock repurchase program to
acquire up to $3,200,000 of our common stock. As of September 30, 2001, we have
repurchased 224,877 shares of our common stock for a cost of approximately
$1,547,620.
In November 2001, we completed an underwritten public offering of shares of our
common stock of which 3,500,000 shares were sold by us and 550,000 shares were
sold by certain selling shareholders at a public offering price of $12.75 per
share. Gross proceeds of the shares sold by us was $44,625,000 and net proceeds
paid to us after deducting underwriting discounts and commissions but before
deducting other expenses of the offering was $41,510,000. In addition, in
association with the public offering, the underwriters were granted a 30-day
option to purchase up to an additional 357,500 shares of common stock from us
and 250,000 shares of common stock from the selling shareholders to cover
over-allotments.
ITEM 3. 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.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits
10
10.1 Amendment No. 3 and Assignment Agreement to Third Amended and Restated
Revolving Loan, Guaranty and Security Agreement among Fleet National Bank,
Sovereign Bank, Mellon Bank, N.A. Citibank, N.A. PNC Bank National Association,
First Pioneer Farm Credit, ACA, National Bank of Canada, National City Bank, the
Company, Suprema Specialties West, Inc. Suprema Specialties Northeast, Inc. and
Suprema Specialties Northwest, Inc. (Incorporated by reference to Exhibit 10.25
filed with the registrant's Registration Statement on Form S-2 File No.
333-69514)
Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPREMA SPECIALTIES, INC.
(registrant)
Date: November 14, 2001 By: /s/ Mark Cocchiola
------------------- -------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: November 14, 2001 By: /s/ Steven Venechanos
------------------- ----------------------
Steven Venechanos
Chief Financial Officer &
Secretary
11