-----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, IM91w7QIQwK4pU5RWJJpyWcWx79KssIZS3Fn+RkMB67gFt904NTHRN6645IeaPmU u6CTvC9LUh/gT7hHHzW/7g== 0000950128-98-000937.txt : 19980805 0000950128-98-000937.hdr.sgml : 19980805 ACCESSION NUMBER: 0000950128-98-000937 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980804 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/A SEC ACT: SEC FILE NUMBER: 000-18339 FILM NUMBER: 98677066 BUSINESS ADDRESS: STREET 1: 333 MAIN STREET STREET 2: P.O. BOX 249 CITY: SAXONBURG STATE: PA ZIP: 16056-0249 BUSINESS PHONE: 724-352-7520 MAIL ADDRESS: STREET 1: 333 MAIN STREET STREET 2: P.O. BOX 249 CITY: SAXONBURG STATE: PA ZIP: 16056-0249 FORMER COMPANY: FORMER CONFORMED NAME: SYLVAN FOODS HOLDINGS INC DATE OF NAME CHANGE: 19930328 10-Q/A 1 SYLVAN, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q AMENDMENT NUMBER 1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED JUNE 28, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-18339 SYLVAN INC. (Exact name of registrant as specified in its charter) NEVADA 25-1603408 (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or organization) 333 MAIN STREET, P.O. BOX 249, SAXONBURG, PA 16056-0249 (Address of principal executive offices) (Zip Code) (724) 352-7520 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of common stock outstanding as of July 31, 1998... 6,452,333 2 SYLVAN INC. AND SUBSIDIARIES INDEX
Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets June 28, 1998 and December 28, 1997............................................................3 Condensed Consolidated Statements of Income, Three Months Ended June 28, 1998 and June 29, 1997..........................................................5 Condensed Consolidated Statements of Income, Six Months Ended June 28, 1998 and June 29, 1997..........................................................6 Condensed Consolidated Statements of Cash Flows, Six Months Ended June 28, 1998 and June 29, 1997...................................................7 Notes to Condensed Consolidated Financial Statements June 28, 1998 ................................................................................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................12 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 Item 1. - Financial Statements - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- Sylvan Inc. and Subsidiaries (In Thousands)
June 28, 1998 December 28, 1997 ------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,863 $ 5,567 Trade accounts receivable, net of allowance for doubtful accounts of $708 and $812, respectively 10,923 13,435 Inventories 10,066 8,723 Deferred income tax benefit 856 686 Prepaid expenses and other current assets 3,131 1,792 - ---------------------------------------------------------------------------------------------------- Total current assets 29,839 30,203 Property, plant and equipment, net 50,247 47,628 Intangible assets, net of accumulated amortization of $2,840 and $2,647, respectively 11,955 11,466 Other assets, net of accumulated amortization of $1,621 and $1,473, respectively 3,833 4,383 - ---------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 95,874 $ 93,680 ====================================================================================================
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 28, 1998 December 28, 1997 ------------- ----------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $ 4,855 $ 5,643 Current portion of long-term debt 789 448 Accrued salaries, wages and other employee benefits 2,993 3,323 Accrued interest 165 300 Other accrued liabilities 4,458 3,550 - ----------------------------------------------------------------------------------------------------- Total current liabilities 13,260 13,264 - ----------------------------------------------------------------------------------------------------- Long-term and revolving term debt 31,841 32,690 - ----------------------------------------------------------------------------------------------------- Other long-term liabilities: Postretirement medical benefits 1,193 1,037 Other employee benefits 436 730 Other 1,146 1,054 - ----------------------------------------------------------------------------------------------------- Total other long-term liabilities 2,775 2,821 - ----------------------------------------------------------------------------------------------------- Minority interest 1,138 914 SHAREHOLDERS' EQUITY: Common stock, voting, par value $.001, 10,000,000 shares authorized, 6,618,714 and 6,589,784 shares issued and 6,458,749 and 6,449,344 shares outstanding at June 28, 1998 and December 28, 1997, respectively 7 7 Common capital contributed in excess of par 15,935 15,638 Retained earnings 38,733 35,320 Less: Treasury stock, at cost, 159,965 and 140,440 shares at June 28, 1998 and December 28, 1997, respectively (1,073) (792) ------- ------- 53,602 50,173 Cumulative translation adjustment (3,592) (3,032) Pension adjustment (3,150) (3,150) - ----------------------------------------------------------------------------------------------------- Accumulated other comprehensive income (6,742) (6,182) - ----------------------------------------------------------------------------------------------------- Total shareholders' equity 46,860 43,991 - ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 95,874 $ 93,680 =====================================================================================================
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 28, 1998 June 29, 1997 ------------- ------------- NET SALES $ 20,971 $ 19,565 - ----------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 12,206 11,351 Selling, administration, research and development 4,839 4,557 Depreciation 1,262 1,131 - ----------------------------------------------------------------------------------------- 18,307 17,039 - ----------------------------------------------------------------------------------------- OPERATING INCOME 2,664 2,526 INTEREST EXPENSE, NET, INCLUDING AMORTIZATION OF DEBT ISSUANCE COST 534 511 OTHER INCOME (EXPENSE) (38) (46) - ----------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 2,092 1,969 PROVISION FOR INCOME TAXES 535 562 - ----------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 1,557 1,407 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 77 69 - ----------------------------------------------------------------------------------------- NET INCOME $ 1,480 $ 1,338 ========================================================================================= NET INCOME PER SHARE - DILUTED $ 0.23 $ 0.21 ========================================================================================= NET INCOME PER SHARE - BASIC $ 0.23 $ 0.21 ========================================================================================= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES (See Note 1) 6,575,834 6,385,455 ========================================================================================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES (See Note 1) 6,460,989 6,385,455 =========================================================================================
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 28, 1998 June 29, 1997 ------------- ------------- NET SALES $ 42,959 $ 39,478 - ----------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES: Cost of sales 24,665 22,850 Selling, administration, research and development 9,755 9,217 Depreciation 2,490 2,234 - ----------------------------------------------------------------------------------------- 36,910 34,301 - ----------------------------------------------------------------------------------------- OPERATING INCOME 6,049 5,177 INTEREST EXPENSE, NET, INCLUDING AMORTIZATION OF DEBT ISSUANCE COST 1,062 1,010 OTHER INCOME (EXPENSE) (39) (13) - ----------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 4,948 4,154 PROVISION FOR INCOME TAXES 1,435 1,188 - ----------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 3,513 2,966 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 99 95 - ----------------------------------------------------------------------------------------- NET INCOME $ 3,414 $ 2,871 ========================================================================================= NET INCOME PER SHARE - DILUTED $ 0.52 $ 0.45 ========================================================================================= NET INCOME PER SHARE - BASIC $ 0.53 $ 0.45 ========================================================================================= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES (See Note 1) 6,557,142 6,387,952 ========================================================================================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES (See Note 1) 6,455,880 6,386,730 =========================================================================================
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 28, 1998 June 29, 1997 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,414 $ 2,871 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,831 2,560 Deferred income taxes 10 (74) Noncash interest cost of employee benefits (221) (82) Net gain on sale of assets (13) (5) Trade accounts receivable 3,027 426 Inventories (1,155) (493) Prepaid expenses and other assets (754) 1,240 Accounts payable and accrued liabilities (2,000) (1,194) Postretirement medical and other employee benefits (596) (966) Income taxes payable 582 598 Minority interest 99 170 - ------------------------------------------------------------------------------------------------- Net cash provided by operating activities 5,224 5,051 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Payment for acquisition, net of cash acquired (1,619) 0 Net expenditures for property, plant and equipment (2,808) (4,627) - ------------------------------------------------------------------------------------------------- Net cash used in investing activities (4,427) (4,627) - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (242) (200) Net (repayments) borrowings under revolving credit line (1,026) 1,163 Common stock transactions, net 16 (135) - ------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (1,252) 828 - ------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATES ON CASH (249) (1,856) - ------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (704) (604) - ------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, beginning of period 5,567 4,220 - ------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of period $ 4,863 $ 3,616 ================================================================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 1,582 $ 1,158 Income taxes paid 1,332 1,081
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES: The Company purchased 90% of the capital stock of International Mushrooms Limited (an Irish corporation) for 3,230,968 Dutch guilders (approximately $1.6 million). In conjunction with this acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 4,492 Cash paid for the capital stock (1,619) ------------ Liabilities assumed $ 2,873 ============
The accompanying notes are an integral part of these financial statements. 7 8 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Sylvan Inc. and Subsidiaries June 28, 1998 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: General These condensed consolidated financial statements of Sylvan Inc. (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 28, 1997. Cash The Company maintains a cash balance of approximately $2.5 million with a U.S. bank in support of a loan advanced by a European bank. This balance is reported under "Other Assets." Inventories Inventories at June 28, 1998 and December 28, 1997 consisted of the following (in thousands):
June 28, 1998 December 28, 1997 -------------- ----------------- Growing crops and compost material $ 4,928 $ 3,757 Stores and other supplies 1,795 2,023 Mushrooms and spawn on hand 3,343 2,943 ------- ----- $10,066 $ 8,723 ======= =======
Earnings Per Common Share Earnings per share for the three months and six months ended June 28, 1998 and June 29, 1997 were calculated in accordance with Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share," using the weighted average number of shares outstanding during the period and including the effect of stock options outstanding. Pursuant to the Company's 1990 and 1993 Stock Option Plans, options for a total of 1,149,417 shares of the Company's common stock have been granted and options for a total of 473,921 of these shares have been exercised as of June 28, 1998. The following tables reconcile the number of shares utilized in the earnings per share calculations for the three months and six months ended June 28, 1998 and June 29, 1997. 8 9
Three Months Ended June 28, 1998 June 29, 1997 ------------- ------------- Net income (in thousands) $1,480 $1,338 ====== ====== Earnings per common share - diluted $ 0.23 $ 0.21 Earnings per common share - basic $ 0.23 $ 0.21 ====== ======= Common shares - basic 6,460,989 6,385,455 Effect of dilutive securities: Stock options 114,845 0 --------- --------- Common shares - diluted 6,575,834 6,385,455 ========= =========
Six Months Ended June 28, 1998 June 29,1997 ------------- ------------ Net income (in thousands) $3,414 $2,871 ====== ====== Earnings per common share - diluted $ 0.52 $ 0.45 Earnings per common share - basic $ 0.53 $ 0.45 ====== ====== Common shares - basic 6,455,880 6,386,730 Effect of dilutive securities: Stock options 101,262 1,222 --------- --------- Common shares - diluted 6,557,142 6,387,952 ========= =========
For the quarter ended June 29, 1997, and for the six-month periods ended June 28, 1998 and June 29, 1997, options to purchase approximately 427,000, 88,000 and 90,000 shares of common stock, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the Company's common shares for the periods. Recent Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 will be effective for all fiscal quarters and fiscal years beginning after June 15, 1999. In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 revises an employer's disclosure requirements about pension and other postretirement benefit plans, but does not change the valuation or recognition of those plans. SFAS No. 132 standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable; requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis; and eliminates certain disclosure requirements. SFAS No. 132 will be effective for the Company's financial statements for the year ended January 3, 1999. 9 10 Reclassifications Certain reclassifications have been made to the prior-year condensed consolidated financial statements to conform to the current-year presentation. 2. CONTINGENT LIABILITIES: Certain of the Company's subsidiaries are self-insured 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 Outstanding borrowings under the Agreement bear interest at either the Prime Rate or LIBOR (plus the applicable margin) at the Company's option. On June 28, 1998, the Company had outstanding borrowings under the Agreement of $26.6 million. The revolving credit loans mature on May 31, 2003. The Agreement provides for the maintenance of various financial covenants and includes limitations as to incurring additional indebtedness and the granting of security interests to third parties. Spending for capital projects and paying dividends are subject to annual limitations. The Company has pledged to the lending banks a security interest in the capital stock of its subsidiaries. The Company has two interest rate swap agreements which apply to $10.0 million of the Company's total long-term debt. The Company agreed to pay a fixed interest rate over the life of the agreements of 6.08% and 6.03% plus the applicable margin. The balance of long-term debt is subject to variable interest rate pricing. The Company has a French franc denominated loan of $2.5 million. Interest is payable based on a formula that utilizes a Paris Interbank Offered Rate plus the applicable margin. Repayment is due in January 2000. This loan is supported by a compensating cash balance maintained in a U.S. bank. 10 11 The Company's majority-owned Dutch subsidiary has a long-term plant and equipment and overdraft facility with a Dutch bank. At June 28, 1998, term loans amounting to 4.0 million Dutch guilders (approximately $2.0 million) were outstanding under this agreement. 5. COMPREHENSIVE INCOME: The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in the quarter ended March 29, 1998. This accounting standard requires the reporting of all changes in the equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Prior to the issuance of this standard, some of those changes in equity were displayed in the income statement, while others were included directly in balances within a separate component of equity in a statement of financial position.
Three Months Ended June 28, 1998 June 29, 1997 ------------- ------------- (unaudited, in thousands) Net income $1,480 $1,338 Other comprehensive income: Foreign currency translation adjustment 236 (1,020) ------ ------ Comprehensive income $1,716 $ 318 ====== ======
Six Months Ended June 28, 1998 June 29, 1997 ------------- ------------- (unaudited, in thousands) Net income $3,414 $ 2,871 Other comprehensive income: Foreign currency translation adjustment (382) (3,243) ------ ------- Comprehensive income (loss) $3,032 $ (372) ====== =======
11 12 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 28, 1998 and June 29, 1997) Net Sales Net sales for the three months ended June 28, 1998 were $21.0 million, a 7% improvement over the second quarter of 1997. Spawn sales volume, measured in units, increased by 3% with a 12% increase in Europe. The American spawn sales volume decreased by 8% with continued lower demand in the United States and Canada. The local currency unit selling prices were essentially unchanged in Europe, while a mid-quarter price increase in the United States increased the average selling price in the Americas by 1%. Sales of nutritional supplements and disease-control agents increased by 74% over the corresponding 1997 quarter. The French acquisition in December 1997 accounts for most of this increase. North American mushroom revenues decreased by 1% on a 3% decrease in the average selling price and a 2% increase in total pounds sold. The percentage of mushrooms sold through the fresh channel was 89% for the current quarter, 6% lower than the 95% for the second quarter of 1997. This percentage will fluctuate with variations in quality, availability of supply and competitive market practices. Fresh mushroom sales accounted for 36% of total sales, down from 39% for the second quarter of 1997. Sales outside the United States were 47% of total sales for the quarter ended June 28, 1998, as compared with 44% for the corresponding 1997 quarter. Operating Costs and Expenses Cost of sales was $12.2 million, or 58.2% of sales, for the current quarter, as compared with $11.4 million, or 58.0% of sales, for the corresponding 1997 quarter. Increased European spawn production levels, which decreased the fixed costs component on a per-unit basis, were offset by decreased production levels in the United States. Selling, general, administrative, and research and development costs continue to trend lower as a percent of sales. The second quarter costs were $4.8 million, or 23.1% of sales, as compared with $4.6 million, or 23.3% of sales, for the corresponding 1997 quarter. Depreciation expense was $1.3 million, or $131,000 higher than the second quarter of 1997. Interest Expense The Company's net interest expense for the second quarter of 1998 was $534,000, or 5% higher than the corresponding 1997 quarter. The effective borrowing rate for the current quarter was 6.8%, as compared with 7.5% for the second quarter of 1997. Increased base borrowing was partially offset by the lower effective borrowing rate. Income Tax Expense The effective income tax rate was 26% in the current quarter, as compared with 29% in the corresponding 1997 quarter. This decrease reflects a lower proportion of the Company's total taxable income derived from North American operations. RESULTS OF OPERATIONS (Six Months Ended June 28, 1998 and June 29, 1997) Net Sales Net sales for the six months ended June 28, 1998 were $43.0 million, or 9% higher than the corresponding 1997 period. Spawn sales volume, measured in units, increased by 3%, with a 12% increase in Europe and an 8% decrease in the Americas. Lower volume sales in the United States and Canada account for the American decrease. The local currency 12 13 unit selling prices were essentially unchanged in both the European and American markets. Overall realized selling prices were 2% lower due to the currency translation effect of the stronger U.S. dollar. Sales of nutritional supplements and disease-control agents increased by 87% over the corresponding 1997 period, with the December 1997 French acquisition accounting for most of the increase. North American mushroom revenues were 6% higher on a 5% increase in total pounds sold. The percentage of mushrooms sold through the fresh channel was 92%, 2% lower than the 94% for the corresponding 1997 period. Fresh mushroom sales accounted for 37% of total sales, down from 38% for the 1997 period. Operating Costs and Expenses Cost of sales was 57.4% of sales for the six months ended June 28, 1998, as compared with 57.9% of sales for the corresponding 1997 period. European spawn production levels increased, which decreased the fixed costs component on a per-unit basis. American production levels decreased, which conversely increased the fixed cost component on a per-unit basis. Selling, general, administrative, and research and development costs were 22.7% of sales, as compared with 23.3% of sales for the corresponding 1997 period. Depreciation expense increased by $256,000 to $2.5 million for the current six-month period. Interest Expense Net interest expense for the six months ended June 28, 1998 was $1.1 million, or $52,000 higher than the corresponding 1997 period. The effective borrowing rate was 6.9%, compared with 7.4% for the 1997 period. Increased base borrowing was partially offset by the lower effective borrowing rate. Income Tax Expense The effective income tax rate for the current six-month period and for the corresponding 1997 period was 29%. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the six months ended June 28, 1998 was $5.2 million, an increase of $0.2 million over the six months ended June 29, 1997. Net trade accounts receivable decreased, contributing $3.0 million to net cash flow, as compared with a contribution of $0.4 million in the 1997 period. The majority of the net decrease resulted from the collection of trade receivables by a recently acquired French subsidiary. Inventory levels increased by $1.2 million in 1998, compared with an increase of $0.5 million in 1997. Inventory levels increased significantly in the North American spawn business and increased slightly in overseas operations, consistent with expected seasonal trends. Prepaid expenses and other assets increased by $0.8 million in 1998, compared with a decrease of $1.2 million in 1997. North American prepaid expenses increased, but were slightly offset by a decrease in assets denominated in French francs, as the U.S. dollar continued to strengthen against major trading currencies. Accounts payable and accrued liabilities decreased by $2.0 million in 1998, compared with a decrease of $1.2 million in 1997. Most of the net decrease in 1998 resulted from the settlement of trade payables in a recently acquired French subsidiary. Cash expenditures relating to workers' compensation liabilities were $0.4 million in the 1998 period, compared with $0.2 million in the six months ended June 29, 1997. Capital expenditures in the six months ended June 28, 1998 amounted to $2.8 million, compared with $4.6 million in the 1997 six-month period. Significant capital projects undertaken so far in 1998 include the completion of an additional spawn growing room at the Company's Netherlands facility, the installation of a computer control system for an inoculum blender in Pennsylvania and the ongoing construction of a new inoculum facility in France. In addition, in May 1998, the Company acquired 90% of the stock of International Mushrooms Limited, a company incorporated in the Republic of Ireland, for $1.6 million. Capital expenditures in 1998 are expected to total between $7 million and $8 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 needs. 13 14 Available credit under the Company's revolving credit arrangement was $13.4 million as of June 28, 1998. Term debt and revolving credit obligations decreased by $1.3 million, compared with an increase of $1.0 million in the six months ended June 29, 1997. Transactions under the Company's stock repurchase plan amounted to $0.3 million in both the six months ended June 28, 1998 and the six months ended June 29, 1997. Forward-Looking and Cautionary Statements In the Liquidity and Capital Resources section of this report, reference is made to expectations regarding the Company's future cash resources. This "forward-looking statement" is inherently uncertain and events could turn out to be significantly different from what is expected, depending upon such factors as pricing or product initiatives of the Company's competitors, changes in currency and exchange risks, or changes in a specific country's or region's political or economic conditions. 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 6, 1998. 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 1999:
----Number of Votes--- For Withheld --- -------- William L. Bennett 5,379,382 65,920 Virgil H. Jurgensmeyer 5,379,499 65,803 Richard F. Lazzarini, Jr. 5,377,536 67,766 Donald T. Pascal 5,379,382 65,920 Dennis C. Zensen 5,379,449 65,853
Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits (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: July 31, 1998 SYLVAN INC. ----------------- By: /s/ DONALD A. SMITH ----------------------------- Donald A. Smith Corporate Controller (Principal Financial Officer and Chief Accounting Officer) By: /s/ FRED Y. BENNITT ----------------------------- Fred Y. Bennitt Secretary/Treasurer 16 EX-27 2 SYLVAN, INC.
5 0000861291 SYLVAN, INC. 1000 6-MOS JAN-03-1999 DEC-29-1997 JUN-28-1998 4,863 0 11,631 708 10,066 29,839 76,110 25,863 95,874 13,260 0 0 0 7 46,853 95,874 42,959 42,959 24,665 36,910 39 0 1,062 4,948 1,435 0 0 0 0 3,414 0.52 0.53 The Company adopted SFAS No. 128, "Earnings per Share" in 1997. "EPS Primary" has been completed as Basic earnings per share and "EPS Diluted" has been completed as Diluted earnings per share.
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