-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nbqc+quZiki7yAxyevAdSIMuaMBGE6R8/dFqVttoYSe5RmoH7QFKvsA/a3VddBj1 ImM8OD6F1XFSloWjHiVUxA== 0000950128-97-000866.txt : 19970804 0000950128-97-000866.hdr.sgml : 19970804 ACCESSION NUMBER: 0000950128-97-000866 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970629 FILED AS OF DATE: 19970801 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYLVAN INC CENTRAL INDEX KEY: 0000861291 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 251603408 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18339 FILM NUMBER: 97650189 BUSINESS ADDRESS: STREET 1: 828 SOUTH PIKE ROAD CITY: SARVER STATE: PA ZIP: 16055 BUSINESS PHONE: 4122953910 MAIL ADDRESS: STREET 1: 828 SOUTH PIKE ROAD CITY: SARVER STATE: PA ZIP: 16055 FORMER COMPANY: FORMER CONFORMED NAME: SYLVAN FOODS HOLDINGS INC DATE OF NAME CHANGE: 19930328 10-Q 1 SYLVAN INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED JUNE 29, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-18339 SYLVAN INC. ----------- (Exact name of registrant as specified in its charter) Nevada 25-1603408 ------ ---------- (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or organization) 828 South Pike Road, Sarver, PA 16055 ------------------------------- ----- (Address of principal executive offices) (Zip Code) (412) 295-3910 -------------- (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 --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1997 ----- ---------------------------- Common Stock - $.001 Par Value 6,358,000 2 SYLVAN INC. AND SUBSIDIARIES INDEX
Page No. Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets June 29, 1997 and December 29, 1996........................................3 Condensed Consolidated Statements of Income, Three Months Ended June 29, 1997 and June 30 , 1996.....................................5 Condensed Consolidated Statements of Income, Six Months Ended June 29, 1997 and June 30 , 1996.....................................6 Condensed Consolidated Statements of Cash Flows, Six Months Ended June 29, 1997 and June 30, 1996...............................7 Notes to Condensed Consolidated Financial Statements June 29, 1997..............................................................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................11 Part II - OTHER INFORMATION Item 1. Legal Proceedings .........................................................15 Item 4. Submission of Matters to a Vote of Security Holders .......................15 Item 6. Exhibits and Reports on Form 8-K...........................................15
3 CONDENSED CONSOLIDATED BALANCE SHEETS Sylvan Inc. and Subsidiaries (In Thousands)
June 29, 1997 December 29, 1996 ------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,616 $ 4,220 Trade accounts receivable, net of allowance for doubtful accounts of $938 and $1,031, respectively 9,910 10,336 Inventories 7,859 7,367 Deferred income tax benefit 509 509 Prepaid expenses and other current assets 1,898 1,705 - ----------------------------------------------------------------------------------------------------------- Total current assets 23,792 24,137 Property, plant and equipment, net 48,014 47,705 Intangible assets, net of accumulated amortization of $2,451 and $2,255, respectively 8,928 10,093 Other assets, net of accumulated amortization of $1,343 and $1,213, respectively 4,384 4,977 - ----------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 85,118 $ 86,912 ===========================================================================================================
The accompanying notes are an integral part of these financial statements. 3 4 CONDENSED CONSOLIDATED BALANCE SHEETS Sylvan Inc. and Subsidiaries (In Thousands Except Share Data)
June 29, 1997 December 29, 1996 ------------- ----------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $ 3,102 $ 3,484 Current portion of long-term debt 3,015 523 Accrued salaries, wages and other employee benefits 2,518 3,179 Accrued interest 338 443 Other accrued liabilities 3,636 3,515 - ---------------------------------------------------------------------------------------------------------------------- Total current liabilities 12,609 11,144 - ---------------------------------------------------------------------------------------------------------------------- Long-term and revolving term debt 27,932 30,168 - ---------------------------------------------------------------------------------------------------------------------- Other long-term liabilities: Postretirement medical benefits 935 1,046 Other employee benefits 895 1,172 Other 905 1,208 - ---------------------------------------------------------------------------------------------------------------------- Total other long-term liabilities 2,735 3,426 - ---------------------------------------------------------------------------------------------------------------------- Minority interest 1,104 934 CONTINGENT LIABILITIES (See Note 2) SHAREHOLDERS' EQUITY: Common stock, voting, par value $.001, 10,000,000 shares authorized, 6,498,425 and 6,480,092 shares issued and 6,364,400 and 6,373,867 shares outstanding at June 29, 1997 and December 29, 1996, respectively 6 6 Common capital contributed in excess of par 14,556 14,377 Retained earnings 31,709 28,838 Less: Treasury stock, at cost, 134,025 and 106,225 shares at June 29, 1997 and December 29, 1996, respectively (723) (414) Cumulative translation adjustment (2,282) 961 Pension adjustment (2,528) (2,528) - ---------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 40,738 41,240 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 85,118 $ 86,912 ======================================================================================================================
The accompanying notes are an integral part of these financial statements. 4 5 CONDENSED CONSOLIDATED STATEMENTS OF INCOME Sylvan Inc. and Subsidiaries (Unaudited, In Thousands Except Share Data)
--------- Three Months Ended ---------- June 29, 1997 June 30, 1996 ------------- ------------- NET SALES $ 19,565 $ 18,730 - ------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 11,351 10,680 Selling, administration, research and development 4,557 4,486 Depreciation 1,131 1,039 - ------------------------------------------------------------------------------------------------------------------- 17,039 16,205 - ------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 2,526 2,525 INTEREST EXPENSE, NET, INCLUDING AMORTIZATION OF DEBT ISSUANCE COST 511 585 OTHER INCOME (EXPENSE) (46) 85 - ------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 1,969 2,025 PROVISION FOR INCOME TAXES 562 411 - ------------------------------------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 1,407 1,614 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES (69) (71) - ------------------------------------------------------------------------------------------------------------------- NET INCOME $ 1,338 $ 1,543 =================================================================================================================== NET INCOME PER SHARE $ 0.21 $ 0.24 =================================================================================================================== WEIGHTED AVERAGE NUMBER OF SHARES (See Note 1) 6,411,416 6,465,735 ===================================================================================================================
The accompanying notes are an integral part of these financial statements. 5 6 CONDENSED CONSOLIDATED STATEMENTS OF INCOME Sylvan Inc. and Subsidiaries (Unaudited, In Thousands Except Share Data)
-------- Six Months Ended ------------ June 29, 1997 June 30, 1996 ------------- ------------- NET SALES $ 39,478 $ 38,867 - ------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 22,850 21,947 Selling, administration, research and development 9,217 9,190 Depreciation 2,234 2,074 - ------------------------------------------------------------------------------------------------------------------- 34,301 33,211 - ------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 5,177 5,656 INTEREST EXPENSE, NET, INCLUDING AMORTIZATION OF DEBT ISSUANCE COST 1,010 1,158 OTHER INCOME (EXPENSE) (13) 206 - ------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 4,154 4,704 PROVISION FOR INCOME TAXES 1,188 1,222 - ------------------------------------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 2,966 3,482 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES (95) (77) - ------------------------------------------------------------------------------------------------------------------- NET INCOME $ 2,871 $ 3,405 =================================================================================================================== NET INCOME PER SHARE $ 0.45 $ 0.53 =================================================================================================================== WEIGHTED AVERAGE NUMBER OF SHARES (See Note 1) 6,435,379 6,433,759 ===================================================================================================================
The accompanying notes are an integral part of these financial statements. 6 7 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Sylvan Inc. and Subsidiaries (Unaudited, In Thousands)
--------- Six Months Ended ----------- June 29, 1997 June 30, 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,871 $ 3,405 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,560 2,419 Deferred income taxes (74) 73 Noncash interest cost of employee benefits (82) 151 Net (gain) loss on sale of assets (5) 7 Stock option compensation expense 0 158 Trade accounts receivable 426 377 Inventories (493) (670) Prepaid expenses and other assets 1,240 (427) Accounts payable and accrued liabilities (596) (2,003) Postretirement medical and other employee benefits (966) (1,349) Minority interest 170 90 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 5,051 2,231 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net expenditures for property, plant and equipment (4,627) (4,146) - ----------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (4,627) (4,146) - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (200) (5,755) Net borrowings under revolving credit line 1,163 8,096 Net proceeds from exercise of stock options 175 693 Repurchase of outstanding common stock (310) 0 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 828 3,034 - ----------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATES ON CASH (1,856) (1,295) - ----------------------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (604) (176) CASH AND CASH EQUIVALENTS, beginning of period 4,220 5,375 - ----------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of period $ 3,616 $ 5,199 ======================================================================================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 1,158 $ 1,001 Income taxes paid 1,081 1,408
The accompanying notes are an integral part of these financial statements. 7 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Sylvan Inc. and Subsidiaries June 29, 1997 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: General ------- These condensed consolidated financial statements of Sylvan Inc. ("Sylvan") (the "Company") are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period. These statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report to Shareholders and its Form 10-K for the year ended December 29, 1996. Cash ---- The Company maintains cash balances of approximately $3.2 million with a U.S. bank in support of a letter of credit issued to a European bank. This balance is reported under "Other Assets." Inventories ----------- Inventories at June 29, 1997 and December 29, 1996 consisted of the following (in thousands):
June 29, 1997 December 29, 1996 ------------- ----------------- Growing crops and compost material $3,928 $ 3,759 Stores and other supplies 1,919 1,634 Mushrooms and spawn on hand 2,012 1,974 ------- ------- $ 7,859 $ 7,367 ======= =======
Earnings Per Common Share ------------------------- Earnings per share for the three months and six months ended June 29, 1997 were calculated using the weighted average number of shares outstanding during the period and included the effect of stock options outstanding. Pursuant to the Company's 1990 and 1993 Stock Option Plans, options for a total of 942,417 shares of the Company's Common stock have been granted, and options for a total of 353,632 of these shares have been exercised as of June 29, 1997. Reclassifications ----------------- Certain reclassifications have been made to the prior-year condensed consolidated financial statements to conform to the current-year presentation. 8 9 New Accounting Pronouncement ---------------------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 differs from current accounting guidance in that earnings per share is classified as basic earnings per share and diluted earnings per share, compared with primary earnings per share and fully diluted earnings per share under current standards. Basic earnings per share differs from primary earnings per share in that it includes only the weighted average common shares outstanding and does not include any dilutive securities in the calculation. Diluted earnings per share under the new standard differs in certain calculations from fully diluted earnings per share under the existing standards. Adoption of SFAS No. 128 is required for interim and annual periods ending after December 15, 1997. Had the Company applied the provisions of SFAS No. 128 in 1997 to the earnings per share calculations, both the basic and diluted earnings per share for the three months and six months ended June 29, 1997 would have been unchanged at $0.21 and $0.45, respectively. 2. CONTINGENT LIABILITIES: Certain of the Company's subsidiaries are self-insured for employee medical benefits claims up to a limit of $50,000 per occurrence and also for claims filed under Pennsylvania workers' compensation laws. Workers' compensation claims for medical and lost wages in excess of $350,000 are covered by an insurance policy. 3. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of non-U.S. operations are translated into U.S. dollars using period-end exchange rates, while revenues and expenses are translated at average exchange rates throughout the quarter. The resulting net translation adjustments are recorded as a separate component of shareholders' equity. 4. LONG-TERM DEBT AND BORROWING ARRANGEMENTS: The Company has a Revolving Credit Agreement (the "Agreement") with a commercial bank dated June 1, 1996. It provides for revolving credit loans on which the aggregate outstanding balance available to the Company may not initially exceed $45.0 million, but this aggregate outstanding balance will decline over the life of the Agreement as follows:
Maximum Aggregate Year Beginning Outstanding Balance -------------- ------------------- June 1, 1996 $45.0 million June 1, 1998 40.0 million June 1, 1999 35.0 million June 1, 2001 25.0 million June 1, 2002 20.0 million
9 10 Outstanding borrowings under the Agreement bear interest at either the Prime Rate or LIBOR (plus the applicable margin), at the Company's option. The revolving credit loans mature on May 31, 2003. Within and under the same terms and conditions as the revolving credit loan facility, the Company may also make borrowings outside of the United States of up to the U.S. dollar equivalent of $6.0 million, denominated in Dutch guilders. In addition to certain other limitations, the Agreement provides for the maintenance of various financial covenants, including limitations as to incurring additional indebtedness, granting security interests to third parties, spending for capital projects and paying dividends. The Company has pledged to the lending banks a security interest in the capital stock of its subsidiaries. The Company utilized monies under the Agreement to repay term loans outstanding under a previous loan agreement and has allocated $2.0 million of its credit capacity to support standby letters of credit which the Company has obtained in connection with the self-insurance of its subsidiaries' workers' compensation claims. On June 29, 1997, the Company had outstanding borrowings under the Agreement of $24.8 million. The Company has one interest rate swap agreement which applies to $5.0 million of the Company's total long-term debt. The Company agreed to pay a fixed interest rate over the life of this agreement of 7.63% plus the applicable margin. The balance of long-term debt under the swap agreement continues to be subject to variable interest rate pricing. The Company has an agreement with a French bank which enables it to borrow 15 million French francs at an interest rate based on a Paris Interbank Offered Rate (plus the applicable margin) with repayment due in January 1998. The Company's majority-owned Dutch subsidiary has a long-term plant and equipment and overdraft facility with a Dutch bank. At June 29, 1997, term loans amounting to 4.9 million Dutch guilders (approximately $2.5 million) were outstanding under this agreement. 10 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sylvan Inc. and Subsidiaries RESULTS OF OPERATIONS (Three Months Ended June 29, 1997 and June 30, 1996) Net Sales - --------- Net sales for the quarter ended June 29, 1997 increased by 4%, or $835,000, as compared with the second quarter of 1996. Spawn product unit volume increased by 5%, with 15% unit growth reported in Europe. Volume shipments in the Americas declined by 6% due to weaker sales in the United States territory. Reduced growing activity among customers who grow for the processed mushroom market was the primary factor. Overall, realized selling prices for spawn products were lower due to the effects of the stronger U.S. dollar. Currency translation rates in several of the Company's important markets were 11% lower than the comparable quarter in 1996. International sales represented 38% of total sales, up from 37% for the corresponding quarter of 1996. Mushroom sales increased by 9%, with an 11% increase in pounds sold offset by a 2% decrease in the average selling price, reflecting the higher use of promotional programs. The proportion of mushrooms sold through the fresh distribution channels increased by 1% to 95% of total pounds sold, as compared with 94% in the corresponding 1996 quarter. The Company's Quincy Farms subsidiary also expanded the resale of exotic mushrooms during the quarter, increasing by 58% over the second quarter of 1996. Sales of chemicals and supplement products increased by 13%, with a 10% increase in the Americas and a 16% increase in Europe. Operating Costs and Expenses - ---------------------------- Cost of sales increased to 58.0% of sales, as compared with 57.0% in the second quarter of 1996. Increases in exotic mushrooms purchased for resale by Quincy and greater use of supplements were the primary factors. Selling, administration, research and development expenses increased by 2%, or $71,000, due to increased professional fees, wages and benefit charges. This expense category also includes a one-time severance charge of $65,000, reflecting operating changes which include full implementation of the Company's new Pennsylvania inoculum facility. Research and development expenses were 1.7% of sales compared with 2.6% from the corresponding 1996 quarter. The lower research and development expenses should continue through 1997. Depreciation increased by $92,000, reflecting the addition of the Australian production facility and the Pennsylvania inoculum facility. Interest Expense and Other Income - --------------------------------- Interest expense decreased by $74,000, reflecting the effects of the Company's loan agreement, dated June 1, 1996, which lowered the banks' applicable margin above the base borrowing rate. This reduction was offset by a 25 basis point increase in the base borrowing rate. The effective borrowing rate for the quarter was 7.5%, a 7% decrease from the second quarter of 1996. 11 12 Income Tax Expense - ------------------ The company's effective tax rate was 28.5%, compared with the 20.3% rate in the second quarter of 1996. The 1996 rate reflected a significant decline in the net income reported from the Company's Quincy fresh mushroom operation, which increased the Company's total net income contributed by operations located in lower tax rate jurisdictions. RESULTS OF OPERATIONS (Six Months Ended June 29, 1997 and June 30, 1996) Net Sales - --------- Net sales for the six months ended June 29, 1997 increased by $611,000, or 2%, as compared with the six-month period ended June 30, 1996. Sales of spawn and spawn-related products increased by 3% when compared with the prior-year period. Unit shipments of spawn products increased by 6%, with European growth offsetting a 1% decline in the Americas. Average selling prices declined due primarily to an 11% strengthening of the U.S. dollar against the Company's primary foreign trading currencies. Local currency selling prices were stable. Chemical and supplement sales increased by 8%, with growth occurring in both the Americas and in Europe. Fresh mushroom sales were essentially unchanged for the comparable six-month periods. Unit sales increased by 2% and average selling price decreased by 2%. Operating Costs and Expenses - ---------------------------- Cost of sales as a percentage of sales was 57.9% for the six months ended June 29, 1997, as compared with 56.5% for the 1996 period. Cost of sales percentages for fresh mushroom products increased by 3%, contributing 1.2% of the 1.4% increase. During the 1997 six-month period, the Company sold higher volumes of exotic mushrooms, especially the portobello variety. These were purchased from outside producers and resold at cost of sales percentages which are higher than those associated with the Company's own production. The balance of the increase in cost of sales percentage relates to slightly higher U.S. spawn product production costs. The higher cost resulted from a combination of lower production levels and the associated higher fixed cost component, as well as from higher discard rates for U.S.-based spawn production. Selling, administration, research and development expenses increased by $27,000 to $9,217,000, or 23.4% of sales, but were lower on a percentage basis than the 23.6% for the prior-year quarter. Contributing to this increase were higher professional fees and nonrecurring severance expenses of $65,000. Research and development costs declined in both total spending and as a percentage of sales. Depreciation expense increased by $160,000, with more than 50% of the increase reflecting the recent capital expenditures outside of the United States. Interest Expense and Other Income - --------------------------------- Net interest expense for the six months ended June 29, 1997 was $1.0 million, compared with $1.2 million for the comparable period in 1996, a decrease of 13%. This decrease was primarily driven by a decline in the Company's average cost of funds from 8.3% to 7.4%, reflecting the effect of generally 12 13 lower base borrowing rates and a reduction in margins charged on base borrowing rates following the June 1996 implementation of the Company's Revolving Credit Agreement. Other expense for the six-month period ended June 29, 1997 was $13,000. This represents a change of $219,000 from the $206,000 income reported for 1996. The 1996 income included a nonrecurring gain on an insurance settlement in France. Income Tax Expense - ------------------ The effective income tax rate for the six months ended June 29, 1997 was 28.6%, compared with an effective rate of 26.0% in the comparable period of 1996. The increase in effective tax rate was driven primarily by a shift in the proportion of earnings sourced from operations in higher tax rate jurisdictions during the first half of 1997, compared with the sourcing of earnings in the corresponding period of 1996. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations for the six months ended June 29, 1997 was $5.1 million, an increase of $2.9 million over the six months ended June 30, 1996. The U.S. dollar, measured in terms of the currencies in the Company's major foreign markets, strengthened by approximately 11% in the 1997 period. The effect of these currency translation changes is reflected in the $3.2 million reduction in the cumulative translation account component of shareholders' equity, as a stronger U.S. dollar reduces the U.S. dollar equivalent value of foreign currency-denominated net assets. During the six months ended June 30, 1997, working capital decreased. Net accounts receivable decreased by $426,000 in the 1997 period, compared with a decrease of $377,000 in the 1996 period. Within this net decrease, North American trade receivables increased by $252,000, due to a lengthening in receivables collections periods, while overseas operations accounts receivables were essentially unchanged, as measured in local currencies. After translating into U.S. dollars, however, this resulted in an overall reduction in overseas accounts receivable balances of $678,000. Inventories increased by $493,000 in 1997, compared with $670,000 in the corresponding period of 1996. Inventory levels in North America increased slightly overall, with increases reported at the Quincy mushroom operation being almost offset by decreases in the spawn business. Following expected seasonal trends, inventory levels in overseas operations increased by approximately 9%, as measured in local currencies. Accounts payable and accrual balances decreased by $596,000 in the 1997 period, compared with a decrease of $2.0 million in the comparable period of 1996. The decrease in 1997 is significantly less than the decrease reported in 1996, due to fewer large capital project accruals in the first half of 1997, compared with the comparable period of 1996. The majority of assets included in prepaid expenses and other assets are denominated in French francs. In both 1997 and 1996, the weakening of the French franc when translated into U.S. dollars accounted for the majority of this change. Cash expenditures relating to workers' compensation liabilities were $226,000 in 1997, compared with $1.2 million in the six months ended June 30, 1996. Postretirement employee benefits expenditures were $28,000 in 1997, compared with $307,000 in the prior-year period. 13 14 Capital expenditures in the six months ended June 29, 1997 totaled $4.6 million, an increase of $481,000 over the corresponding period in 1996. Significant capital project expenditures to date in 1997 include the construction and initial startup of a spawn production and distribution facility in Hungary, and construction of a quality control and product testing facility in Pennsylvania. The Company expects capital expenditures in 1997 to total between $7.0 million and $8.0 million. The Company believes that it has sufficient cash resources from current cash balances, internally generated funds and available bank credit facilities to meet its ongoing capital requirements. During the second quarter of 1997, the Company announced the implementation of a Stock Repurchase Plan calling for the purchase of up to 10% of outstanding common stock. In connection with the Plan, an amendment to the Company's Revolving Credit Agreement was executed, which permits the Company to make stock repurchase payments of up to $6.0 million through May 14, 1998, while temporarily limiting total capital expenditures in calendar year 1997 to $8.0 million. Payments to repurchase common stock under the Plan in the six months ended June 29, 1997 amounted to $310,000. Net borrowings under credit lines were $1.2 million in the six months ended June 29, 1997, compared with $2.3 million in the comparable prior-year period. 14 15 PART II - OTHER INFORMATION Item 1. - Legal Proceedings ----------------- Other than ordinary routine litigation incidental to their respective businesses, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. Item 4. - Submission of Matters to a Vote of Security Holders --------------------------------------------------- Sylvan Inc.'s annual meeting of shareholders was held on May 14, 1997. At the meeting, the following persons, constituting the full board, were elected directors of the Company to serve for a term of one year, expiring in 1998:
----Number of Votes--- For Withheld --- -------- William L. Bennett 5,283,804 71,727 Virgil H. Jurgensmeyer 5,288,839 71,692 Richard F. Lazzarini, Jr. 5,281,492 74,039 Donald T. Pascal 5,283,839 71,692 Dennis C. Zensen 5,283,339 72,192
Item 6. - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits (10) Amendment No. 1 to Revolving Credit Agreement, dated as of June 27, 1997, by and among Sylvan Inc., Sylvan Foods (Netherlands) B.V., ABN-AMRO Bank N.V.-- Pittsburgh Branch, and Mellon Bank N.A., as agent. (11) Statement re computation of per share earnings is not required because the relevant computation can be clearly determined from the material contained in the financial statements included herein. (27) Financial Data Schedule. (b) Reports on Form 8-K None 15 16 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 1, 1997 SYLVAN INC. ---------------- By: /s/ WILLIAM P. MOONEY -------------------------- William P. Mooney Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) By: /s/ FRED Y. BENNITT -------------------------- Fred Y. Bennitt Secretary/Treasurer 16 EX-10 2 SYLVAN INC. 1 EXHIBIT 10 AMENDMENT NO. 1 TO REVOLVING CREDIT AGREEMENT THIS AMENDMENT NO. 1 TO REVOLVING CREDIT AGREEMENT, dated as of June 27, 1997 (this "Amendment"), among SYLVAN INC., a Nevada corporation (the "Company"), SYLVAN FOODS (NETHERLANDS) BV ("SFNBV"), a Dutch corporation, THE BANKS LISTED ON THE SIGNATURE PAGE HEREOF (individually, a "Bank" and collectively the "Banks"), the ISSUING BANK under the Original Agreement, as defined below (the "Issuing Bank"), and MELLON BANK, N.A., a national banking association, as agent for the Banks and the Issuing Bank (in such capacity, the "Agent"). BACKGROUND PROVISIONS 1. The Company, SFNBV, the Banks, the Issuing Bank and the Agent are parties to a Revolving Credit Agreement, dated as of June 1, 1996 (the "Original Agreement"). 2. The Company, SFNBV, the Banks, the Issuing Bank and the Agent wish to amend the Original Agreement in certain respects. NOW, THEREFORE, in consideration of the premises, and of the mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows. ARTICLE I AMENDMENTS 1.01 Section 6.06 of the Original Agreement is amended by adding, at the end thereof, the following: "The provisions of Section 6.06(c)(i) notwithstanding, subject to the conditions of Sections 6.06(c)(ii) and (iii), the Company may declare and pay cash Stock Payments on account of a dividend on, or purchase, redemption, retirement or acquisition of, its capital stock during the period from May 15, 1997 through May 14, 1998, if the aggregate amount of all Stock Payments declared or made during such period, plus the proposed Stock Payment, does not exceed $6,000,000." 1.02 Section 6.14 of the Original Agreement is amended by adding, at the end of the first sentence thereof, the following: 2 ";provided however that the aggregate amount of Capital Expenditures permitted to be made by the Company or any Subsidiary during the 1997 calendar year shall not be in excess of $8,000,000." ARTICLE II REPRESENTATIONS AND WARRANTIES 2.01. AUTHORITY AND AUTHORIZATION. Each of the Borrowers has the corporate power and authority to execute and deliver this Amendment and to perform its obligations hereunder. All such action has been duly and validly authorized by all necessary corporate proceedings by each of the Borrowers. 2.02. EXECUTION AND BINDING EFFECT. This Amendment has been duly and validly executed and delivered by each of the Borrowers and constitutes the legal, valid and binding obligations of each of the Borrowers enforceable in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. 2.03. AUTHORIZATIONS AND FILINGS. No authorization, consent, approval, license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Official Body is or will be necessary or advisable in connection with the execution and delivery of this Amendment, consummation of the transactions herein contemplated or performance of or compliance with the terms and conditions hereof. 2.04. ABSENCE OF CONFLICTS. Neither the execution and delivery of this Amendment nor consummation of the transactions herein contemplated nor performance of or compliance with the terms and conditions hereof will (a) violate any Law where such violations could reasonable be expected to have a Material Adverse Effect, (b) conflict with or result in a breach of or a default under the articles of incorporation or bylaws of either Borrower or any agreement or instrument to which either Borrower may be subject or bound or (c) result in the creation or imposition of any Lien upon any property (now owned or hereafter acquired) of any Borrower Party. 2.05. NO EVENT OF DEFAULT; COMPLIANCE WITH INSTRUMENTS. No event has occurred and is continuing and no condition exists which constitutes an Event of Default or Potential Default. 2.06. NO MATERIAL ADVERSE CHANGE. Since December 31, 1996 there has been no material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. -2- 3 ARTICLE III CONDITIONS 3.01. DETAILS, PROCEEDINGS AND DOCUMENTS. The obligations of the Banks, the Issuing Bank and the Agent to agree to the amendments provided hereby are subject to the accuracy as of the date hereof of the representations and warranties herein contained and to the fact that all legal detains and proceedings in connection with the transactions contemplated by this Amendment shall be satisfactory to the Agent, the Banks and the Issuing Banks and their respective counsel and the Agent, the Banks and the Issuing Bank shall have received all such counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to them, as any of them may from time to time request. ARTICLEIV MISCELLANEOUS 4.01. EXPENSES; TAXES; ATTORNEYS' FEES. The Borrowers agree to pay or cause to be paid and to save the Banks, the Issuing Bank and the Agent harmless against liability for the payment of all reasonable out-of-pocket expenses, including but not limited to fees and expenses of counsel for the Banks, the Issuing Bank and Issuing Bank, arising in connection with the preparation, execution, delivery and performance of this Amendment and any documents, instruments or transactions pursuant to or in connection herewith. 4.02. SAVINGS CLAUSE. This Amendment shall not, except as to matters and to the extent herein expressly set forth, (a) constitute an amendment, modification or alteration of the terms, conditions or covenants of the Original Agreement, (b) constitute a waiver, release or limitation on the exercise by any of the Banks, the Issuing Bank or the Agent of any of its rights, legal or equitable, under the Original Agreement, (c) constitute a waiver or release by any of the Banks, the Agent or the Issuing Bank of any Event of Default which has occurred or may occur under the Original Agreement or (d) relieve or release any Borrower Party in any way or to any extent from any of their respective duties, obligation, covenants and agreements imposed upon them by the Original Agreement and all documents relating thereto or from the consequences of any default thereunder. 4.03. GOVERNING LAW. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 4.04. COUNTERPARTS. This Amendment may be executed in as many counterparts as may be deemed necessary and convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. -3- 4 4.05. CAPITALIZED TERMS. Capitalized words and terms which are used herein and not otherwise defined shall have the meanings assigned to such terms in the Original Agreement unless the context hereof clearly requires otherwise. 4.06. COUNSEL CONSENT. Each of the Borrowers, on the one hand, and the Banks, the Issuing Bank and the Agent on the other hand, acknowledge that they have engaged Reed Smith Shaw & McClay to serve as their respective legal counsel in connection with this Amendment and the transactions related hereto, and consent to Reed Smith Shaw & McClay serving as legal counsel for the parties in connection with such matters. IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed and delivered this Amendment as of the date first above written. SYLVAN INC. By ---------------------------- Title: Chief Financial Officer ------------------------ SYLVAN FOODS (NETHERLANDS) BV By ---------------------------- Title: Director ------------------------ MELLON BANK, N.A. individually and in its capacity as Agent By ---------------------------- Title: AVP ------------------------ ABN AMRO BANK, N.V., Pittsburgh Branch By ---------------------------- Title: Group Vice President and Operational Manager By ---------------------------- Title: Group V.P. ------------------------ -4- EX-27 3 SYLVAN INC.
5 0000861291 SYLVAN INC. 1,000 6-MOS DEC-28-1997 DEC-30-1996 JUN-29-1997 3,616 0 10,848 938 7,859 23,792 69,845 21,831 85,118 12,609 0 0 0 6 40,732 85,118 39,478 39,478 22,850 34,301 13 0 1,010 4,154 1,188 0 0 0 0 2,871 0.45 0.45
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