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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 THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2003
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2).
Yes No X
--- ---
Number of shares of common stock outstanding as of November 4, 2003...5,155,131
SYLVAN INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets,
September 28, 2003 and December 29, 2002.......................................................3
Condensed Consolidated Statements of Income, Three Months
Ended September 28, 2003 and September 29, 2002................................................5
Condensed Consolidated Statements of Income, Nine Months
Ended September 28, 2003 and September 29, 2002................................................6
Condensed Consolidated Statements of Cash Flows, Nine Months
Ended September 28, 2003 and September 29, 2002................................................7
Notes to Condensed Consolidated Financial Statements,
September 28, 2003.............................................................................8
Item 2. Management's Discussion and Analysis..........................................................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................21
Item 4. Controls and Procedures.......................................................................21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................22
Item 5. Other Information.............................................................................22
Item 6. Exhibits and Reports on Form 8-K..............................................................23
Signatures.............................................................................................23
Index to Exhibits......................................................................................24
Exhibit 31.............................................................................................25
Exhibit 31.............................................................................................26
Exhibit 32.............................................................................................27
Exhibit 32.............................................................................................28
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED BALANCE SHEETS
Sylvan Inc. and Subsidiaries
(In thousands)
September 28, 2003 December 29, 2002
------------------ -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,118 $ 5,624
Trade accounts receivable, net of allowance
for doubtful accounts of $906 and $795, respectively 15,095 14,399
Inventories 12,010 11,425
Prepaid income taxes and other expenses 2,181 1,495
Other current assets 1,731 1,494
- ----------------------------------------------------------------------------------------------------
Total current assets 37,135 34,437
Property, plant and equipment, net 59,640 58,787
Intangible assets, net of accumulated amortization
of $5,153 and $4,691, respectively 13,197 12,321
Other assets, net of accumulated amortization
of $662 and $597, respectively 1,187 1,261
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 111,159 $ 106,806
====================================================================================================
The accompanying notes are an integral part of these financial statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
Sylvan Inc. and Subsidiaries
(In thousands except share data)
September 28, 2003 December 29, 2002
------------------ -----------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 122 $ 223
Accounts payable - trade 3,835 3,895
Accrued salaries, wages and employee benefits 2,956 2,771
Other accrued liabilities 2,099 1,413
Income taxes payable 1,344 1,545
- ------------------------------------------------------------------------------------------------
Total current liabilities 10,356 9,847
- ------------------------------------------------------------------------------------------------
Long-term and revolving-term debt 35,260 38,162
- ------------------------------------------------------------------------------------------------
Other long-term liabilities:
Other employee benefits 9,811 9,538
Other 324 256
- ------------------------------------------------------------------------------------------------
Total other long-term liabilities 10,135 9,794
- ------------------------------------------------------------------------------------------------
Minority interest 2,176 1,741
SHAREHOLDERS' EQUITY:
Common stock, voting, par value $0.001, 10,000,000
shares authorized, 6,741,405 and 6,728,405 shares
issued at September 28, 2003 and December 29,
2002, respectively 7 7
Additional paid-in capital 17,428 17,284
Retained earnings 67,104 64,965
Less: Treasury stock at cost, 1,597,274 shares at
September 28, 2003 and December 29, 2002 (16,669) (16,669)
Accumulated other comprehensive deficit (14,638) (18,325)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 53,232 47,262
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 111,159 $ 106,806
================================================================================================
The accompanying notes are an integral part of these financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sylvan Inc. and Subsidiaries
(Unaudited, in thousands except share data)
---------- Three Months Ended------------
September 28, 2003 September 29, 2002
------------------ ------------------
NET SALES $ 23,822 $ 22,275
- -------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Cost of sales 15,139 13,612
Selling, administration, research and development 5,500 4,990
Depreciation 1,536 1,453
- -------------------------------------------------------------------------------------------------------
22,175 20,055
- -------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,647 2,220
INTEREST EXPENSE, NET, INCLUDING
AMORTIZATION OF DEBT ISSUANCE COSTS 401 490
OTHER INCOME (EXPENSE) 100 (3)
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,346 1,727
PROVISION FOR INCOME TAXES 453 579
- -------------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST IN
INCOME OF CONSOLIDATED SUBSIDIARIES 893 1,148
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES 54 39
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 839 $ 1,109
=======================================================================================================
NET INCOME PER SHARE - BASIC $ 0.16 $ 0.20
=======================================================================================================
NET INCOME PER SHARE - DILUTED $ 0.16 $ 0.20
=======================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 5,144,131 5,439,697
=======================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 5,160,833 5,502,408
=======================================================================================================
The accompanying notes are an integral part of these financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sylvan Inc. and Subsidiaries
(Unaudited, in thousands except share data)
-----------Nine Months Ended------------
September 28, 2003 September 29, 2002
------------------ ------------------
NET SALES $ 69,791 $ 64,582
- ---------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Cost of sales 43,969 38,244
Selling, administration, research and development 16,618 15,732
Depreciation 4,673 4,268
- ---------------------------------------------------------------------------------------------------
65,260 58,244
- ---------------------------------------------------------------------------------------------------
OPERATING INCOME 4,531 6,338
INTEREST EXPENSE, NET, INCLUDING
AMORTIZATION OF DEBT ISSUANCE COSTS 1,224 1,366
OTHER INCOME 120 60
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,427 5,032
PROVISION FOR INCOME TAXES 1,139 1,661
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST IN
INCOME OF CONSOLIDATED SUBSIDIARIES 2,288 3,371
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES 149 63
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 2,139 $ 3,308
===================================================================================================
NET INCOME PER SHARE - BASIC $ 0.42 $ 0.60
===================================================================================================
NET INCOME PER SHARE - DILUTED $ 0.41 $ 0.60
===================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 5,135,869 5,435,607
===================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 5,155,192 5,494,988
===================================================================================================
The accompanying notes are an integral part of these financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sylvan Inc. and Subsidiaries
(Unaudited, in thousands)
-----------Nine Months Ended-----------
September 28, 2003 September 29, 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,139 $ 3,308
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 4,820 4,428
Employee benefits 279 689
Trade accounts receivable 75 210
Inventories 78 (591)
Prepaid expenses and other assets (698) 2,267
Accounts payable and accrued liabilities 187 838
Income taxes payable (174) 494
Other 417 (970)
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,123 10,673
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (2,495) (4,772)
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,495) (4,772)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (185) (2,343)
Net repayments under revolving credit line (4,547) (3,492)
Proceeds from exercise of stock options 144 312
Purchase of treasury shares -- (271)
- ------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,588) (5,794)
- ------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH 454 159
- ------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 494 266
CASH AND CASH EQUIVALENTS, beginning of period 5,624 5,072
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 6,118 $ 5,338
======================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 1,338 $ 1,483
Income taxes paid 1,475 1,557
The accompanying notes are an integral part of these financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SYLVAN INC. AND SUBSIDIARIES
SEPTEMBER 28, 2003
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General
These condensed consolidated financial statements of Sylvan Inc. 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, as amended,
for the year ended December 29, 2002. The condensed consolidated
December 29, 2002 balance sheet was derived from the audited balance
sheet included in the most recent Form 10-K, as amended.
Cash
The company had a French-franc denominated loan of FF16.2 million ($2.2
million) that was repaid in January 2002.
Inventories
Inventories at September 28, 2003 and December 29, 2002 consisted of the
following:
(in thousands) September 28, 2003 December 29, 2002
------------------ -----------------
Growing crops and compost material $ 5,499 $ 4,975
Stores and other supplies 1,972 2,039
Finished products 4,539 4,411
----- -----
$12,010 $11,425
======= =======
Earnings Per Common Share
Earnings per share were calculated using the weighted average number of
shares outstanding during the period, including the effect of stock
options outstanding. Pursuant to the company's 1990 and 1993 stock
option plans, options for a total of 1,366,081 shares of the company's
common stock have been granted and options for a total of 596,612 of
these shares have been exercised as of September 28, 2003.
8
The following tables reconcile the number of shares utilized in the
earnings per share calculations for the three months and nine months
ended September 28, 2003 and September 29, 2002:
Three Months Ended Nine Months Ended
Sept. 28, 2003 Sept. 29, 2002 Sept. 28, 2003 Sept. 29, 2002
-------------- -------------- -------------- --------------
Net income (in thousands) $ 839 $ 1,109 $ 2,139 $ 3,308
====== ======= ======= =======
Earnings per common share
- basic $ 0.16 $ 0.20 $ 0.42 $ 0.60
====== ======= ======= ======
Earnings per common share
- diluted $ 0.16 $ 0.20 $ 0.41 $ 0.60
====== ======= ======= ======
Common shares - basic 5,144,131 5,439,697 5,135,869 5,435,607
Effect of dilutive securities:
Stock options 16,702 62,711 19,323 59,381
------ ------ ------ ------
Common shares - diluted 5,160,833 5,502,408 5,155,192 5,494,988
========= ========= ========= =========
Options to purchase approximately 525,000 and 487,000 shares of common
stock in the three and nine months ended September 28, 2003 and 298,000
shares of common stock in both the three and nine months ended September
29, 2002, respectively, were outstanding, but were not included in the
computation of diluted earnings per share because the exercise prices of
these options were greater than the average market prices of the
company's common shares for the respective periods.
Intangible Assets
Sylvan's intangible assets, which relate solely to its Spawn Products
Segment, are as follows:
Gross Carrying Amount Accumulated Amortization
Cultures Cultures
Goodwill and Other Goodwill and Other Net
-------- --------- -------- --------- ---
(in thousands)
December 29, 2002 $ 15,998 $1,014 $(4,262) $ (429) $ 12,321
Additions - - - (96) (96)
Currency translation 1,337 1 (366) - 972
-------- ------ -------- ------- --------
September 28, 2003 $ 17,335 $1,015 $(4,628) $ (525) $ 13,197
======== ====== ======== ======= ========
The remaining useful lives of the cultures range from six to nine years
and the other intangible assets range from one to four years.
Amortization expense for intangible assets was $32,000 and $96,000 for
the three and nine months ended September 28, 2003, respectively.
Estimated amortization expense for the remainder of 2003 and the five
succeeding years is as follows:
(in thousands)
2003 (remainder) $ 32
2004 122
2005 67
2006 67
2007 65
2008 59
9
2. LONG-TERM DEBT AND BORROWING ARRANGEMENTS:
The company has a Revolving Credit Agreement with two commercial banks,
dated August 6, 1998 and amended, in part, December 29, 2002. It
provides for revolving credit loans on which the aggregate outstanding
balance available to the company could not initially exceed $55.0
million. The maximum aggregate outstanding balance declines over
the life of the agreement as follows:
Maximum Aggregate
Period Beginning Outstanding Balance
---------------- -------------------
August 6, 2003 $50.0 million
August 6, 2004 45.0 million
Outstanding borrowings under the agreement bear interest at either the
Prime Rate or LIBOR (plus an applicable margin) at the company's option.
The effective borrowing rates, excluding the effect of SFAS No. 133,
were 4.9% for the quarter ended September 28, 2003 and 5.2% for the
quarter ended September 29, 2002. The effective borrowing rates,
excluding the effect of SFAS No. 133, were 4.9% for the nine months
ended September 28, 2003 and 5.2% for the nine months ended September
29, 2002. On September 28, 2003, the company had outstanding borrowings
under the agreement of $34.1 million. The revolving credit loans mature
on August 5, 2005.
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.
Obligations under the agreement are guaranteed by certain wholly owned
subsidiaries of the company.
The company has several additional loan obligations. The outstanding
balances related to these loans totaled approximately $1.3 million as of
September 28, 2003 and $1.4 million as of December 29, 2002. Interest
rates on these loans vary.
3. COMPREHENSIVE INCOME:
Comprehensive income consisted of the following:
Three Months Ended Nine Months Ended
(in thousands) Sept. 28, 2003 Sept. 29, 2002 Sept. 28, 2003 Sept. 29, 2002
-------------- -------------- -------------- --------------
Net income $ 839 $ 1,109 $ 2,139 $ 3,308
Other comprehensive income:
Foreign currency translation
adjustment 562 (275) 3,632 2,472
Unrealized income (losses) on
derivatives and qualified cash
flow hedges 220 (553) 84 (765)
Tax benefit (75) 163 (29) 225
------- ------- ------- -------
Total comprehensive income $ 1,546 $ 444 $ 5,826 $ 5,240
======= ======= ======= =======
10
The components of accumulated other comprehensive deficit consist of the
following:
(in thousands) September 28, 2003 December 29, 2002
------------------ -----------------
Unrealized losses on derivatives and
qualified cash flow hedges, net of tax of $413
and $441, respectively $ (800) $ (855)
Foreign currency translation adjustments (4,326) (7,958)
Minimum pension liability adjustment,
net of tax of $4,902 (9,512) (9,512)
-------- --------
Total accumulated other comprehensive deficit $(14,638) $(18,325)
======== ========
Floating-to-fixed interest rate swap agreements, designated as cash flow
hedges, hedge the company's floating rate debt and will mature at
various times through August 2007. The fair value of these contracts is
recorded in the balance sheet, with the offset to "Accumulated Other
Comprehensive Deficit," net of tax. Based on interest rates at September
28, 2003, the company expects to expense $36,000 in the next 12 months
related to derivative instruments.
4. BUSINESS SEGMENT INFORMATION:
Sylvan is a worldwide producer and distributor of products for the
mushroom industry, specializing in spawn (the equivalent of seed for
mushrooms) and spawn-related products and services, and is a major
grower of fresh mushrooms in the United States. The company has two
reportable business segments: Spawn Products, which includes
spawn-related products, services and bioproducts; and Fresh Mushrooms.
Spawn-related products include casing inoculum, nutritional supplements
and disease-control agents. During the quarter and nine months ended
September 28, 2003, the company made no changes in the basis of
segmentation or in the basis of measurement of segment profit or loss
from that reported in the December 29, 2002 financial statements.
11
(in thousands) Three Spawn Fresh Total
Months Products Mushrooms Reportable
Ended Segment Segment Segments
----- ------- ------- --------
Total revenues 2003 $16,759 $ 7,397 $24,156
2002 16,404 6,204 22,608
Intersegment revenues 2003 334 -- 334
2002 333 -- 333
Operating income 2003 2,422 488 2,910
2002 2,718 436 3,154
Nine Spawn Fresh Total
Months Products Mushrooms Reportable
(in thousands) Ended Segment Segment Segments
----- ------- ------- --------
Total revenues 2003 $48,895 $21,887 $70,782
2002 46,812 18,759 65,571
Intersegment revenues 2003 991 -- 991
2002 989 -- 989
Operating income 2003 6,610 2,013 8,623
2002 7,674 2,001 9,675
Reconciliation to Consolidated Financial Data:
Three Months Ended Nine Months Ended
(in thousands) Sept. 28, 2003 Sept. 29, 2002 Sept. 28, 2003 Sept. 29, 2002
-------------- -------------- -------------- --------------
Total revenues for reportable
segments $ 24,156 $ 22,608 $ 70,782 $ 65,571
Elimination of intersegment revenues (334) (333) (991) (989)
-------- -------- -------- --------
Total consolidated revenues $ 23,822 $ 22,275 $ 69,791 $ 64,582
======== ======== ======== ========
Total operating income for reportable
segments $ 2,910 $ 3,154 $ 8,623 $ 9,675
Unallocated corporate expenses (1,263) (934) (4,092) (3,337)
Interest expense, net (401) (490) (1,224) (1,366)
Other income (expense) 100 (3) 120 60
-------- -------- -------- --------
Consolidated income before
income taxes $ 1,346 $ 1,727 $ 3,427 $ 5,032
======== ======== ======== ========
12
5. STOCK OPTIONS:
In June 1991, the shareholders approved a stock option plan (the 1990
Plan) for employees and others who perform substantial services for the
company. In April 1999, the shareholders approved an amendment and
restatement of the 1990 Plan to provide for an increase to 1,700,000 in
the number of shares of the company's stock which are available for the
granting of options. In June 1993, the shareholders approved a stock
option plan (the 1993 Plan) for nonemployee directors of the company,
covering 100,000 shares of common stock. The company accounts for both
plans under the Accounting Principles Board Opinion No. 25, under which no
compensation cost is recognized for options granted at fair market value.
In December 2002, the Financial Accounting Standards Board issued SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and
Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition to SFAS No.
123's fair value method of accounting for stock-based compensation. While
the Statement does not amend SFAS No. 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of the Statement are applicable to all companies with
stock-based compensation. Had compensation cost for these plans been
determined in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the company's net income and earnings per share (EPS) would
have been reduced to the following pro forma amounts:
Three Months Ended Nine Months Ended
(in thousands except per share data) Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2003 2002 2003 2002
---- ---- ---- ----
Net income as reported $ 839 $ 1,109 $ 2,139 $ 3,308
Total stock-based employee
compensation determined under
fair value method for all awards (48) (91) (143) (267)
Tax benefit of fair value method 16 30 47 88
-- -- -- --
Pro forma net income $ 807 $ 1,048 $ 2,043 $ 3,129
Basic earnings per share
As reported $ 0.16 $ 0.20 $ 0.42 $ 0.60
Pro forma $ 0.16 $ 0.20 $ 0.41 $ 0.60
Diluted earnings per share
As reported $ 0.16 $ 0.19 $ 0.40 $ 0.58
Pro forma $ 0.16 $ 0.19 $ 0.40 $ 0.57
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants made in 2002: risk-free interest rates
of 3.2%; no expected dividend yields; expected lives of 8.0 years;
expected volatility of 34%.
6. CONTINGENCIES:
On September 23, 2003, the company's Sylvan Bioproducts, Inc. subsidiary
received an Administrative Order from the Borough of Kennett Square,
Pennsylvania, alleging that Sylvan Bioproducts failed to comply with
certain wastewater sampling and reporting requirements under the terms of
a Water Contribution Permit issued to the company for its facility in
Kennett Square. A fine of $105,109 was assessed by the Order. The company
believes that the requirements were fulfilled and it filed an appeal to
the Order on October 1, 2003. Discussions are expected to be undertaken
soon with the Borough and the company believes that the dispute will be
resolved in a manner that will have no material impact on the company's
financial statements or results of operations.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
SYLVAN INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS (Three Months Ended September 28, 2003 and September 29,
2002)
CONSOLIDATED REVIEW
Net Sales
(in thousands) 2003 2002 % Change
---- ---- --------
Net sales $ 23,822 $ 22,275 6.9
Net sales increased 6.9% to $23.8 million, when compared with $22.3 million for
the corresponding 2002 quarter. Net sales of the Fresh Mushrooms Segment
increased $1.2 million, or 19.2%, while net sales of the Spawn Products Segment
increased $0.4 million, or 2.2%. On average, for the third quarter of 2003, the
U.S. dollar was approximately 18% weaker, when measured against the company's
applicable foreign currencies, than for the third quarter of 2002. The weakening
had the effect of increasing sales and operating income during the 2003 quarter,
as compared with the corresponding 2002 quarter, by approximately $1.9 million
and $225,000, respectively. Overseas sales, as a percentage of net sales, were
49% in the third quarter of 2003 and 50% in the corresponding quarter of 2002.
Operating Costs and Expenses
(in thousands) 2003 2002 % Change
---- ---- --------
Cost of sales $ 15,139 $ 13,612 11.2
Selling, administration,
research and development 5,500 4,990 10.2
Depreciation 1,536 1,453 5.7
The company's cost of sales, expressed as a percentage of net sales, was 63.6%
for the third quarter of 2003, as compared with 61.1% for the third quarter of
2002. The cost of sales percentage increased in both the Fresh Mushrooms and
Spawn Products Segments, as detailed in the Business Segments presentation
below. Selling, administration, research and development expenses were $5.5
million for the September 28, 2003 quarter and $5.0 million for the September
29, 2002 quarter and were 23.1% and 22.4% of net sales, respectively.
During the third quarter of 2003, the company incurred costs of approximately
$170,000 related to the activities of the company's special committee of
independent directors that was established by the company's board in April 2003.
Approximately $70,000 of comparable costs were incurred during the third quarter
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 $167,500 during the
quarter ended September 28, 2003 from a pension plan of a former subsidiary, as
compared with a net periodic pension benefit of $37,500 for the quarter ended
September 29, 2002. This expense increase was related to poor plan asset
performance and a decrease in the plan's discount rate assumption.
Interest Expense
Net interest expense for the third quarter of 2003 decreased to $401,000 from
$490,000 for the third quarter of 2002. The effective borrowing rate for the
third quarter of 2003 was 4.5%, as compared with 5.7% for the third quarter of
2002. The company recorded interest income of $34,000 in the third quarter of
2003, as compared with $43,000 of interest expense in the third quarter of 2002,
related to its interest rate swap agreements. The
14
effective borrowing rates, excluding the effect of SFAS No. 133, were 4.9% for
the quarter ended September 28, 2003 and 5.2% for the quarter ended September
29, 2002. During the 2003 quarter, the company had $20.0 million of
variable-to-fixed interest rate swaps in place to manage interest rate risk that
increased the average borrowing rate 1.8%. During 2002, $15.0 million of swaps
increased the average borrowing rate 1.5%.
Income Tax Expense
The effective income tax rate for the third quarter of 2003 and for the
corresponding 2002 quarter was 33%.
BUSINESS SEGMENTS
Spawn Products
(in thousands) 2003 2002 % Change
---- ---- --------
Sales, including intersegment $ 16,759 $ 16,404 2.2
Operating expenses 14,337 13,686 4.8
Operating income 2,422 2,718 (10.9)
Net sales of spawn and spawn-related products increased 2.2%. 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 4.8%, with a 3.4% increase in the Americas and a 9.1% 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 2.5% and accounted
for 16.4% of Sylvan's consolidated net sales for the third quarter.
The overseas U.S. dollar-equivalent selling price was 13.3% 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 1.3% due to the loss of sales in
higher-priced territories. The selling price in the Americas decreased 7.1% 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 4.8% 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 57.0% of net sales, as compared with 55.5% for the corresponding
2002 quarter. Spawn production in overseas markets was 9.4% 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 14.5% for the
third quarter of 2003, as compared with 16.6% 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. Both
the Red Yeast Rice and dried Agaricus mushroom products experienced sales
growth. 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.
15
Fresh Mushrooms
(in thousands) 2003 2002 % Change
---- ---- --------
Sales $7,397 $6,204 19.2
Operating expenses 6,909 5,768 19.8
Operating income 488 436 11.9
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 8.6% and the average selling price per pound increased
2.4%.
The Fresh Mushrooms Segment's cost of sales was $5.6 million, or 75.4% of net
sales, for the quarter ended September 28, 2003, as compared with $4.5 million,
or 72.6%, for the 2002 third quarter. The segment's operating income for the
quarter was $488,000, or 6.6% of net sales, and was 11.9% higher than the amount
reported for the third quarter of 2002.
Quincy sold $0.9 million of ready-to-grow mushroom compost to its satellite
farms and purchased $1.8 million of high-quality mushrooms from the satellites
for immediate resale to its third-party wholesaler during the third quarter of
2003. By comparison, Quincy sold $0.4 million of ready-to-grow mushroom compost
to its satellite farms and purchased $0.7 million of high-quality mushrooms in
the third quarter of 2002.
RESULTS OF OPERATIONS (Nine Months Ended September 28, 2003 and September 29,
2002)
CONSOLIDATED REVIEW
Net Sales
(in thousands) 2003 2002 % Change
---- ---- --------
Net sales $ 69,791 $ 64,582 8.1
Net sales increased 8.1% to $69.8 million for the first nine months of 2003,
when compared with $64.6 million for the corresponding 2002 period. Net sales of
the Fresh Mushrooms Segment increased $3.1 million, or 16.7%, while net sales of
the Spawn Products Segment increased $2.1 million, or 4.4%. On average, for the
first nine months of 2003, the U.S. dollar was approximately 19% weaker, when
measured against the company's applicable foreign currencies, than for the first
nine months of 2002. The weakening had the effect of increasing sales and
operating income during the 2003 period, as compared with the corresponding 2002
period, by approximately $6.7 million and $610,000, respectively. Overseas
sales, as a percentage of net sales, were 48% in both the nine months ended
September 28, 2003 and September 29, 2002.
Operating Costs and Expenses
(in thousands) 2003 2002 % Change
---- ---- --------
Cost of sales $ 43,969 $ 38,244 15.0
Selling, administration,
research and development 16,618 15,732 5.6
Depreciation 4,673 4,268 9.5
The company's cost of sales, expressed as a percentage of net sales, was 63.0%
for the first nine months of 2003, as compared with 59.2% for the first nine
months of 2002. The cost of sales percentage increased in both the Fresh
Mushrooms and Spawn Products Segments, as detailed in the Business Segments
presentation below. Selling, administration, research and development expenses
were $16.6 million for the nine months ended
16
September 28, 2003 and $15.7 million for the nine months ended September 29,
2002 and were 23.8% and 24.4% of net sales, respectively.
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.
Interest Expense
Net interest expense for the first nine months of 2003 decreased to $1,224,000
from $1,366,000 for the corresponding period of 2002. The effective borrowing
rate for the first nine months of 2003 was 4.4%, as compared with 5.2% for the
first nine months of 2002. The company recorded interest income of $141,000 in
the 2003 period, as compared with $16,000 of interest expense in the
corresponding 2002 period, related to SFAS No. 133. The effective borrowing
rates, excluding the effect of SFAS No. 133, were 4.9% for the nine months ended
September 28, 2003 and 5.2% for the nine months ended September 29, 2002. During
the 2003 period, the company had $20.0 million of variable-to-fixed interest
rate swaps in place to manage interest rate risk that increased the average
borrowing rate 1.6%. During the 2002 period, $15.0 million of swaps increased
the average borrowing rate 1.5%.
Income Tax Expense
The effective income tax rate for both the first nine months of 2003 and for the
first nine months of 2002 was 33%.
BUSINESS SEGMENTS
Spawn Products
(in thousands) 2003 2002 % Change
---- ---- --------
Sales, including intersegment $ 48,895 $ 46,812 4.4
Operating expenses 42,285 39,138 8.0
Operating income 6,610 7,674 (13.9)
Net sales of spawn and spawn-related products increased 4.4%. 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
5.6%, with an 8.6% decrease in overseas markets and virtually no change in the
Americas. Most of the volume decrease in the overseas markets was associated
with 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 2.2% and accounted
for 16.4% of Sylvan's consolidated net sales for the nine-month period.
The overseas U.S. dollar-equivalent selling price was 17.5% 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 2.2%. The selling price in the Americas
decreased 5.8% 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.
17
Operating expenses increased 8.0% 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 57.2% of net sales, as compared with 54.0% for the
corresponding 2002 period. Spawn production in overseas markets was 13.7% 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
13.5% for the first nine months of 2003, as compared with 16.4% 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. Both the Red Yeast Rice and dried Agaricus
mushroom products experienced sales growth. 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
(in thousands) 2003 2002 % Change
---- ---- --------
Sales $ 21,887 $ 18,759 16.7
Operating expenses 19,874 16,758 18.6
Operating income 2,013 2,001 0.6
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 7.2% and the average selling price per
pound increased 0.9%.
The cost of sales in the Fresh Mushrooms Segment was $15.9 million, or 73.1% of
net sales, for the nine months ended September 28, 2003, as compared with $12.9
million, or 69.0%, for the first nine months of 2002. The segment's operating
income for the first nine months of 2003 was $2.0 million, or 9.2% of net sales,
and was 0.6% higher than the amount reported for the first nine months of 2002.
The positive performance of the company's satellite farms helped minimize the
adverse effect of the higher labor costs.
Quincy sold $2.6 million of ready-to-grow mushroom compost to its satellite
farms and purchased $5.1 million of high-quality mushrooms from the satellites
for immediate resale to its third-party wholesaler during the first nine months
of 2003. By comparison, Quincy sold $0.9 million of ready-to-grow mushroom
compost to its satellite farms and purchased $1.9 million of high-quality
mushrooms in the first nine months of 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended September
28, 2003 was $7.1 million, as compared with $10.7 million for the corresponding
period of 2002. During the first quarter of 2002, the company reduced "Other
Current Assets" by approximately $2.2 million due to the release of cash that
had been collateralized to support a loan from a European bank. This loan was
repaid in the first quarter of 2002. Also during the first nine months of 2002,
the company increased accounts payable and accrued liabilities by approximately
$1.0 million primarily related to the construction of satellite farms at Quincy
and liabilities recorded in connection with variable-to-fixed interest rate
swaps. No corresponding increase occurred in the first nine months of 2003.
Cash used by investing activities was $2.5 million for the nine months ended
September 28, 2003, as compared with $4.8 million used during the corresponding
period of 2002. During the first nine months of 2003, approximately $0.4 million
was expended on growth opportunities, primarily for the satellite farms at
Quincy.
18
Total capital expenditures in 2003 are not expected to exceed $3.5 million, with
additional expenditures as required for any acquisitions or new initiatives. The
company routinely assesses its requirements for additional capital investments
and 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.
Available credit under the company's revolving credit arrangement was $15.9
million as of September 28, 2003. Term and revolving credit decreased by $4.7
million during the nine months ended September 28, 2003, as compared with a
decrease of $5.8 million during the corresponding nine-month period of 2002. The
larger reduction in 2002 was related to the repayment of a European bank loan
supported by the cash deposit mentioned earlier.
The company did not purchase any shares of Sylvan common stock during the first
nine months of 2003. The share purchase program was suspended due to the
continued activity of the special committee of Sylvan's board of directors.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued Financial Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies the
requirements of SFAS No. 5, "Accounting for Contingencies," relating to a
guarantor's accounting for, and disclosure of, the issuance of certain types of
guarantees. FIN 45 requires that upon issuance of a guarantee, the guarantor
must recognize a liability for the fair value of the obligation it assumes under
that guarantee. FIN 45 also requires enhanced disclosures in the company's
interim and annual filings. The provisions of FIN 45 are effective for financial
statements issued or modified after December 31, 2002. The disclosure
requirements were effective for financial statements of both interim and fiscal
years after December 15, 2002. The adoption of FIN 45 did not have a material
impact on the company's financial statements or results of operations.
In January 2003, the Financial Accounting Standards Board issued FIN No. 46,
"Consolidation of Variable Interest Entities." FIN 46 expands upon and
strengthens existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. It requires that companies determine whether a non-consolidated
entity is a variable interest entity, as defined by FIN 46, and which company is
the primary beneficiary of the variable interest entity's activities. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003 and apply to older entities in
the first fiscal year or interim period beginning after December 15, 2003.
Certain of the disclosure requirements apply in all financial statements issued
after January 31, 2003, regardless of when the variable interest entity was
established. The company is currently evaluating the impact of adopting this
interpretation.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
except in certain instances, and for hedging relationships designated after June
30, 2003. In addition, except in those certain instances, all provisions of this
Statement should be applied prospectively. The application of SFAS No. 149 did
not have a material effect on the company's financial statements or results of
operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." The provisions
of SFAS No. 150 require issuers to classify as liabilities, or assets in some
circumstances, certain classes of freestanding financial instruments that embody
obligations for the issuer. The provisions of SFAS No. 150 are effective for
financial instruments entered into or modified after
19
May 31, 2003, and otherwise shall be effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did
not have a material effect on the company's financial statements or results of
operations.
CRITICAL ACCOUNTING POLICIES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make judgments, estimates,
and assumptions regarding uncertainties that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Areas of uncertainty that require
judgments, estimates, and assumptions include the accounting for derivatives,
environmental matters, the testing of goodwill and other intangible assets for
impairment, pensions and other postretirement benefits, and tax matters.
Management uses historical experience and all available information to make
these judgments and estimates, and actual results will differ from those
estimates and assumptions that are used to prepare the company's financial
statements. Despite these inherent limitations, management believes that
Management's Discussion and Analysis (MD&A) and the financial statements and
related footnotes provide a fair presentation. A discussion of the judgments and
uncertainties associated with accounting for derivatives can be found in the
Market Risks section of the MD&A included in the company's most recent Form
10-K, as amended.
A summary of the company's significant accounting policies is included in Note 1
to the Consolidated Financial Statements, included with the Form 10-K, as
amended, filed with the Securities and Exchange Commission for the year ended
December 29, 2002. Management believes that the application of these policies on
a consistent basis enables the company to provide the users of the financial
statements with useful and reliable information about the company's operating
results and financial condition.
In addition to the significant accounting policies described in Note 1 to the
Consolidated Financial Statements, the company believes the following discussion
addresses its critical accounting policies:
The company recognizes revenue when the title and risk of loss of the goods pass
to the customer at the time of shipment.
The company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of customers to make required payments. If the
financial condition of the company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
The company writes down its inventory to the lower of cost (first-in, first-out
method) or market, which includes an estimate for obsolete or excess inventory
based upon assumptions about future demand and market conditions.
The company monitors the recoverability of the carrying value of its long-lived
assets. An impairment charge would be recognized when the expected net
undiscounted future cash flows from an asset's use (including any proceeds from
disposition) are less than the asset's carrying value, and the asset's carrying
value exceeds its fair value.
Goodwill and indefinitely-lived intangible assets are reviewed annually for
impairment, or more frequently if impairment indicators arise. The company
performs this annual impairment test in the fourth quarter of each fiscal year
and will perform the 2003 annual impairment test in the fourth quarter of 2003.
The goodwill impairment test requires a comparison of the fair value of the
company's reporting unit that has goodwill associated with its operations with
its carrying amount, including goodwill. If this comparison reflects impairment,
then the loss would be measured as the excess of recorded goodwill over its
implied fair value. Implied fair value is the excess of the fair value of
reporting unit over the fair value of all recognized and unrecognized assets and
liabilities.
20
Other areas of significant judgments and estimates include the liabilities and
expenses for pensions and other postretirement benefits. These amounts are
determined using actuarial methodologies and incorporate significant
assumptions, including the rate used to discount the future estimated liability
and the long-term rate of return on plan assets. The rate used to discount
future estimated liabilities is determined considering the rates available at
year-end on debt instruments that could be used to settle the obligations. The
long-term rate of return is estimated by considering historical returns and
expected returns on current and projected asset allocations and is generally
applied to a five-year average market value of assets. Effective October 31,
2002, Sylvan reduced the assumption for the expected long-term return on plan
assets to 8.5% from 9.0%.
Sylvan is a global company and records an estimated liability for income taxes
based on what it determines will likely be paid in the various tax jurisdictions
in which it operates. Management uses its best judgment in the determination of
these amounts; however, the liabilities ultimately realized and paid are
dependent upon various matters and may differ from the amounts recorded. An
adjustment to the estimated liability would be recorded through income in the
period in which it becomes probable that the amount of the actual liability
differs from the amount recorded.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
References are made in this report to expectations regarding capital
expenditures, and future cash availability and the future performance of the
company, in general. These "forward-looking statements" are based on currently
available competitive, financial and economic data and the company's operating
plans, but they are inherently uncertain. The outcome of events could prove
significantly different from what is expected, depending upon such factors as
the presentment of strategically attractive acquisition opportunities or new
business initiatives, mushroom growing process inconsistencies, specific pricing
or product initiatives of the company's spawn business competitors, competitive
conditions in the mushroom market in general, changes in currency and exchange
risks, a loss of a major customer, fluctuations in the values of the assets in
the defined benefit plan of a former subsidiary of the company, or changes in a
specific country's or region's political or economic conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information presented under this item in the company's Form 10-K report for
the fiscal year ended December 29, 2002, as amended, has not changed materially.
Information relating to the sensitivity to foreign currency exchange rate
changes of the company's firmly committed sales transactions, in addition to
what is presented in Item 2 of this filing, is omitted because it is an
immaterial portion of total sales.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Sylvan's chief executive officer and chief financial officer evaluated the
company's disclosure controls and procedures as of November 6, 2003, and they
concluded that these controls and procedures are effective.
(b) Changes in Internal Controls
There are no significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to November 6, 2003.
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 23, 2003, the company's Sylvan Bioproducts, Inc. subsidiary
received an administrative order from the Borough of Kennett Square,
Pennsylvania, alleging that Sylvan Bioproducts failed to comply with certain
wastewater sampling and reporting requirements under the terms of a water
contribution permit issued to the company for its facility in Kennett Square. A
fine of $105,109 was assessed by the order. The company believes that the
requirements were fulfilled and it filed an appeal to the Order on October 1,
2003. Discussions are expected to be undertaken soon with the Borough and the
company believes that the dispute will be resolved in a manner that will have no
material impact on the company's financial statements or results of operations.
There are no other pending legal proceedings to which Sylvan or any of its
subsidiaries is a party, or of which any of their property is subject, other
than ordinary, routine litigation incidental to their respective businesses.
ITEM 5. OTHER INFORMATION
INDICATIONS OF INTEREST TO ACQUIRE SYLVAN COMMON SHARES
In June 2003, Sylvan announced the withdrawal of a nonbinding indication of
interest to acquire shares of its common stock that was submitted by a group of
senior officers and private investors in April 2003. A special committee of
Sylvan's independent directors was established by the board of directors to
evaluate the indication of interest and, at the time of the withdrawal, the
company announced that the committee was going to continue to evaluate
alternatives for Sylvan and its shareholders, including solicitations of
interest from other parties. The committee is continuing these evaluations.
ANNUAL MEETING OF SHAREHOLDERS
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.
Sylvan's bylaws require that shareholders who wish to make a proposal or
nominate directors give written notice to the company secretary not less than 30
days nor more than 60 days prior to the date of the meeting. The Nevada
Corporation Law, the Securities and Exchange Commission and Sylvan's bylaws set
other requirements that shareholders must meet in order to have their proposals
considered at the annual meeting or included in company proxy materials. If you
would like further information on these requirements or about submitting
shareholder proposals, please contact Sylvan's company secretary.
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31 Certifications pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934
32 Certifications pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
During the three-month period ended September 28, 2003, Sylvan
furnished a current report on August 7, 2003, containing a press
release reporting earnings for the second quarter ended June 29,
2003, and providing a financial outlook.
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: November 12, 2003 SYLVAN INC.
-------------------
By: /s/ DONALD A. SMITH
-------------------------------
Donald A. Smith
Chief Financial Officer
By: /s/ FRED Y. BENNITT
-------------------------------
Fred Y. Bennitt
Secretary/Treasurer
23
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- ----------- -----
31 Rule 13a-14(a) Certification of Dennis C. Zensen 25
31 Rule 13a-14(a) Certification of Donald A. Smith 26
32 Section 1350 Certification of Dennis C. Zensen 27
32 Section 1350 Certification of Donald A. Smith 28
24