Sylvan (NASDAQ:SYLN)
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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/