Sylvan Inc. Announces Third Quarter Results Three-Month Comparison
SAXONBURG, Pa., Nov. 12 /PRNewswire-FirstCall/ -- Sylvan Inc. today
reported net income of $839,000, or $.16 per share, for the quarter
ended September 28, 2003, as compared with $1,109,000, or $.20 per
share, for the third quarter of 2002. Consolidated operating income
for the 2003 quarter decreased 26%, when compared with the
corresponding 2002 quarter, reflecting an 11% decrease in operating
income from the Spawn Products Segment, a 12% increase in operating
income from the Fresh Mushrooms Segment and a 35% increase in
unallocated corporate expenses. Unallocated corporate expenses for
the quarter ended September 28, 2003 were $1,263,000, as compared
with $934,000 for the third quarter of 2002. The increase in
corporate expenses included expenses related to the activities of
the company's special committee of independent directors that was
organized by the company's board in April 2003 when it received an
indication of interest by a group of Sylvan Inc. senior officers
and private investors to acquire shares of Sylvan's common stock.
The costs incurred by the committee during the quarter approximated
$170,000, primarily for legal and financial advisory services.
Approximately $70,000 of comparable costs were incurred during the
third quarter of 2002 in the course of a similar committee's
evaluation of strategic plans and business alternatives. The
activities of the committee are detailed later in this
announcement. In addition, the company recorded a net periodic
pension expense of $167,500 during the quarter from a pension plan
of a former subsidiary, as compared with a net periodic pension
benefit of $37,500 for the corresponding 2002 quarter. Segment
Information (In thousands) Spawn Products Segment Fresh Mushrooms
Segment 2003 2002 % Change 2003 2002 % Change Net Sales $16,759
$16,404 + 2 $7,397 $6,204 + 19 Operating Income 2,422 2,718 - 11
488 436 + 12 Spawn Products Segment Net sales of spawn and
spawn-related products increased 2%. The effect of a weaker U.S.
dollar on overseas sales increased net sales on a quarter-over-
quarter comparison by $1.9 million. Spawn product sales volume
decreased 5%, with a 3% increase in the Americas and a 9% decrease
in overseas markets. Most of the volume decrease in the overseas
markets resulted from a reduction in sales in France due to
challenging competitive conditions and in the United Kingdom due to
mushroom farm closures. Sales of disease-control agents and
nutritional supplements decreased 3% and accounted for 16% of
Sylvan's consolidated net sales for the third quarter. The overseas
U.S. dollar-equivalent selling price was 13% higher during the
third quarter of 2003, as compared with the corresponding quarter
of 2002, primarily due to the weakening of the U.S. dollar.
Overseas local currency selling prices decreased approximately 1%
due to the loss of sales in higher- priced territories. The selling
price in the Americas decreased 7% as a result of adjustments to
the pricing structure of some products in order to compete with the
lower-priced spawn offerings of other suppliers. Operating expenses
increased 5% when compared with the third quarter of 2002. The
effect of a weaker U.S. dollar increased operating expenses on a
quarter-over-quarter comparison by $1.7 million. Within operating
expenses, cost of sales was 57% of net sales, as compared with 56%
for the corresponding 2002 quarter. Spawn production in overseas
markets was 9% lower than for the third quarter of 2002, spreading
costs that are primarily fixed in nature over fewer units.
Operating income, as a percentage of net sales, was 15% for the
third quarter of 2003, as compared with 17% for the corresponding
2002 quarter. Operating income was positively impacted by the
weakening of the U.S. dollar, with an effect of approximately
$225,000. The company's bioproducts division recorded net sales of
$625,000 for the third quarter of 2003, as compared with $290,000
for the third quarter of 2002. Operating income for the third
quarter of 2003 was $95,000, as compared with a $15,000 operating
loss for the third quarter of 2002. Fresh Mushrooms Segment Net
sales of fresh mushrooms increased to $7.4 million during the third
quarter, as compared with $6.2 million for the corresponding
quarter of 2002. The number of pounds sold increased 9% and the
average selling price per pound increased 2%. Quincy experienced
improved production yields on a square-foot basis due to the
additional satellite growing facilities. The Fresh Mushrooms
Segment's cost of sales was $5.6 million, or 75% of net sales, for
the quarter ended September 28, 2003, as compared with $4.5
million, or 73%, for the 2002 third quarter. The increase in the
cost of sales percentage primarily relates to increased purchases
of fresh mushrooms from the satellite farms for immediate resale to
the third-party marketer. The segment's operating income for the
quarter was $488,000, or 7% of net sales, and was 12% higher than
the amount reported for the third quarter of 2002. Nine-Month
Comparison Net income for the nine months ended September 28, 2003
was $2,139,000, or $.41 per share, as compared with $3,308,000, or
$.60 per share, for the corresponding period of 2002. Consolidated
operating income for the 2003 nine-month period decreased 29%, when
compared with the corresponding 2002 period, reflecting a 14%
decrease in operating income from the Spawn Products Segment, a 1%
increase in operating income from the Fresh Mushrooms Segment and a
23% increase in unallocated corporate expenses. Unallocated
corporate expenses for the nine months ended September 28, 2003
were $4,092,000, as compared with $3,337,000 for the first nine
months of 2002. This increase in corporate expense can be
attributed primarily to activities of the special committee and
increased pension expense, as detailed below. During the first nine
months of 2003, the company incurred costs of approximately
$450,000 related to the activities of the company's special
committee of independent directors. Approximately $165,000 in
comparable costs were incurred during the first nine months of 2002
in the course of a comparable committee's evaluation of strategic
plans and business alternatives. The company recorded a net
periodic pension expense of $502,500 during the nine months ended
September 28, 2003 from a pension plan of a former subsidiary, as
compared with a net periodic pension benefit of $112,500 for the
nine months ended September 29, 2002. This expense increase was
related to poor plan asset performance and a decrease in the plan's
discount rate assumption. Segment Information (In thousands) Spawn
Products Segment Fresh Mushrooms Segment 2003 2002 % Change 2003
2002 % Change Net Sales $48,895 $46,812 + 4 $21,887 $18,759 + 17
Operating Income 6,610 7,674 -14 2,013 2,001 + 1 Spawn Products
Segment Net sales of spawn and spawn-related products increased 4%.
The effect of a weaker U.S. dollar on overseas sales increased net
sales on a nine-month over nine-month comparison by $6.7 million.
Spawn product sales volume decreased 6%, with a 9% decrease in
overseas markets and virtually no change in the Americas. Most of
the volume decrease in the overseas markets resulted from a
reduction in sales in France due to challenging competitive
conditions and in the United Kingdom due to mushroom farm closures.
Sales of disease- control agents and nutritional supplements
increased 2% and accounted for 16% of Sylvan's consolidated net
sales for the nine-month period. The overseas U.S.
dollar-equivalent selling price was 18% higher during the first
nine months of 2003, as compared with the corresponding period of
2002, primarily due to the weakening of the U.S. dollar. Overseas
local currency selling prices decreased approximately 2%. The
selling price in the Americas decreased 6% as a result of
adjustments to the pricing structure of some products in order to
compete with the lower-priced spawn offerings of other suppliers.
Operating expenses increased 8% when compared with the first nine
months of 2002. The effect of a weaker U.S. dollar increased
operating expenses on a nine-month over nine-month comparison by
$6.1 million. Within operating expenses, cost of sales was 57% of
net sales, as compared with 54% for the corresponding 2002 period.
Spawn production in overseas markets was 14% lower than for the
first nine months of 2002, spreading costs that are primarily fixed
in nature over fewer units. Inventory levels were also reduced in
response to the lower sales volumes. Operating income, as a
percentage of net sales, was 14% for the first nine months of 2003,
as compared with 16% for the first nine months of 2002. Operating
income was positively impacted by the weakening of the U.S. dollar,
with an effect of approximately $610,000. The company's bioproducts
division recorded net sales of $1.9 million for the nine-month
period ended September 28, 2003, as compared with $1.0 million for
the first nine months of 2002. Operating income for the first nine
months of 2003 was $433,000, as compared with an operating loss of
$393,000 for the first nine months of 2002. Fresh Mushrooms Segment
Net sales of fresh mushrooms increased during the first nine months
of 2003 to $21.9 million, as compared with $18.8 million for the
corresponding period of 2002. The number of pounds sold increased
7% and the average selling price per pound increased 1%. Quincy
experienced improved production yields on a square-foot basis due
to the additional satellite growing facilities. The cost of sales
in the Fresh Mushrooms Segment was $15.9 million, or 73% of net
sales, for the nine months ended September 28, 2003, as compared
with $12.9 million, or 69%, for the first nine months of 2002. The
increase in the cost of sales percentage primarily relates to
increased purchases of fresh mushrooms from the satellite farms for
immediate resale to the third-party marketer. The segment's
operating income for the first nine months of 2003 was $2.0
million, or 9% of net sales, and was 1% higher than the amount
reported for the first nine months of 2002. Outlook Sylvan Chairman
and CEO Dennis C. Zensen commented, "Our fresh mushroom and
bioproducts operations continued to meet our expectations and
provided good contributions during the third quarter of 2003.
However, our spawn products operations experienced decreased sales
volume due to mushroom farm closures and very competitive market
conditions. Although we see some positive indications now, we
believe that it is too early to predict when spawn volumes will
increase." Activities of the Special Committee The special
committee of independent directors referenced earlier in this press
release was organized by Sylvan's board of directors in April 2003.
At that time, the board authorized the committee to evaluate the
indication of interest that was submitted on April 16, 2003, by a
group of senior officers and private investors to acquire Sylvan's
common shares for $11.00 per share. The indication of interest was
withdrawn on June 16, 2003, but the committee is continuing to
assess and evaluate alternative courses of action. It has not
announced any decision or determination with respect to a course of
action. The committee expects to complete its evaluation during
2003. In April 2003, Sylvan postponed its 2003 annual meeting of
shareholders to provide the special committee with sufficient time
to evaluate alternatives. Although the committee is continuing
these evaluations, the company has tentatively scheduled an annual
meeting for Monday, December 22, 2003. Sylvan's board of directors
set Thursday, November 20, 2003, as the record date for purposes of
determining which shareholders are eligible to vote at the meeting.
The alternatives evaluation process being conducted by the special
committee could necessitate a rescheduling of the meeting. The
company will notify its shareholders if and when a rescheduling is
required. About Sylvan A leader in fungal technology, Sylvan Inc.
is a preeminent worldwide producer and distributor of products for
the mushroom industry, specializing in spawn (the equivalent of
seed for mushrooms) and other spawn-related products and services,
and is a major grower of fresh mushrooms in the United States.
Forward-Looking Statement Mr. Zensen's comment contains a
forward-looking statement. The references to sales volumes are
based on currently available competitive data. However,
expectations are inherently uncertain. Events could turn out to be
significantly different, depending upon such factors as mushroom
growing process consistencies, competitive conditions in the
mushroom market in general, pricing and product initiatives of the
company's spawn business competitors, changes in currency and
exchange risks and acts of terrorism or war or concerns of the
public about such acts or threats of such acts. Conference Call
Sylvan will not conduct a conference call to discuss results for
the third quarter of 2003. SYLVAN INC. AND SUBSIDIARIES Condensed
Consolidated Statements of Income (In thousands except share data)
Three Months Ended Nine Months Ended Sept. 28, 2003 Sept. 29, 2002
Sept. 28, 2003 Sept. 29, 2002 (Unaudited) (Unaudited) (Unaudited)
(Unaudited) Net sales $23,822 $22,275 $69,791 $64,582 Operating
costs and expenses: Cost of sales 15,139 13,612 43,969 38,244
Selling, administration, research and development 5,500 4,990
16,618 15,732 Depreciation 1,536 1,453 4,673 4,268 22,175 20,055
65,260 58,244 Operating income 1,647 2,220 4,531 6,338 Interest
expense 401 490 1,224 1,366 Other income 100 (3) 120 60 Income
before income taxes 1,346 1,727 3,427 5,032 Income tax expense 453
579 1,139 1,661 Minority interest 54 39 149 63 Net income $839
$1,109 $2,139 $3,308 Diluted earnings per share $0.16 $0.20 $0.41
$0.60 Equivalent diluted shares 5,160,833 5,502,408 5,155,192
5,494,988 Condensed Consolidated Balance Sheets (In thousands)
Assets Sept. 28, Dec. 29, Liabilities Sept. 28, Dec. 29, 2003 2002
and Equity 2003 2002 (Unaudited) (Unaudited) Cash and equivalents
$6,118 $5,624 Short-term debt $122 $223 Accounts Accounts payable
3,835 3,895 receivable, net 15,095 14,399 Other current Inventories
12,010 11,425 liabilities 6,399 5,729 Other current Total current
assets 3,912 2,989 liabilities $10,356 $9,847 Total current
Long-term debt 35,260 38,162 assets $37,135 $34,437 Other long-term
liabilities 10,135 9,794 Fixed assets, net 59,640 58,787 Minority
interest 2,176 1,741 Other assets 14,384 13,582 Shareholders'
equity 53,232 47,262 Total Total liabilities assets $111,159
$106,806 and equity $111,159 $106,806 DATASOURCE: Sylvan Inc.
CONTACT: Don Smith of Sylvan Inc., +1-724-352-7520 Web site:
http://www.sylvaninc.com/
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