Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-12599
VITA FOOD PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 36-3171548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2222 WEST LAKE STREET, CHICAGO, ILLINOIS 60612
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (312) 738-4500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE & CHICAGO STOCK EXCHANGE
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes | | No |X|
The aggregate market value of common stock held by non-affiliates of the
registrant as of February 27, 2004 was $11,546,202 and as of June 30, 2003 was
$7,235,358.
The number of shares outstanding of the registrant's common stock as of February
27, 2004 was 3,842,616.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held May 19, 2004 are
incorporated by reference in Part III.
1
PART I
ITEM 1. BUSINESS.
INTRODUCTION
Vita Food Products, Inc. (the "Company") has been engaged in the sale of
specialty food products under the VITA brand name for over 70 years. The Company
believes that its long history of producing and marketing quality products has
created a strong recognition of the VITA brand name among consumers and has
enabled the Company to build an extensive national distribution network of
established food brokers for the sale of its products to supermarket chains and
wholesale clubs (collectively "Supermarkets") and to institutional/food service
operations, such as restaurant chains, hotels, country clubs, cruise lines and
other bulk purchasers (collectively "Institutional Purchasers"). The Company
believes that "VITA" with its accompanying logo is the most widely recognized,
and the only nationally recognized, brand name in herring products and cured and
smoked salmon products. The Company is one of the leading processors of herring
products and cured and smoked salmon products in the United States and has been
producing and selling herring products for over 70 years and cured and smoked
salmon products for over 30 years. The Company's products include a variety of
cuts of pickled herring in cream and wine based sauces, and lox and nova salmon.
The Company markets other complementary specialty food products, such as cream
cheese with salmon, shrimp cocktail, horseradish, cocktail, tartar sauces and
salad dressings, all of which it purchases from third party food producers and
markets under the VITA brand name pursuant to co-packing arrangements, with the
exception of the salad dressing products, which are now produced by the
Company's subsidiary. Historically, the Company has increased its sales through
acquisitions that have enabled the Company to add new product lines and expand
its existing product lines. The Company markets and, in some cases, also
produces related specialty food products under other brand names, some of which
are recognized regional brand names, in certain regions of the country, that
have been licensed to the Company.
The Company significantly expanded its line of specialty food products in
2002 and 2001 with the acquisitions of The Halifax Group, Inc. ("Halifax") and
the Virginia Honey Company, Inc. ("Virginia Honey") respectively. The Company
has formed Vita Specialty Foods, Inc. as a wholly owned subsidiary and a
separate business unit (the "Vita Specialty Foods Segment") to consolidate the
operations of Virginia Honey and Halifax (the Company's operations conducted
separately from the operations of the Vita Specialty Foods Segment are referred
to herein as the "Vita Segment"). Virginia Honey specializes in processing and
marketing, under the VIRGINIA BRAND name, honey, salad dressings, sauces, jams
and jellies and gift basket products. Halifax produces and markets, under its
Oak Hill Farms(R) brand name a line of salad dressings, gourmet sauces, and
beverages and, under its Scorned Woman(R) brand name, a line of hot sauce based
products. In addition, through its acquisition of Halifax, the Company has brand
name product licensing agreements with JIM BEAM(R), DRAMBUIE(R), HBO(R) and
ALLIED DOMECQ for the brand names KAHLUA(R) and COURVOISIER(R), under which the
Company produces and markets various cooking sauces, pasta sauces, steak sauces,
marinades and other gourmet related products. As a result of these acquisitions,
the Company is leveraging its sales and distribution network to provide national
exposure to the products of the Vita Specialty Foods Segment. The Company also
expects to introduce new products with a goal of enhancing the aforementioned
brand names under VITA and the Vita Specialty Foods Segment.
COMPANY BACKGROUND
The Company was originally incorporated as Vita Food Products, Inc. in
1928. In 1968, Brown and Williamson Tobacco Company, a British company,
purchased the Company. The Company was then acquired by Dean Foods Company in
1978. In 1982, Mr. Stephen D. Rubin and Mr. Clark L. Feldman, on behalf of an
investor group (the "Investors"), negotiated the acquisition of the Company from
Dean Foods Company and became the Company's largest shareholders. On September
20, 1996, the Company reincorporated in the State of Nevada through a merger of
Vita Food Products, Inc., an Illinois corporation ("Vita-Illinois"), and V-F
Acquisition, Inc., an Illinois corporation that was the largest shareholder of
Vita-Illinois, into the Company, a Nevada corporation formed for the purpose of
effecting the reincorporation. On January 23, 1997, the Company completed an
initial public offering of shares of its common stock, par value $.01 per share
("Common Stock"), and redeemable common stock purchase warrants, which expired
in 2002, resulting in net proceeds before expenses of approximately $4.1
million.
Effective July 1, 2001 the Company acquired 100% of the outstanding shares
of capital stock of Virginia Honey. The results of Virginia Honey have been
included in the Company's consolidated financial statements since the effective
date. Virginia Honey was established in 1962 as a small beekeeping
2
business. Since then, Virginia Honey expanded its product offerings to include
salad dressings and by 1998 the company had grown to include two production
facilities, with one used to pack honey products and the second to process and
pack salad dressings, sauces and marinades.
Effective November 1, 2002 the Company acquired 100% of the outstanding
shares of capital stock of Halifax. The results of Halifax have been included in
the Company's consolidated financial statements since the effective date as part
of the Vita Specialty Foods Segment. Halifax specialized in product development
and marketing of its wide range of food products. The product list includes
salad dressings, barbeque sauce, steak sauce, gourmet sauces, hot sauces and
gift basket related items. In addition, Halifax developed and marketed food
products through licensing agreements with well-recognized brands such as JIM
BEAM(R), HBO(R) (based on the restaurateur ARTIE BUCCO(TM) in THE SOPRANO'S(R)),
and DRAMBUIE(R). Halifax operations were run in a production facility and
warehouse in Georgia, until late in 2003 when operations were moved to the
Company's Martinsburg, West Virginia plant.
STRATEGY
The Company's long-term strategy is to (i) focus on acquisitions; (ii)
capitalize on the goodwill associated with the Vita brand name; and (iii)
capitalize on the strength of the Company's national distribution network to
increase its market share for its existing products and introduce and market new
specialty food products, which will be sold under the VITA, VIRGINIA BRAND, OAK
HILL FARMS and other brand names owned, purchased or licensed from third
parties. The Company intends to implement its growth strategy through acquiring,
or entering into joint ventures with, companies producing complementary
specialty food products, introducing and developing new products and increasing
its marketing efforts.
PRODUCTS
The Company's products include herring products, cured and smoked salmon
products, complementary products, honey products, salad dressing products and a
variety of related ready to eat specialty food products. The Company's
refrigerated products can be located in the dairy department, meat and fish
department or deli department of Supermarkets. The Company also sells products
in the grocery sections of Supermarkets. Many of the Company's products are also
sold in bulk to Institutional Purchasers. The Company believes that, although
the market for herring products has been and is expected to remain constant, the
market for salmon products and certain other specialty products is increasing.
Consumption of fresh and frozen seafood in the United States has been
increasing, especially consumption of salmon. All of the Company's salmon,
herring and honey products, and most of its salad dressings, complementary and
other specialty food products are kosher and receive the symbol of certification
from the Orthodox Union. The Company also receives the symbol of certification
for the use of many of its products for Passover from the Orthodox Union. The
Company believes that the market for kosher foods will grow in the next few
years and that this represents a significant opportunity for the Company. The
increase in consumption of kosher food products is at least partially the result
of (i) the perception by certain consumers who are not bound by Judaism's
religious dietary restrictions that kosher certification indicates a superior
product, and (ii) an increase in the U.S. population of members of other
religious groups such as Islam, Hinduism and some branches of Christianity that
observe dietary restrictions similar to many Jewish people.
CERTAIN FINANCIAL INFORMATION
See Note 12 in "Item 8. Financial Statements" for information regarding
revenues from external customers, profit and total assets of each of the
Company's business segments.
VITA SEAFOOD SEGMENT PRODUCTS
HERRING
The Company, generally using the best available grade of ocean herring,
cures the herring and mixes the cured herring with a variety of high quality
spices, wines and other ingredients according to the Company's proprietary
formulations to produce a number of herring products. These products are then
either packaged in vacuum-sealed glass jars to preserve flavor for sale to
Supermarkets or packaged in bulk containers for sale to Institutional
Purchasers. Herring is a traditional Eastern European and Scandinavian staple,
being one of the most widely consumed fish in the world. In the United States,
however, herring is more of a specialty product that is served at parties or
holiday gatherings. Herring products are often served as appetizers, part of a
buffet, between-meal snacks or an ingredient in salads. The Company's most
3
popular herring products are its "VITA Herring Party Snacks" and "VITA Herring
in Sour Cream." The Company also sells a variety of other herring products under
the VITA and ELF brand names. Sales of herring products represented 28%, 32% and
42% of total consolidated sales revenues for the years ending December 31, 2003,
2002 and 2001 respectively.
SALMON
The Company, using only premium and quality grades of salmon from
Southeastern Alaska, Canada, Chile, and other regions, cures, smokes, and slices
the salmon for most of its salmon products. The Company's retail salmon products
are packaged and sold either refrigerated or frozen to Supermarkets. The
institutional cured and smoked salmon products are packaged in bulk containers,
including three-pound trays, and sold refrigerated or frozen to Institutional
Purchasers. The Company introduced a new line of premium smoked Atlantic Salmon
products, under the "ATLANTIC BAY CLASSIC" name with the VITA logo, in the
fourth quarter of 2001. This product line is processed in Chile by a third party
pursuant to a co-packing arrangement. Salmon consumption has been increasing
over the past five years and salmon now represents one of the most popular types
of seafood consumed in the United States. The Company's salmon products are
generally served as part of buffets at parties, particularly during the
Christmas holiday season, or as a traditional brunch item with bagels. The
salmon products are also served as appetizers at formal parties and are being
more frequently used as light meals. The Company's salmon products include "VITA
Lox Salmon," "VITA Nova Salmon," and "VITA Peppered Salmon," "Atlantic Bay
Classic Salmon," "VITA Salmon Burger," "VITA Marinated Salmon," and "VITA Salmon
Spread". Sales of salmon products represented 24%, 30% and 35% of total
consolidated sales revenues for the years ending December 31, 2003, 2002 and
2001 respectively.
COMPLEMENTARY PRODUCTS
The Company sells a number of spreads and condiments, including
horseradish products, cream cheese with smoked salmon, cocktail and tartar
sauces, and shrimp cocktail products. These products are used as appetizers,
snacks, and condiments to accompany light meals and holiday trays. These
products are marketed by the Company under the VITA brand name, but produced by
third parties pursuant to co-packing arrangements.
VITA SPECIALTY FOODS SEGMENT PRODUCTS
SALAD DRESSINGS
The Company manufactures and markets three premium lines of salad
dressings. One line is under the VIRGINIA BRAND name and is sold in the grocery
section. The second line is under the OAK HILL FARMS name and is also sold in
the grocery section. The third line, which has been developed since the
acquisition of Virginia Honey, is under the VITA brand name and is sold as
refrigerated. All salad dressing flavors feature the finest ingredients
available and most contain the ingredient Vidalia(R) Onion. While all of the
dressings boast premium quality and taste, some also feature no cholesterol, low
fat, low carbohydrates, and low calories. The Company's customers are mainly
Supermarkets. Sales of salad dressings represented 21%, 19% and 9% of total
consolidated sales revenues for the years ending December 31, 2003, 2002 and
2001 respectively.
HONEY
Virginia Honey, followed by the Company, have been packing and marketing
Pure, Grade "A" honey under the VIRGINIA BRAND name since 1962. The honey is
available in several varieties and blends, including Clover, Wildflower, Orange
Blossom, and Acacia. Each variety is available in many sizes ranging from 6oz
mugs to 55-gallon drums used for food service. The Company's customers include
Supermarkets, Institutional Purchasers, bakeries and major food processors.
SPECIALTY PRODUCTS
The Company manufactures and sells marinades, steak sauce, hot sauces,
pasta sauce and other gourmet cooking sauces. These products are marketed by the
Company under the OAK HILL FARMS and
4
SCORNED WOMAN brand names and under licensing agreements from JIM BEAM(R),
DRAMBUIE(R), HBO(R), KAHLUA(R) and COURVOISIER(R).
In addition, the Company sells a wide array of other products including
marinades, steak sauce, hot sauces, molasses, baking mixes, syrups, condiments,
cider, mustard, jams, jellies, and preserves. These products are marketed by the
Company under the VIRGINIA BRAND name, but produced by third parties pursuant to
co-packing arrangements.
NEWER PRODUCTS
The Company's newer products are those being introduced currently and
during the past year and are developed by the Company, acquired through
acquisitions of other companies, or marketed under co-packing arrangements or
distribution agreements.
The Company has expanded the ARTIE BUCCO(TM) line of products, based on
the restaurateur in the HBO(R) television series, THE SOPRANOS(R), by adding a
spicy marinara sauce, barbeque and steak sauces and the JIM BEAM(R) line of
products to include four additional flavored marinades. The products were made
available during 2003 and are being distributed to Supermarkets and other
outlets.
The Company signed a licensing agreement in 2003 with Allied Domecq to
manufacture and distribute a new line of KAHLUA(R) and COURVOISIER(R) branded
sauces and flavored beverage concentrates. The products will be made available
during the second quarter of 2004 to gourmet stores and other specialty outlets.
The Company has capitalized on its national distribution network and the
strong recognition of the VITA brand name to generate sales of these products.
In order to introduce these products, the Company has incurred costs for
development and distribution, which are significant relative to sales levels at
the time of introduction. It is expected that as sales of these products grow,
the development and distribution costs will decline on a relative basis.
PRODUCT DISTRIBUTION AND SALES
The Company's products, under both segments, are currently sold through a
national distribution network of approximately 60 established retail and
institutional/food service brokers. The Company believes that it is the only
processor of herring products and cured and smoked salmon products that has
established such an extensive national distribution network. The Company
believes it has been successful in developing this network for a number of
reasons, including the recognition of the VITA brand name and the Company's
reputation for producing quality products. The Company has also been able to
develop and strengthen its distribution network by providing adequate shelf
space for its products. The Company's current marketing efforts and its
long-term relationship with many of the food brokers has also contributed to the
strength of this network. The Company, through its marketing efforts, attempts
to maintain good relationships with the Supermarkets and Institutional
Purchasers that purchase its products. The Company believes that its national
distribution network has, in turn, helped strengthen the VITA brand name and has
been an important factor in the Company's ability to introduce new products into
the marketplace and is an important component of its acquisition strategy.
The Company's regional sales managers oversee its national distribution
network. The Company employs full-time regional sales managers who maintain
contact with the food brokers in their region and monitor their performance. The
regional sales managers also assist the food brokers in their selling efforts
by, among other things, accompanying the food brokers on local sales calls. The
Company believes that it is one of the few companies in its market niche to
employ regional sales managers and that the presence of the regional sales
managers has solidified the Company's relationship with its national
distribution network.
The Company enters into an agreement with each food broker, which grants
the food broker an exclusive territory in which to sell its products and sets
forth the amount of commissions to be paid on such sales by the Company. Such
agreements do not permit the Company to make sales directly to Supermarkets
located in a food broker's exclusive territory unless the Company pays the food
broker the commission, which the food broker would have earned. The agreements
are terminable by either party upon 30 days' notice. The Company believes such
terms are standard in the Company's industry. The food brokers sell the
Company's products in both the retail and institutional/food service markets.
The retail market, consisting of
5
Supermarkets, has generally accounted for approximately 91% of the Company's net
sales while Institutional Purchasers have accounted for the remaining 9% of net
sales.
In addition to the Company's four facilities, the Company also stores and
distributes its products through over 15 warehouse facilities owned by third
parties, which are located throughout the United States.
CUSTOMERS
The Company's customers include large regional supermarket chains,
wholesale clubs and gourmet shops throughout the country and in Canada and
Mexico. The Company's products sold under the VITA and VIRGINIA BRAND names are
particularly well known on the eastern seaboard.
The Company's two largest customers represented 19% and 13% of its net
sales in 2003, 19% and 12% in 2002 and 12% and 9% in 2001, respectively. The
Company does not have a long-term contractual relationship with either customer.
The Company believes the loss of either of these customers would have a material
adverse affect on the Company's business, financial condition and results of
operations. To this point, during 2003, Vita seafood's largest customer
discontinued a Vita seafood product resulting in a material impact to the
Company's financial results for the year. However, the Company is taking steps
to recover this business. The Company believes that its present working
relationships with these customers that have been built up over time, are likely
to continue.
The Company is aware that its customers are continually reviewing their
purchasing decisions which may result in such customers changing their current
orders from higher margin to lower margin products or reducing the amount of a
product or products purchased. Any material change in orders or reduction in the
amount of a product or products purchased by one or more significant customers
could adversely affect the Company's business, financial condition and results
of operations.
FOREIGN SALES
The Company had sales to foreign countries totaling $1,658,000 during
2003.
PRODUCT RETURN POLICY
The Vita seafood segment of the Company guarantees the sale of most of its
products sold in Supermarkets, excluding warehouse clubs, which sales represent
approximately 72% of that segment's sales. This guarantee helps ensure that
consumers receive fresh products. Under the guarantee, products not sold before
the expiration date are either returned to the Company through its food brokers
or are disposed of by the Supermarkets or food distributor. A credit is then
issued to the Supermarket or food distributor. The Company provides a reserve
that is recorded concurrently with the sale. The Company believes, based on its
historical return rates, which have been fairly consistent over the past several
years, that this reserve is adequate to recognize the cost of all foreseeable
future product return credits associated with previously recognized revenues.
PRODUCTION
SUPPLIERS
The Company relies on outside suppliers for its requirements in producing
its herring, salmon, honey, salad dressings, cooking sauces and other products.
The Company previously purchased most of its herring from one specialty herring
harvester and processor (the "Supplier") located in Canada, pursuant to a supply
agreement. Under the agreement, the Supplier had the option to supply 90% of the
Company's annual requirements for herring, provided it sold the herring at the
same prices which the Company would pay if it purchased herring elsewhere. The
Supplier guaranteed the first priority of supply of herring to the Company, in
an amount necessary to satisfy the Company's requirements. The agreement was
terminated in 2002, but has not changed the Company's decades-long relationship
with the Supplier, as the Company has been purchasing herring from the Supplier
since the Company began operations over 70 years ago. The absence of an
agreement has not impacted the Company, since the Company continues to buy from
the Supplier at competitive prices and the Company has established other sources
of supply it believes will be adequate in the event the Supplier ceases to offer
herring at competitive prices. The Company currently
6
purchases its other raw materials and co-packed products from a number of
sources and the Company believes that there are other suppliers from which the
Company could meet its requirements, if necessary.
QUALITY CONTROL
The Company believes that it was one of the first processors of herring
products and cured and smoked salmon products to institute quality control
procedures and that its quality control procedures are among the most stringent
in this market. The Company has six full-time employees in its Quality Control
Departments. The primary responsibility of these employees is to ensure the
quality of all its products by overseeing the production process and by
frequently testing the consistency of the products as they are produced. In
addition, the Company is using certain high-tech equipment in its production
process dedicated solely to quality control purposes that the Company believes
gives it a competitive advantage. The products produced through co-packing
arrangements are subject to both the quality control procedures of the
co-packing company and the same frequent product testing that is required of the
Company's products under its quality control procedures.
COMPETITION
The market for the Company's products is highly competitive. The Company
believes that consumers choose herring products, salmon products, honey
products, salad dressing products as well as its other specialty products based
primarily on product quality and price. Although the Company's competitors for
herring and salmon products are generally small regional food processors and
producers, certain of the Company's competitors may have greater financial and
other resources than the Company and may offer lower prices on comparable
products. Since a key competitive factor among producers of cured and smoked
salmon products and herring products is price, even smaller regional companies
may be able to compete effectively against the Company due to reduced shipping
costs. While the Company believes its prices are competitive for the quality
level of its products, the Company relies primarily on the recognition of the
VITA brand name, its reputation for selling quality products, and the strength
of its distribution network. The Company's main competitors in the herring
product and cured and smoked salmon product market are Lascco, Mama's and
Nathan's, among others. The Company believes it is the only independent company
with national distribution capabilities in this market. In the honey products
market the Company's main competitors are Dutch Gold Honey and Sioux Bee Honey.
The Company recognizes that the salad dressing market is very competitive and
there are large companies such as Kraft Foods, Inc. in this market. However, the
Company believes that there is a niche with the salad dressing products the
Company offers. Most of the salad dressings are based on the Vidalia(R) Onion as
an ingredient. The Vidalia(R) Onion ingredient, couplED with the Company's
proprietary formulations, have created what the Company believes are unique
products.
ENVIRONMENTAL MATTERS
In the ordinary course of the Company's production process, at the Chicago
Illinois facility, spillage and cleaning results in a high concentration of
sugars and vinegars, which create Biological Oxygen Demands ("BODs") as well as
fats, oils and greases ("FOGs"), both of which enter the waste water treatment
system. The Company is assessed a user charge by the Metropolitan Water
Reclamation District (the "District"), based in part on the costs of treating
this waste water. If the level of FOGs entering the wastewater treatment system
exceeds a specified level over a specified period of time, the District,
following certain procedural requirements, has the authority to fine the Company
or to temporarily close the Company's production facility. The District has not
initiated or threatened to initiate proceedings against the Company for
violating specified levels for FOGs.
INTELLECTUAL PROPERTY
Trademarks and trade names are of critical importance to producers of food
products. A recognized trademark or trade name allows the consumer to
immediately identify the source of a product, even if the product is new to the
marketplace.
VITA SEAFOOD SEGMENT
The Company owns the federally registered trademark "VITA" (with
accompanying design). The Company believes that this mark is widely recognized,
and provides immediate identification of the source of its products to
consumers. This recognition is the basis for the Company's ability to maintain a
significant share of the national market for refrigerated herring products and
cured and smoked salmon products. The
7
Company believes the "VITA" brand name and trademark has a substantial amount of
goodwill associated with it. The Company believes the VITA trademark and its
accompanying design are critical to its ability to market new products and to
its marketing strategy in general.
The Company has also licensed the "ELF" brand name, of herring products,
which the Company believes has widespread consumer recognition in the Midwest
region of the country. The Company obtained all of Lyon Food's rights to the
"ELF" trademark in connection with herring products from Food Marketing Corp.
pursuant to a letter agreement (the "Letter Agreement"). Ownership of the "ELF"
trademark originally belonged to Food Marketing Corp. and was transferred to
SuperValu, Inc., which affirmed Lyon Food's right to use the mark as set forth
in the Letter Agreement and consented to the Company's right to use the
trademark in connection with smoked fish products. The Letter Agreement is
terminable upon six months notice to the Company. The Company also sells, under
a new product line of smoked Atlantic Salmon, "ATLANTIC BAY CLASSIC." The
Company has applied for a registered federal trademark for "ATLANTIC BAY
CLASSIC."
VITA SPECIALTY FOODS SEGMENT
Through its acquisitions of Virginia Honey and Halifax, the Company also
acquired the federally registered trademarks "VIRGINIA BRAND", "OAK HILL FARMS"
and "SCORNED WOMAN". In addition, the Company is now producing and marketing
products under various third-party licensing agreements. The Company believes
that the brand names of JIM BEAM(R), DRAMBUIE(R), KAHLUA(R), COURVOISIER(R) and
the recognition brought to the ARTIE BUCCO(TM) food product line from the HBO(R)
television series THE SOPRANOS(R) can attract consumer attention in a highly
competitive marketplace. The Company believes these licensing agreements can
provide opportunities within the Company's national sales and distribution
network to add significant sales growth. The Company plans to explore the use of
additional brand names through third-party licensing agreements as part of its
overall strategy. The Company is not aware of any names or marks, which infringe
any of those the Company uses. Although the Company sells products under a
number of other brand and trade names, such other brand or trade names are not
material to the Company's marketing strategy. The Company also uses various
recipes and proprietary formulations in its products, which it maintains as
trade secrets. The Company does not believe its business is otherwise dependent
upon any patent, license, trademark, service mark or copyright.
PRODUCT LIABILITY INSURANCE
The Company currently maintains product liability insurance for its
products with limits of $10,000,000 per occurrence and $11,000,000 in the
aggregate, per annum for its operations. There can be no assurance that the
Company's insurance will be adequate to cover future product liability claims,
or that the Company will be able to maintain adequate product liability
insurance at commercially reasonable rates.
EMPLOYEES
At December 31, 2003, the Company had 170 full-time employees.
Additionally, up to 40 workers are hired on a temporary basis each year to meet
seasonal production demands. At the Chicago Illinois plant, except for
supervisors, all production employees are represented by the Local 546 United
Food & Commercial Workers, International Union and maintenance employees are
represented by the Local 399 International Union of Operating Engineers. The
Company has not experienced any work stoppages since the Company was acquired by
the Investors in 1982. The Company considers its relations with its employees to
be good.
GOVERNMENT REGULATION
The manufacture, processing, packaging, storage, distribution and labeling
of food products are subject to extensive federal and state laws and
regulations. In the United States, the Company's business is subject to
regulation by the Food and Drug Administration (the "FDA"). Applicable statutes
and regulations governing food products include "standards of identity" for the
content of specific types of foods, nutritional labeling and serving size
requirements. The Company believes that its current products satisfy, and its
new products will satisfy, all applicable regulations and that all of the
ingredients used in its products are "generally recognized as safe" by the FDA
for the intended purposes for which they will be used.
8
Vita Specialty Foods, operations and production facility, from which such
operations are conducted, are under license by the Department of Alcohol,
Tobacco and Firearms (the "ATF"), subject to extensive federal laws and
regulations based on Vita Specialty Foods' use of alcohol as an ingredient in a
number of its food products. The Company believes that its current products and
processes and reporting requirements satisfy all applicable regulations set
forth by ATF and its licensing provisions.
SEASONALITY
See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Seasonality; Quarterly Results."
ITEM 2. PROPERTIES.
The Company produces, packages, stores, and distributes its herring and
salmon products at the Company-owned facility located in Chicago, Illinois. The
Company's facility is located on 125,600 square feet of land. The facility
contains approximately 82,200 square feet of space, including approximately
65,000 square feet of production space, approximately 13,900 square feet of
refrigerated storage space, and approximately 3,300 square feet of office space.
LaSalle National Bank of Chicago has a mortgage on this facility.
The Company produces, packages, stores, and distributes its VITA and
VIRGINIA BRAND salad dressing products and its OAK HILL FARMS, JIM BEAM(R)
Brand, DRAMBUIE(R) Brand, ARTIE BUCCO(TM) Brand and SCORNED WOMAN Brand of
products ranging from salad dressing, cooking sauces, pasta sauces, hot sauces
and beverage products at a leased facility located in Martinsburg, West
Virginia. The Company's facility is located on 8.75 acres of land. The facility
contains approximately 68,000 square feet of space, including approximately
62,300 square feet of production space, and approximately 5,700 square feet of
office space.
The Company processes, packages, stores, and distributes its honey
products at a leased facility located in Berryville, Virginia. The Company's
facility is located on 6.25 acres of land. The facility contains approximately
24,000 square feet of space, including approximately 23,250 square feet of
production space, and approximately 750 square feet of office space.
The Company also stores certain raw materials and finished goods in its
leased warehouse of approximately 25,000 square feet of space in Lithonia,
Georgia.
The Company believes that its current facilities provide sufficient
capacity for its needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any material pending legal
proceedings and is not aware of any material legal proceedings threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter 2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company's Common Stock began trading on the Chicago Stock Exchange on
January 17, 1997, and on the American Stock Exchange on May 12, 1997, under the
symbol "VSF". The Company believes that as of March 20, 2004 there were
approximately 400 beneficial holders of the Company's Common Stock.
The Company has never paid a cash dividend on its Common Stock and
currently anticipates that all of its earnings will be retained for use in the
operation and expansion of its business. The Company's
9
revolving and term loan facilities restrict the Company's ability to pay
dividends. See Note 3 to "Item 8. Financial Statements."
The following table sets forth the high and low sales prices per share for
the Common Stock of the Company for each quarter within fiscal years 2003 and
2002.
Quarter High Low
----------------- ------ ------
1st - 2003 $ 4.30 $3.86
2nd - 2003 5.75 3.99
3rd - 2003 8.25 5.00
4th - 2003 13.91 5.91
1st - 2002 5.99 3.41
2nd - 2002 8.50 3.50
3rd - 2002 6.45 4.55
4th - 2002 5.69 3.90
EQUITY COMPENSATION PLAN INFORMATION
Plan Category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
- ---------------------------- -------------------------- ------------------------- -------------------------
Equity compensation plans
approved by security holders 314,400 $3.52 216,484
Equity compensation plans
not approved by security
holders 0 0 0
Total 314,400 $3.52 216,484
ITEM 6. SELECTED FINANCIAL DATA.
In thousands, except per share data
YEAR ENDED DECEMBER 31, 2003 2002(2) 2001(1) 2000 1999
NET SALES $50,930 $42,863 $31,982 $25,127 $22,966
OPERATING INCOME 2,502 2,915 2,099 1,104 904
OPERATING MARGIN 4.90% 6.80% 6.56% 4.39% 3.94%
NET INCOME 1,048 1,446 1,156 722 310
BASIC EARNINGS PER SHARE 0.28 0.39 0.31 0.19 0.08
DILUTED EARNINGS PER SHARE 0.27 0.38 0.31 0.19 0.08
CASH 125 46 529 14 53
TOTAL ASSETS 29,084 26,542 20,068 12,189 10,597
LONG-TERM DEBT (LESS CURRENT
MATURITIES) 17,685 14,416 7,112 5,593 4,376
SHAREHOLDERS' EQUITY 7,192 5,993 4,430 3,267 2,531
(1) Includes the results of Virginia Honey since the effective acquisition
date of July 1, 2001.
(2) Includes the results of Halifax since the effective acquisition date of
November 1, 2002.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 2003 AND THE
YEAR ENDED DECEMBER 31, 2002
REVENUES. Net sales for the year ended December 31, 2003 were $50,930,000
compared to $42,863,000 for the same period in 2002, an increase of $8,067,000
or 18.8%. This increase is attributable to a gain by Vita Specialty Foods of
$8,947,000 or 60.1%, which is largely due to the first full year inclusion of
sales resulting from the Halifax business acquisition. This large increase was
reflected in all the Vita Specialty Foods segment's major product lines
including salad dressings/marinades $2,898,000; honey/molasses $2,146,000; hot
filled sauces and resale items $4,674,000; partially offset by higher returns
and allowances of $771,000. This increase from Vita Specialty Foods was
partially offset by a sales decline of $880,000 or 3.1% for the Vita seafood
business, which was primarily the result of a 4.9% decrease in gross sales of
salmon products. This salmon sales decrease was primarily attributable to one
specific product. During the third quarter, Vita seafood's largest customer
discontinued a Vita salmon product that resulted in a material impact to the
Vita seafood results. The Company, in an effort to regain the business, has
re-introduced the product to the customer. It is not known if this will result
in the customer accepting the product back into its stores. However, the Company
is pursuing other opportunities to increase its salmon business.
GROSS MARGIN. Gross margin for the year ended December 31, 2003 was $15,831,000
compared to $13,332,000 for the same period in 2002, an increase of $2,499,000
or 18.7%. This increase is attributable to a gain by Vita Specialty Food of
$3,599,000 or 79.2% with a decline of $1,100,000 or 12.5% attributable to Vita
seafood. As a percentage of net sales, gross margin totaled 31.1%, which equaled
the prior year result. The Vita Specialty Foods gross margin as a percentage of
net sales was 34.3%, up from the 30.8% prior year result due to lower raw honey
cost and the volume efficiencies resulting from the higher sales. Vita seafood's
gross margin as a percentage of net sales decreased to 28.2% in 2003 from 31.3%
in 2002, primarily due to the higher cost of raw salmon and due to $210,000 of
reduced gross profit, after tax, as a direct result of the product
discontinuation discussed in the above section. The salmon costs have stabilized
and the Company feels that no significant changes will be experienced in the
near future.
OPERATING EXPENSES. Selling, marketing, distribution and administrative expenses
for the year ended December 31, 2003 were $13,328,000 compared to $10,417,000
for the same period in 2002, an increase of $2,911,000 or 27.9%. As a percentage
of net sales, these expenses increased to 26.2% from 24.3% for the same period
in 2002. Vita Specialty Foods accounted for $2,737,000 of the increase with the
remaining $174,000 attributable to Vita seafood. Of this increase, $2,255,000
was attributable to selling and marketing reflecting higher brokers' commissions
and royalties of $405,000, higher salespersons' compensation of $656,000,
largely as a result of hiring additional sales staff, travel and corporate shows
of $321,000 along with higher advertising and promotion expenses of $469,000 and
higher freight and distribution of $404,000; the remaining $656,000 of the
increase reflects higher administrative spending, primarily for employment
related expenses of $254,000; professional expenses of $132,000 and higher
supplies, rent and utilities associated with the addition of an office in
Atlanta totaling $185,000.
INTEREST AND OTHER EXPENSE. Interest and other expense, net, for the year ended
December 31, 2003 was $752,000 compared to $602,000 for the same period in 2002,
an increase of $150,000 or 24.9%. This increase was primarily attributable to
the additional borrowings as detailed in Note 3 of "Item 8. Financial
Statements", partially offset by lower effective interest rates.
INCOME TAXES. A tax expense for the year ending December 31, 2003 of $702,000 or
40% of pretax income was recognized, compared to $867,000 or 38% of pretax
income during 2002. The majority of this tax expense is deferred.
NET INCOME. As a result of the operating results discussed above, net income for
the year ended December 31, 2003 was $1,048,000 or $0.28 per share on a basic
per share basis and $0.27 per share on a diluted basis; this compares to net
income of $1,446,000 or $0.39 per basic share and $0.38 per diluted share for
the same period in 2002, a 27.5% decrease totaling $398,000 or $0.11 per share,
on both a basic and diluted basis.
11
RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 AND THE
YEAR ENDED DECEMBER 31, 2001
REVENUES. Net sales for the year ended December 31, 2002 were $42,863,000
compared to $31,982,000 for the same period in 2001, an increase of $10,881,000
or 34%. Of this increase, $8,958,000 is attributable to Vita Specialty Foods.
The balance of the sales increase, or $1,923,000 was attributable to Vita and
represents a 7% increase over the previous year. This increase in sales of the
Vita product line was a result of a 2% increase for herring products, a 16%
increase for salmon products, a 12% decrease for other specialty products with
sales returns remaining substantially constant compared to the prior year.
Management believes these increases are consistent with nationwide increases in
demand for similar products.
GROSS MARGIN. Gross margin for the year ended December 31, 2002 was $13,332,000
compared to $10,001,000 for the same period in 2001, an increase of $3,331,000
or 33.3%. Vita Specialty Food accounted for $2,544,000 of this increase with the
remaining $787,000 attributable to Vita. As a percentage of net sales, Vita
Specialty Food's gross margin was 30.8%. Vita's gross margin was 31.3% in 2002
versus 30.6% in 2001, an increase of 0.7%. This increase in the gross margin
percentage was attributable to a combination of decreased costs for raw fish, a
sales mix shift toward higher margin products and successful programs resulting
in a reduction in the costs associated with product returns.
OPERATING EXPENSES. Selling, marketing, distribution and administrative expenses
for the year ended December 31, 2002 were $10,417,000 compared to $7,902,000 for
the same period in 2001, an increase of $2,515,000 or 31.8%. As a percentage of
net sales, these expenses decreased slightly to 24.3% from 24.7% for the same
period in 2001. Vita Specialty Food accounted for $2,214,000 of the increase
with the remaining $301,000 attributable to Vita and representing a 4.6%
increase. Of this increase in Vita's expenses, $90,000 was attributable to
selling and marketing where higher brokers commissions and salesmen
compensation, largely as a result of hiring additional sales staff, along with
higher advertising and promotion expenses were partially offset by lower
spending in most other categories; the remaining $211,000 of the increase
reflects higher administrative spending, primarily for employment related
expenses of $82,000 and professional fees of $108,000.
INTEREST AND OTHER EXPENSE. Interest and other expense, net, for the year ended
December 31, 2002 was $602,000 compared to $562,000 for the same period in 2001,
an increase of $40,000 or 7.1%. This increase was primarily attributable to the
additional borrowings as detailed in Note 3 of "Item 8. Financial Statements",
partially offset by lower effective interest rates.
INCOME TAXES. The net operating loss carryforward, which has been used in prior
years' to totally offset federal income tax, became fully exhausted during 2002.
Consequently a tax expense for the year ending December 31, 2002 of $867,000 or
38% of pretax income was recognized, compared to $382,000 or 25% of pretax
income during 2001. The majority of this tax liability is deferred. In 2001 the
company used a portion of the net operating loss carry forward to offset income
taxes.
NET INCOME. As a result of the operating results discussed above, net income for
the year ended December 31, 2002 was $1,446,000 or $0.39 per share compared to
net income of $1,156,000 or $0.31 per share for the same period in 2001, a 25.1%
increase totaling $290,000 or $0.08 per share, for basic. Net income represented
$0.38 per share in 2002 on a diluted per share basis, an increase of $0.07 per
share over the 2001 results.
SEASONALITY; QUARTERLY RESULTS
NET SALES INFORMATION
The following table sets forth net sales information for each of the
Company's last 20 quarters. This unaudited net sales information has been
prepared on the same basis as the annual information presented elsewhere in this
Form 10-K and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented. Net sales for any quarter are not necessarily
indicative of sales for any future period.
12
NET SALES
---------------------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
- ------------ --------- --------- --------- ---------
(in thousands)
1999 ....... 5,380 4,200 5,257 8,129
2000 ....... 6,218 4,757 5,434 8,718
2001 ....... 6,220 5,027 8,477(1) 12,259(1)
2002 ....... 10,067(1) 8,785(1) 9,292 14,719(2)
2003 ....... 12,957(2) 12,855(2) 11,651(2) 13,467
(1) Includes the results of Virginia Honey since the effective acquisition
date of July 1, 2001. The inclusion of the acquisition accounted for
$2,637,000 of the 2001 quarter three sales increase compared to that
quarter in the prior year, $3,172,000 of the 2001 quarter four sales
increase compared to that quarter in the prior year, $3,288,000 of the
2002 quarter one increase compared to that quarter of the previous year
and $3,317,000 of the quarter two sales increase compared to that quarter
of the prior year.
(2) Includes the results of Halifax since the effective acquisition date of
November 1, 2002. The inclusion of the acquisition accounted for $959,000
of the 2002 quarter four sales increase compared to that quarter in the
previous year; $1,427,000, $3,496,000 and $1,574,000 of the 2003 quarters
one, two and three sales increases respectively compared to the same
quarters of the previous year.
NET INCOME INFORMATION
The following table sets forth net income (loss) information for each of
the Company's last 20 quarters. This unaudited net income (loss) information has
been prepared on the same basis as the annual information presented elsewhere in
this Form 10-K and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented. Net income (loss) for any quarter is not necessarily
indicative of net income (loss) for any future period.
NET INCOME (LOSS)
----------------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
- ------------ ------- -------- -------- --------
(in thousands)
1999 ....... (43) (143) 76 420(1)
2000 ....... 44 (110) (89) 878(2)
2001 ....... 59 (88) 295(3) 891(3)
2002 ....... 304(3) 132(3) 208 802
2003 ....... 307 320 145 276
(1) Includes a non-recurring charge of $236,000 to write off costs related to
a suspended acquisition.
(2) Includes a net expense reduction of $57,000 as a result of a settlement
with the Metropolitan Water Reclamation District.
(3) Includes the results of Virginia Honey since the effective acquisition
date of July 1, 2001. The inclusion of this acquisition accounted for
$80,000 of the 2001 quarter three net income increase compared to that
quarter in the previous year, $267,000 of the 2001 quarter four net income
increase compared to that quarter in the previous year, $206,000 of the
2002 quarter one net income increase compared to that quarter in the
previous year and $173,000 of the 2002 quarter two net income increase
compared to that quarter of the previous year. The remaining increase is
attributable to Vita.
The Company has in the past and expects in the future to experience
significant fluctuation in quarterly operating results. As the tables indicate,
historically the Company's net sales and net income have typically been the
highest in the fourth quarter of each year. The Company's business is seasonal
because its sales volume increases significantly during the Christmas holiday
season and, to a lesser extent, during other holidays in the fall and spring and
periods of colder weather in certain sections of the country. Certain of these
holidays, including Passover, Easter, Yom Kippur and Rosh Hashanah, may fall in
different quarters in different years and could cause the quarterly operating
results to fluctuate in the future. However, the Company believes that through
the Vita Specialty Food acquisitions and the introduction of new non-seasonal or
counter-seasonal products, it can, over time, reduce the variability in its
quarterly operating results by increasing sales during the second and third
quarters of each year.
13
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
At December 31, 2003, the Company had $10,510,000 in working capital,
compared to $6,489,000 at December 31, 2002, an increase of $4,021,000 or 62%.
As a result, the current ratio improved to 3.5 to 1.0 from 2.1 to 1.0. Of this
increase, $1,698,000 is attributed to a combined increase in accounts receivable
and inventory; an additional $1,502,000 was provided by a reduction in accounts
payable and accruals. Vita Specialty Foods accounted for substantially all of
the increase in accounts receivable and inventory as large year-end sales
contributed to higher open customer balances and large orders scheduled to ship
in the first half of 2004 resulted in higher stocking levels. The majority of
the reduction in accounts payable and accrued liabilities also occurred with the
Vita Specialty Foods operation as a result of the timing of the payments for
honey procurement. An additional $651,000 of working capital was provided by the
reduction in the current portion of long-term debt, the majority of which was
due to the reduction of monthly term loan installments occurring as a result of
the new debt agreement as discussed below in Note 3 of "Item 8. Financial
Statements."
THIRD PARTY FINANCING
At December 31, 2003, the Company had $125,000 in cash, a revolving credit
facility of $8,500,000 and term facilities totaling $9,500,000 and consisting of
a $6,500,000 facility that represents the Company's long term borrowing and a
six year $3,000,000 facility that is not currently being utilized. The revolving
loan facility matures August 31, 2005 and the term loan is payable in monthly
installments of $54,000 through July 31, 2008, with a balloon payment of
$3,368,000 due on August 31, 2008. Amounts outstanding under the revolving
facility and the term facilities at December 31, 2003 were $8,291,000 and
$6,284,000, respectively. According to the terms of the loan agreement, the
interest rates on these facilities are subject to adjustment at certain
predetermined dates based upon the Funded Debt to EBITDA ratio as each such term
is defined in the loan agreement. The loan agreement contains customary
representations, warranties, and covenants; at December 31, 2003, the Company
was in compliance with these covenants.
AMOUNTS OWED PURSUANT TO ACQUISITION
The Stock Purchase Agreement, including its Amendments, for Virginia Honey
provides for future payments to the former owner based upon 20% of five times
the average quarterly EBITDA less certain debt obligations of Virginia Honey,
for the period from January 1, 2001 through December 31, 2002. The present value
of this calculation resulted in $798,000 and has been recorded as a liability at
December 31, 2003. The payment is due to be paid on April 1, 2005. The remaining
payments under the Stock Purchase Agreement to the former owner of Virginia
Honey and the payments per the merger agreement to the former owner of Halifax
will be based on the earnings of Vita Specialty Foods, reflecting the combined
earnings of Halifax and Virginia Honey. There are two periods of measurement
remaining, the first covers January 1, 2003 until December 31, 2005 and the
second covers January 1, 2006 until December 31, 2007. The potential payments
remaining under the Virginia Honey Stock Purchase Agreement and the Halifax
merger agreement are estimated at a net present value of $1.9 million. See Note
11 of "Item 8. Financial Statements" for a further discussion of the earnout
payments.
CONTRACTUAL OBLIGATIONS
The aggregate amount of long-term debt maturing by year is presented in
the table below.
During 2003, the Company incurred rental expense of approximately
$562,000, primarily due to operating leases for the facilities in Martinsburg,
West Virginia; Berryville, Virginia and Atlanta, Georgia and for equipment at
the herring and salmon product processing facility in Chicago, Illinois. Future
commitments under all operating leases are presented in the table below.
In connection with the Halifax acquisition, the Company acquired the
licensing rights to various brand names. Along with these rights, the Company
has assumed the commitment to make minimum royalty payments under the terms of
these licensing agreements. These agreements fully expire in 2006 and the
commitments are presented in the table below.
14
PAYMENTS DUE BY PERIOD
CONTRACTUAL OBLIGATIONS (in thousands)
-----------------------------------------------
2007
AND
TOTAL 2004 2005 2006 BEYOND
------- ------- ------- ------- -------
LONG-TERM DEBT $18,465 $ 780 $ 9,877 $ 1,100 $ 6,708
OPERATING LEASES 4,757 432 407 397 3,521
LICENSING ROYALTIES 844 370 414 60 0
------- ------- ------- ------- -------
TOTAL CONTRACTUAL OBLIGATIONS $24,066 $ 1,582 $10,698 $ 1,557 $10,229
The ratio of long-term debt-to-total capitalization was 71% at December
31, 2003 and December 31, 2002. The Company believes its financial resources are
adequate to fund its needs for at least the next twelve months.
CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used by operating activities was
$1,388,000 for the year ended December 31, 2003, compared to net cash provided
of $1,857,000 for the year ended December 31, 2002. The $1,388,000 usage of
operating cash was primarily a reflection of $1,248,000 increase in accounts
receivable due to higher sales of the Vita Specialty Foods products; $529,000
increase in inventory, needed for planned higher first quarter 2004 sales,
especially at Vita Specialty Foods; $1,284,000 lower accounts payable due to the
timing of payments especially for honey purchases; $501,000 of lower accrued
expenses largely due to lower accrued salaries and bonuses and $145,000 of
higher prepaid expenses primarily reflecting higher supplier rebates due. These
balance sheet uses of operating cash were partially offset by operating cash
sources totaling $2,319,000 and representing net income and depreciation plus a
net increase in income tax liabilities.
The cash used during the year ended December 31, 2003 compares with $1,857,000
of operating cash provided during 2002. During 2002, $2,218,000 was provided by
net income before depreciation less the net decrease in income tax liabilities,
augmented by a $383,000 decrease in accounts receivable and $509,000 net
increase in accounts payable and accrued expenses. These items were partially
offset by increased inventory and prepaids totaling $1,253,000.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities was
$1,173,000 and $1,490,000 for the years ended December 31, 2003 and 2002
respectively. During the most recent year, this cash was used primarily for
capital additions of $1,136,000. During the year ended December 31, 2002, this
cash was used primarily for capital additions of $1,245,000 and the acquisition
of Halifax, net of cash acquired, totaling $244,000. The capital expenditures
for the most recent year were used primarily for production equipment at both
the Chicago and the Martinsburg facilities and similar usages are anticipated
for the year ending December 31, 2004.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities
was $2,640,000 for the year ended December 31, 2003, compared to cash used of
$851,000 for the year ended December 31, 2002. The most recent year activity
includes $151,000 of cash provided from stock and stock option purchases plus
$2,489,000 from additional net borrowing. There was net borrowing during 2003
primarily, as discussed above, due to the cash used in operating and investing
activities. During 2002, the cash provided by operating activities more than
covered the investing activities and thus, cash became available to pay down the
bank debt.
INFLATION
Inflation has historically not had a material effect on the Company's
operations.
15
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). In general, a variable interest entity is
a corporation, partnership, trust or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide significant financial resources for
the entity to support its activities. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The Company adopted the provisions of
FIN 46 effective February 1, 2003 and such adoption did not have a material
impact on its consolidated financial statements since it currently has no
variable interest entities. In December 2003, the FASB issued FIN 46R with
respect to variable interest entities created before January 31, 2003, which
among other things revised the implementation date to the first fiscal year or
interim period ending after March 15, 2004, with the exception of Special
Purpose Entities ("SPE"). The consolidation requirements apply to all SPE's in
the first fiscal year or interim period ending after December 15, 2003. The
Company adopted the provisions of FIN 46R effective December 31, 2003 and such
adoption did not have a material impact on its consolidated financial statements
since it currently has no SPE's.
In April 2003, FASB issued Statement of Financial Accounting Standards No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities
("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. SFAS 149 is effective for
contracts and hedging relationships entered into or modified after June 30,
2003. The Company adopted the provisions of SFAS 149 effective June 30, 2003 and
such adoption did not have a material impact on its consolidated financial
statements since the Company has not entered into any derivative or hedging
transactions.
In May 2003, FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both debt and equity and requires an issuer to classify the
following instruments as liabilities in its balance sheet:
- A financial instrument issued in the form of shares that is
mandatory redeemable and embodies an unconditional obligation that
requires the issuer to redeem it by transferring its assets at a specified
or determinable date or upon an event that is certain to occur;
- A financial instrument, other than an outstanding share, that
embodies an obligation to repurchase the issuer's equity shares, or is
indexed to such an obligation, and requires the issuer to settle the
obligation by transferring assets; and
- A financial instrument that embodies an unconditional obligation
that the issuer must settle by issuing a variable number of its equity
shares if the monetary value of the obligation is based solely or
predominantly on (1) a fixed monetary amount, (2) variations in something
other than the fair value of the issuer's equity shares, or (3) variations
inversely related to changes in the fair value of the issuer's equity
shares.
In November 2003, FASB issued FASB Staff Position No. 150-3 ("FSS 150-3")
which deferred the effective dates for applying certain provisions of SFAS 150
related to mandatorily redeemable financial instruments of certain non-public
entities and certain mandatory redeemable non-controlling interests for public
and non-public companies. For public entities, SFAS 150 is effective for
mandatorily redeemable financial instruments entered into or modified after May
31, 2003 and is effective for all other financial instruments as of the first
interim period beginning after June 15, 2003. For mandatorily redeemable
non-controlling interests that would not have to be classified as liabilities by
a subsidiary under the exception in paragraph 9 of SFAS 150, but would be
classified as liabilities by the parent, the classification and measurement
provisions of SFAS 150 are deferred indefinitely. The measurement provisions of
SFAS 150 are also deferred indefinitely for other mandatorily redeemable
non-controlling interests that were issued before November 4, 2003. For those
instruments, the measurement guidance for redeemable shares and
16
non-controlling interests in other literature shall apply during the deferral
period. The adoption of FAS 150 did not have a material impact on the
consolidated financial statements of the Company.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's financial statements reflect the selection and application
of accounting policies that require management to make significant estimates and
assumptions. The Company believes that the following are some of the more
critical judgment area in the application of its accounting policies that
currently affect the Company's financial condition and results of operations.
Preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions affecting the reported amounts of
assets, liabilities, revenues and expenses and related contingent liabilities.
On an on-going basis, the Company evaluates its estimates, including those
related to revenues, returns, bad debts, income taxes and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.
Revenue Recognition and Marketing Program Costs
Revenue is recognized upon shipment of product to customers in fulfillment
of customer orders. In accordance with industry practices, inventory is sold to
customers often with the right to return or dispose if the merchandise is not
sold prior to the expiration of its shelf life. In order to support the
Company's products, various marketing programs are offered to customers which
reimburse them for a portion or all of their promotional activities related to
the Company's products. The Company regularly reviews and revises, when it deems
necessary, estimates of costs to the Company for these marketing and
merchandising programs based on estimates of what has been incurred by
customers. Actual costs incurred by the Company may differ significantly if
factors such as the level and success of the customers' programs or other
conditions differ from expectations. Sales are reduced by a provision for
estimated future returns, disposals and promotional expenses.
Tax Assets and Liabilities
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the tax basis
and financial reporting basis of certain assets and liabilities based upon
currently enacted tax rates expected to be in effect when such amounts are
realized or settled.
Acquisition and Exit Costs
During the year ending December 31, 2003, the Company recorded $724,503 of
costs relating to activities of pre-acquisition Halifax such as severance and
related benefits; the cost of abandoned leaseholds and the costs to vacate
previously leased facilities. These costs were accounted for under EITF 95-3,
"Recognition of Liabilities in Connection with a Purchase Business Combination".
Goodwill Carrying Value
In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets" became
effective and as a result, the Company assesses the impairment of goodwill
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Factors the Company considers important, which could trigger
an impairment review include the following:
- Significant underperformance relative to expected historical or
projected future operating results;
- Significant changes in the manner of the Company's use of the
acquired assets or the strategy for the Company's overall business;
- Significant negative industry or economic trends;
- Significant decline in the Company's stock price for a sustained
period; and
- The Company's market capitalization relative to net book value.
17
When the Company determines that the carrying value of goodwill may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, the Company will review for impairment under the provisions of SFAS
142.
The provisions of SFAS 142 also required the completion of transitional
impairment test for goodwill within 12 months of adoption, with any impairment
treated as a cumulative effect of change in accounting principle. During the
second quarter of 2002, the Company completed the transitional impairment test,
which did not result in impairment of recorded goodwill.
During the fourth quarter, the Company completed its annual impairment
test, which did not result in impairment of recorded goodwill.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate fluctuations, primarily as a
result of its $18 million credit agreement (the "Credit Agreement") with
interest rates subject to market fluctuations. The Company does not currently
use derivative instruments to alter the interest rate characteristics of any of
its debt. The Credit Agreement includes a revolving line of credit with a bank,
which at December 31, 2003 bore interest at the prime rate minus 0.50% resulting
in a 3.50% rate for a portion of the debt and at LIBOR plus 2.00% resulting in a
3.14% rate for another portion. This rate remains constant until December 31,
2004. On that date, the interest rate may be adjusted based upon certain
financial covenants and may range from prime minus 0.50% to LIBOR plus 1.75% or,
to LIBOR plus 2.25%. In addition, the Credit Agreement includes two term loan
facilities, one of which is active, and which at December 31, 2003 bore interest
at the prime rate minus 0.50% resulting in a 3.50% rate for a portion of the
debt and at LIBOR plus 2.25% resulting in a 3.39% rate for another portion. On
December 31, 2004 the interest rate may be adjusted based on certain financial
covenants, and may range from prime minus 0.50% to LIBOR plus 2.00% or, to LIBOR
plus 2.50%. A 10% fluctuation in interest rates would not have a material impact
on the Company's financial statements.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, including "Description of Business,"
"Description of Property," "Legal Proceedings" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations", contains
forward-looking statements within the meaning of the "safe-harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. Such factors and uncertainties
include, but are not limited to: (i) the impact of the level of the Company's
indebtedness; (ii) restrictive covenants contained in the Company's various debt
documents; (iii) general economic conditions and conditions in the retail
environment; (iv) the Company's dependence on a few large customers; (v)
relationships with retailers; (vi) price fluctuations in the raw materials used
by the Company, particularly herring and salmon; (vii) competitive conditions in
the Company's markets; (viii) the seasonal nature of the Company's business;
(ix) the Company's ability to execute its acquisition strategy; (x) fluctuations
in the stock market; (xi) the extent to which the Company is able to retain and
attract key personnel; (xii) relationships with key vendors; (xiii)
consolidation of the Company's supplier base; (xiv) successful integration of
Virginia Honey and Halifax and (xv) the impact of federal, state and local
environmental requirements (including the impact of current or future
environmental claims against the Company). As a result, the Company's operating
results may fluctuate, especially when measured on a quarterly basis.
The Company's business strategy contemplates that the Company will pursue
potential acquisitions. The Company currently has no agreements or
understandings with respect to any acquisitions and there can be no assurance
that the Company will be successful in pursuing other potential acquisitions.
However, the costs associated with this strategy, means of financing any
potential acquisitions, and consummation and integration of any potential
acquisitions could significantly impact the Company's financial and operating
performance.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Listed below are the financial statements included in this part of the
Annual Report on Form 10-K:
(a) Consolidated Financial Statements Page No.
--------------------------------- --------
Report of Independent
Certified Public Accountants 20
Consolidated Balance Sheets at December 31, 2003
and at December 31, 2002 21
Consolidated Statements of Income for the years
Ended December 31, 2003, 2002 and 2001 22
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 2003, 2002 and 2001 22
Consolidated Statements of Cash Flow for the years
Ended December 31, 2003, 2002 and 2001 23
Notes to Consolidated Financial Statements 24 - 38
Schedule I - Valuation and Qualifying Accounts 39
19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Vita Food Products, Inc.
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Vita Food
Products, Inc. and Subsidiary, as of December 31, 2003 and 2002, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2003. We have also audited
the schedule listed in the accompanying index. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements and schedule. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vita Food Products,
Inc. and Subsidiary, at December 31, 2003 and 2002, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States.
Also in our opinion, the schedule presents fairly, in all material respects, the
information set forth therein.
BDO Seidman, LLP
Chicago, Illinois
February 13, 2004
20
CONSOLIDATED BALANCE SHEETS VITA FOOD PRODUCTS, INC.
AND SUBSIDIARY
DECEMBER 31, 2003 2002
- ------------ ------------ ------------
ASSETS
Current Assets
Cash $ 125,457 $ 46,097
Accounts receivable-trade, net of allowance for discounts, returns, and doubtful
accounts of $301,000 in 2003 and $277,000 in 2002 6,544,521 5,325,254
Inventories
Raw material and supplies 5,007,237 4,570,782
Work in process 235,862 162,325
Finished goods 1,975,413 2,006,554
Prepaid expenses and other current assets 481,369 337,277
Income tax receivable 347,684 174,318
------------ ------------
Total Current Assets 14,717,543 12,622,608
Property, Plant and Equipment
Land 35,000 35,000
Building and improvements 2,489,828 2,452,260
Leasehold improvements 308,646 706,181
Machinery and office equipment 9,733,439 8,674,011
------------ ------------
12,566,913 11,867,452
Less accumulated depreciation and amortization (6,864,222) (6,030,037)
------------ ------------
Net Property Plant and Equipment 5,702,691 5,837,415
Other Assets
Goodwill 8,310,659 7,565,821
Other assets 353,461 303,648
Deferred income taxes 0 212,696
------------ ------------
Total Other Assets 8,664,120 8,082,165
------------ ------------
Total Assets $ 29,084,354 $ 26,542,188
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 780,390 $ 1,430,933
Accounts payable 2,299,580 3,583,391
Accrued other expenses 900,891 1,119,116
Deferred income taxes 226,304 0
------------ ------------
Total Current Liabilities 4,207,165 6,133,440
Long-term Obligations, Less Current Maturities 17,684,931 14,415,776
Shareholders' Equity
Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued
Common stock, $.01 par value; authorized 10,000,000 shares; issued and
outstanding 3,819,116 shares in 2003 and 3,773,895 shares in 2002 38,191 37,739
Additional paid in capital 3,647,262 3,496,482
Retained earnings 3,506,805 2,458,751
------------ ------------
Total Shareholders' Equity 7,192,258 5,992,972
------------ ------------
Total Liabilities and Shareholders' Equity $ 29,084,354 $ 26,542,188
============ ============
See accompanying notes to consolidated financial statements
21
CONSOLIDATED STATEMENTS OF INCOME VITA FOOD PRODUCTS, INC.
AND SUBSIDIARY
YEAR ENDED DECEMBER 31, 2003 2002 2001
- ----------------------- ---- ---- ----
Net Sales $ 50,930,474 $ 42,862,746 $ 31,981,733
Cost of Goods Sold 35,099,833 29,531,009 21,980,299
------------ ------------ ------------
Gross Margin 15,830,641 13,331,737 10,001,434
Selling and Administrative Expenses
Selling, Marketing & Distribution 8,738,409 6,483,715 5,057,905
Administrative 4,590,003 3,933,045 2,844,391
------------ ------------ ------------
Total 13,328,412 10,416,760 7,902,296
------------ ------------ ------------
Operating Profit 2,502,229 2,914,977 2,099,138
Other (Income) Expense
Interest Income (399) (441) (657)
Interest Expense 752,574 602,183 561,827
------------ ------------ ------------
Income Before Income Tax Expense 1,750,054 2,313,235 1,537,968
Income Tax Expense 702,000 867,000 381,839
------------ ------------ ------------
Net Income $ 1,048,054 $ 1,446,235 $ 1,156,129
============ ============ ============
Basic Earnings Per Share $ 0.28 $ 0.39 $ 0.31
Weighted Average Common Shares Outstanding 3,789,428 3,750,176 3,725,420
Diluted Earnings Per Share $ 0.27 $ 0.38 $ 0.31
Weighted Average Common Shares Outstanding 3,925,681 3,854,462 3,753,780
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY VITA FOOD PRODUCTS, INC.
AND SUBSIDIARY
COMMON STOCK ADDITIONAL RETAINED
------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
----------- ----------- ----------- ----------- -----------
Balance, at January 1, 2001 3,724,546 $ 37,244 $ 3,372,906 ($ 143,613) $ 3,266,537
Proceeds from stock purchase and
stock option plans 5,137 52 7,025 7,077
Net Income 1,156,129 1,156,129
----------- ----------- ----------- ----------- -----------
Balance, at December 31, 2001 3,729,683 $ 37,296 $ 3,379,931 $ 1,012,516 $ 4,429,743
=========== =========== =========== =========== ===========
Balance, at January 1, 2002 3,729,683 $ 37,296 $ 3,379,931 $ 1,012,516 $ 4,429,743
Proceeds from stock purchase and
stock option plans 44,212 443 116,551 116,994
Net income 1,446,235 1,446,235
----------- ----------- ----------- ----------- -----------
Balance, at December 31, 2002 3,773,895 $ 37,739 $ 3,496,482 $ 2,458,751 $ 5,992,972
=========== =========== =========== =========== ===========
Balance, at January 1, 2003 3,773,895 $ 37,739 $ 3,496,482 $ 2,458,751 $ 5,992,972
Proceeds from stock purchase and
stock option plans 45,221 452 150,780 151,232
Net income 1,048,054 1,048,054
----------- ----------- ----------- ----------- -----------
Balance, at December 31, 2003 3,819,116 $ 38,191 $ 3,647,262 $ 3,506,805 $ 7,192,258
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
22
CONSOLIDATED STATEMENTS OF CASH FLOWS VITA FOOD PRODUCTS, INC.
AND SUBSIDIARY
YEAR ENDED DECEMBER 31, 2003 2002 2001
- ----------------------- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,048,054 $ 1,446,235 $ 1,156,129
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 956,461 802,121 630,423
Increase in deferred income tax liability 488,000 138,000 118,000
Changes in assets and liabilities net of effects from purchase of subsidiary:
(Increase) decrease in accounts receivable (1,248,331) 382,793 124,555
(Increase) decrease in income tax assets (173,366) (168,318) 207,484
(Increase) decrease in inventories (528,851) (1,305,668) 2,416,184
(Increase) decrease in prepaid expenses and other current assets (144,632) 52,298 20,040
(Decrease) increase in accounts payable (1,283,811) 651,639 (986,344)
Decrease in accrued expenses (501,364) (141,910) (121,010)
----------- ----------- -----------
Net cash (used in) provided by operating activities (1,387,840) 1,857,190 3,565,461
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,135,894) (1,245,432) (721,620)
Payments for subsidiary net of cash acquired 0 (243,531) (4,641,495)
Other assets (37,286) (703) (7,307)
----------- ----------- -----------
Net cash used in investing activities (1,173,180) (1,489,666) (5,370,422)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock purchase and stock option plans 151,232 116,994 7,077
Net borrowings (payments) under revolving loan facility 2,931,791 1,404,242 (1,628,005)
Net payments on term loan facility (6,714,886) (4,525,111) (1,409,654)
Proceeds from new term loan 6,500,000 2,300,000 5,555,000
Payments under capital lease obligations (131,038) (107,240) (116,649)
Deferred loan costs paid (96,719) (39,665) (87,928)
----------- ----------- -----------
Net cash provided by (used in) financing activities 2,640,380 (850,781) 2,319,841
----------- ----------- -----------
Net increase (decrease) in cash 79,360 (483,257) 514,880
Cash, at beginning of year 46,097 529,354 14,474
----------- ----------- -----------
Cash, at end of year $ 125,457 $ 46,097 $ 529,354
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 737,316 $ 600,587 $ 671,060
Income taxes $ 387,366 $ 1,014,900 $ 0
Noncash Investing and Financing Activities:
Additional purchase price payable related to the Virginia Honey Company (Note 3) $ 0 $ 764,765 $ 0
See accompanying notes to consolidated financial statements
23
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies utilized in the
preparation of the accompanying financial statements follows.
INDUSTRY
The Company processes and sells various herring, and cured and smoked
salmon products and other complementary specialty food products throughout
the United States. The Vita Specialty Foods subsidiary manufactures and
distributes salad dressings, gourmet sauces, honey, jams and jellies. The
Company considers the products and related operations of Vita Specialty
Foods as a separate business segment.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vita Food
Products, Inc. and its wholly owned subsidiary, Vita Specialty Foods. Vita
Specialty Foods includes Virginia Honey commencing on July 1, 2001, the
effective date of this acquisition and Halifax, commencing on November 1,
2002, the effective date of this acquisition. All significant intercompany
transactions and balances have been eliminated.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable. The Company primarily provides credit in the normal course of
business. The Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses, if necessary.
REVENUE RECOGNITION AND MERCHANDISE RETURNS
Revenue is recognized upon shipment of product to customers in fulfillment
of customer orders. In accordance with industry practices, inventory is
sold to customers often with the right to return or dispose if the
merchandise is not sold prior to the expiration of its shelf life. In
order to support the Company's products, various marketing programs are
offered to customers which reimburse them for a portion or all of their
promotional activities related to the Company's products. The Company
regularly reviews and revises, when it deems necessary, estimates of costs
to the Company for these marketing and merchandising programs based on
estimates of what has been incurred by customers. Actual costs incurred by
the Company may differ significantly if factors such as the level and
success of the customers' programs or other conditions differ from
expectations. Sales are reduced by a provision for estimated future
returns, disposals and promotional expense.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are customer obligations due under normal trade terms.
The Company sells products to distributors and retailers throughout the
food industry. The Company performs continuing credit evaluations of its
customers' financial condition.
Senior management reviews accounts receivable on a regular basis to
determine if any receivables will potentially be uncollectible. The
Company provides an allowance sufficient to cover any accounts receivable
balances that are potentially uncollectible, along with a general risk
factor. After attempts to collect the receivable have failed and it is
considered to be uncollectible it is written off against the allowance.
Based on the information available, the Company believes the allowance for
doubtful accounts as of December 31, 2003 to be adequate and not
excessive. However, it is still possible that in the future, actual write
offs may exceed the recorded balance.
24
INVENTORIES
Inventories are stated at the lower of cost or market. Costs are
determined by the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are being provided, on straight-line methods, over the
estimated useful lives of the assets. Leasehold improvements are being
amortized on a straight-line basis over the lives of the respective leases
or the service lives of the improvements whichever is shorter.
Amortization of assets under capital lease is included in depreciation and
amortization. Repair and maintenance items are expensed as incurred.
LONG-LIVED ASSETS
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Any long-lived assets held for disposal are reported at the
lower of their carrying amounts or fair value less cost to sell. As of
December 31, 2003 there has been no impairment of long-lived assets.
GOODWILL
On January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"), which addresses the financial accounting
and reporting standards for goodwill and other intangible assets
subsequent to their acquisition. This accounting standard requires that
goodwill no longer be amortized, and instead be tested for impairment on
an annual basis.
The provision of SFAS 142 requires the completion of a transitional
impairment test within 12 months of adoption, with any impairment treated
as a cumulative effect of change in accounting principle. During the
second quarter of 2002, the Company completed the transitional impairment
test, which did not result in impairment of recorded goodwill. During the
fourth quarters of 2003 and 2002, the Company completed its annual
impairment test, which did not result in impairment of recorded goodwill.
The Company's acquisition of Virginia Honey was accounted for under SFAS
141, "Business Combinations". Accordingly, the Company did not have
goodwill amortization expense in 2001 relating to this acquisition.
The changes in the carrying amount of goodwill for the years ended
December 31, 2003, 2002 and 2001 are as follows:
Balance as of December 31, 2001 $5,238,895
Goodwill acquired during the year (Halifax acquisition) 1,562,161
Additional purchase price payable related to
Virginia Honey acquisition (see Note 3) 764,765
----------
Balance as of December 31, 2002 $7,565,821
Adjustment to the original Halifax purchase price allocation 744,838
----------
Balance as of December 31, 2003 $8,310,659
The adjustment to the original Halifax purchase price allocation is
primarily due to the exit costs of $725,000 (see Note 11), net of the tax
effect of $317,000, an additional valuation allowance relating to the
25
$267,000 deferred tax asset for the Halifax net operating loss (see Note
4) and $70,000 relating to changes in estimates for inventory and accounts
receivable reserves (see Note 11).
ESTIMATES
The accompanying financial statements include estimated amounts and
disclosures based on management's assumptions about future events. Actual
results may differ from those estimates.
ADVERTISING
Advertising costs are expensed as incurred and included in selling and
marketing expenses and distribution expenses. Advertising expenses
amounted to approximately $393,000, $370,000 and $343,000 in 2003, 2002
and 2001, respectively.
SHIPPING AND HANDLING FEES
The Company classifies shipping and handling costs billed to customers as
revenue. Costs related to shipping are classified as part of selling,
marketing and distribution and were $2,851,000, $2,447,000 and $2,422,000
in 2003, 2002 and 2001 respectively.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the tax
basis and financial reporting basis of certain assets and liabilities
based upon currently enacted tax rates expected to be in effect when such
amounts are realized or settled.
BASIC AND DILUTED EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares
outstanding. Diluted earnings per share follows the computation of basic
earnings per share and gives effect to all dilutive potential common
shares that were outstanding during the year.
The following is a reconciliation from basic earnings per share to diluted
earnings per share for each of the last three years:
Weighted
Average
Net Shares Earnings
Income Outstanding Per share
---------- ----------- ----------
2003
Basic $1,048,054 3,789,428 $ 0.28
Effect of dilution:
Stock options 136,253
---------- --------- ----------
Diluted $1,048,054 3,925,681 $ 0.27
========== ========= ==========
2002
Basic $1,446,235 3,750,176 $ 0.39
Effect of dilution:
Stock options 104,286
---------- --------- ----------
Diluted $1,446,235 3,854,462 $ 0.38
========== ========= ==========
2001
Basic $1,156,129 3,725,420 $ 0.31
Effect of dilution:
Stock options 28,360
---------- --------- ----------
Diluted $1,156,129 3,753,780 $ 0.31
========== ========= ==========
26
ACCOUNTING FOR STOCK BASED CONSIDERATION
The Company applies the intrinsic value method under APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its 1996 Stock Option Plan, 1996 Stock Option Plan for
Non-Employee Directors and 1996 Employee Stock Purchase Plan, as the market
price of the stock did not exceed the exercise price of the options on the
measurement date.
The Company has elected to continue to utilize the accounting provisions of APB
25 for stock options, and is required to provide proforma disclosures of net
income and earnings per share had the Company adopted the fair value method
under SFAS No. 123. The weighted-average, grant date fair value of stock options
granted to employees during the year and the weighted-average significant
assumptions used to determine those fair values, using a modified Black-Scholes
option pricing model, and the pro forma effect on earnings of the fair value
accounting for stock options under Statement of Financial Accounting Standards
No. 123, are as follows:
2003 2002 2001
---------- ---------- ----------
Weighted average fair value per options granted $ 2.71 $ 2.92 $ 1.59
Significant assumptions (weighted average)
Risk-free interest rate at grant date 3.7% 4.4% 5.1%
Expected stock price volatility 0.72 0.74 0.75
Expected dividend payout -- -- --
Expected option life (years) 5 5 5
Net Income
As reported $1,048,054 $1,446,235 $1,156,129
Deduct total stock based compensation expense
(net of income taxes) determined under the
fair value method (56,844) (267,592) (52,863)
---------- ---------- ----------
Pro forma $ 991,210 $1,178,643 $1,103,266
========== ========== ==========
Basic earnings per share
As reported $ 0.28 $ 0.39 $ 0.31
Pro forma $ 0.26 $ 0.31 $ 0.30
Diluted earnings per share
As reported $ 0.27 $ 0.38 $ 0.31
Pro forma $ 0.25 $ 0.31 $ 0.29
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). In general, a variable interest entity is
a corporation, partnership, trust or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide significant financial resources for
the entity to support its activities. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated
27
financial support from other parties. The consolidation requirements of
FIN 46 apply immediately to variable interest entities created after
January 31, 2003. The Company adopted the provisions of FIN 46 effective
February 1, 2003 and such adoption did not have a material impact on its
consolidated financial statements since it currently has no variable
interest entities. In December 2003, the FASB issued FIN 46R with respect
to variable interest entities created before January 31, 2003, which among
other things revised the implementation date to the first fiscal year or
interim period ending after March 15, 2004, with the exception of Special
Purpose Entities ("SPE"). The consolidation requirements apply to all
SPE's in the first fiscal year or interim period ending after December 15,
2003. The Company adopted the provisions of FIN 46R effective December 31,
2003 and such adoption did not have a material impact on its consolidated
financial statements since it currently has no SPE's.
In April 2003, FASB issued Statement of Financial Accounting
Standards No. 149, Amendment of Statement 133 on Derivative Instruments
and Hedging Activities ("SFAS 149"). SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
SFAS 133. SFAS 149 is effective for contracts and hedging relationships
entered into or modified after June 30, 2003. The Company adopted the
provisions of SFAS 149 effective June 30, 2003 and such adoption did not
have a material impact on its consolidated financial statements since the
Company has not entered into any derivative or hedging transactions.
In May 2003, FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity ("SFAS 150"). SFAS 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both debt and equity and requires an
issuer to classify the following instruments as liabilities in its balance
sheet:
- A financial instrument issued in the form of shares that is mandatory
redeemable and embodies an unconditional obligation that requires the
issuer to redeem it by transferring its assets at a specified or
determinable date or upon an event that is certain to occur;
- A financial instrument, other than an outstanding share, that embodies
an obligation to repurchase the issuer's equity shares, or is indexed to
such an obligation, and requires the issuer to settle the obligation by
transferring assets; and
- A financial instrument that embodies an unconditional obligation that
the issuer must settle by issuing a variable number of its equity shares
if the monetary value of the obligation is based solely or predominantly
on (1) a fixed monetary amount, (2) variations in something other than the
fair value of the issuer's equity shares, or (3) variations inversely
related to changes in the fair value of the issuer's equity shares.
In November 2003, FASB issued FASB Staff Position No. 150-3
("FSS 150-3") which deferred the effective dates for applying certain
provisions of SFAS 150 related to mandatorily redeemable financial
instruments of certain non-public entities and certain mandatory
redeemable non-controlling interests for public and non-public companies.
For public entities, SFAS 150 is effective for mandatorily redeemable
financial instruments entered into or modified after May 31, 2003 and is
effective for all other financial instruments as of the first interim
period beginning after June 15, 2003. For mandatorily redeemable
non-controlling interests that would not have to be classified as
liabilities by a subsidiary under the exception in paragraph 9 of SFAS
150, but would be classified as liabilities by the parent, the
classification and measurement provisions of SFAS 150 are deferred
indefinitely. The measurement provisions of SFAS 150 are also deferred
indefinitely for other mandatorily redeemable non-controlling interests
that were issued before November 4, 2003. For those instruments, the
measurement guidance for redeemable shares and non-controlling interests
in other literature shall apply during the deferral period. The adoption
of FAS 150 did not have a material impact on the consolidated financial
statements of the Company.
28
2. ACCRUED OTHER EXPENSES
Accrued other expenses consist of the following:
December 31, 2003 2002
------------ ---- ----
Accrued interest $ 22,679 $ 52,361
Accrued salaries and bonuses 361,810 673,976
Other taxes 51,205 49,448
Utilities, freight and other 465,197 343,331
---------- ----------
$ 900,891 $1,119,116
========== ==========
3. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
December 31, 2003 2002
------------ ---- ----
Revolving loan facility, expires August 30, 2005. Interest fluctuated
and ranged from 3.14% to 3.50% at December 31, 2003. (a) $ 8,291,243 $
Revolving loan facility, paid off August 30, 2003 5,359,453
Term loan facility payable in monthly installments, matures August 30,
2008. Interest fluctuated and ranged from 3.39% to 3.50% at December 31,
2003 (a) 6,284,000
Term loan facility payable in monthly installments, paid off August 30,
2003. 4,164,333
Term loan-B payable in monthly installments, paid off August 30, 2003 2,241,667
Term loan payable in monthly installments of $24,760, including interest
through 2018, interest was 7.0% for both years (b) 2,710,727 2,814,131
Additional purchase price payable related to The Virginia Honey Company
acquisition (c) 797,512 764,765
Robert J. Budd Note (d) 303,398 305,208
Capitalized lease obligations 131,030
Other notes payable 78,441 66,122
----------- -----------
18,465,321 15,846,709
Less current maturities 780,390 1,430,933
----------- -----------
$17,684,931 $14,415,776
=========== ===========
(a) On September 9, 2003, the Company entered into a loan agreement (the
"Loan") with a new bank and paid off the existing credit facility. The
Loan provides for a two year $8,500,000 revolving line of credit for
working capital needs; a five year $6,500,000 term loan that represents
the Company's long term
29
financing and a six year $3,000,000 term loan that was not utilized at
December 31, 2003. Borrowing under the revolving loan is limited to 80% of
the eligible receivables and 60% of eligible inventory; as such terms are
defined in the Loan. The revolving loan facility matures August 30, 2005.
The term loan is payable in monthly installments of $54,000 through July
31, 2008, with a balloon payment of $3,368,000 due on August 30, 2008. The
loans are collateralized by all of the assets of the Company.
According to the terms of the Loan, interest is paid monthly and interest
rates are subject to adjustment at certain predetermined dates based upon
the Funded Debt to EBITDA ratio, as each such term is defined in the Loan.
Under these terms, the revolving loan facility bears interest at rates
ranging from LIBOR plus 1.75% to 2.25% or prime minus 0.50%. The term loan
facility bears interest at rates ranging from LIBOR plus 2.00% to 2.50% or
prime minus 0.50%. As of December 31, 2003, a portion of the revolving
loan bore interest at 3.14%, which was equal to LIBOR of 1.14% plus 2.00%
and another portion at 3.50%, which equaled prime of 4.00% minus 0.50%. At
that date, the substantial portion of the term loan bore interest at
3.39%, which was equal to LIBOR plus 2.25% and a smaller portion at the
3.50% rate.
The Loan imposes certain restrictions upon the Company and requires the
Company to maintain certain financial covenants and ratios, including
Tangible Net Worth and Cash Flow Coverage Ratio, as each such term is
defined in the Loan. At December 31, 2003 and 2002, the Company was in
compliance with these covenants.
(b) As part of the acquisition agreement for Virginia Honey, the Company
assumed a 7.0% note payable to a former Virginia Honey shareholder. At
December 31, 2003, the balance due was $2,710,727. This note is payable in
monthly installments through 2018.
(c) The Stock Purchase Agreement, including its Amendments, for Virginia Honey
provides for future payments to the former owner based upon 20% of five
times the average quarterly EBITDA less certain debt obligations of
Virginia Honey, for the period from January 2001 through December 31,
2002. The present value of this calculation resulted in $797,512 and
$764,765 at December 31, 2003 and 2002, respectively, and has been
recorded as a liability at December 31, 2003. The payment is due to be
paid on April 1, 2005. The remaining payments under the Stock Purchase
Agreement to the former owner of Virginia Honey and the payments per the
merger agreement to the former owner of Halifax will be based on the
earnings of Vita Specialty Foods, the combined earnings of Halifax and
Virginia Honey. There are two periods of measurement remaining, the first
covers January 1, 2003 until December 31, 2005 and the second covers
January 1, 2006 until December 31, 2007. See Note 11 under Notes to the
Consolidated Financial Statements for a further discussion on the earnout
payments.
(d) The merger agreement with Halifax provides that, as part of the
acquisition price, the balance of a note due to the former owner by the
acquired organization will be repaid to that individual by the Company on
April 1, 2006. No interest accrues on this debt. See Note 11 below for
further discussion of this merger agreement.
Scheduled annual maturities of long-term obligations as of December 31,
2003 are as follows:
Year ending December 31,
------------------------
2004 $ 780,390
2005 9,876,526
2006 1,099,946
2007 809,592
2008 3,849,188
2009 and subsequent 2,049,679
-----------
$18,465,321
===========
In prior years, the Company had leased certain equipment under
non-cancelable capitalized lease
30
agreements. All such leases expired during 2003.
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of existing temporary differences that give rise to significant
portions of the net deferred tax asset (liability) are as follows:
December 31, 2003 2002
------------ ---- ----
Deferred tax asset:
Uniform inventory capitalization $ 71,000 $ 90,000
Accrued expenses 271,000 177,000
Contributions carryover -- 23,000
Net operating loss carryforwards 791,000 791,000
----------- -----------
1,133,000 1,081,000
Deferred tax liability:
Depreciation (568,000) (344,000)
----------- -----------
565,000 737,000
Less valuation allowance (791,304) (524,304)4
----------- -----------
Net deferred tax (liability) asset $ (226,304) $ 212,696
=========== ===========
The valuation allowance of $791,304 relates to the net operating loss
carryforward acquired in the Halifax acquisition. The adjustment of
$267,000 to the valuation allowance was an adjustment to the original
Halifax purchase price allocation (Note 11).
Income taxes at December 31, 2003, 2002 and 2001 consist of the following:
December 31, 2003 2002 2001
------------ ---- ---- ----
Current $ 214,000 $ 729,000 $ 56,869
Deferred 488,000 138,000 506,000
Adjustment of valuation allowance -- -- (181,000)
--------- --------- ---------
Income tax expense $ 702,000 $ 867,000 $ 381,839
========= ========= =========
The reconciliation of income tax computed at the United States federal
statutory tax rate of 34% to income tax expense is as follows:
Year ended December 31, 2003 2002 2001
----------------------- ---- ---- ----
Tax at federal statutory rate $ 595,000 $ 786,000 $ 523,000
Change in deferred tax valuation allowance -- -- (181,000)
Other (primarily state taxes) 107,000 81,000 39,839
--------- --------- ---------
Income tax expense $ 702,000 $ 867,000 $ 381,839
========= ========= =========
During 2001 the Company recognized the benefit of net operating loss
carryforwards of $535,000.
31
5. COMMITMENTS AND CONTINGENCIES
A. In the ordinary course of business, the Company becomes involved in
litigation as a defendant in various lawsuits. In the opinion of
management, after considering the advice of counsel, the ultimate
resolution of these legal proceedings will not have a material
effect on the financial statements taken as a whole and thus no
provision has been made in the financial statements for any loss
contingencies.
B. The Company leases its Virginia Honey warehouses from a former owner
of Virginia Honey, who is now an officer of Vita Specialty Foods.
During 2003 the Company renewed both of these leases, one through
December 31, 2008 and the second through December 31, 2018.
Additional renewal options are available. Future payments under
these leases amount to approximately $399,000 for the year ending
2004, $372,000 for each of the years ending 2005 through 2008 and
$274,000 for each of the subsequent periods. Since July 1, 2001, the
effective date of the acquisition, rent expense under these
agreements totaled $153,000, $306,000 and $358,000 in 2001, 2002 and
2003 respectively.
C. During 2003, the Company has entered into a lease agreement with an
unrelated lessor for the Atlanta facility. The lease expires on
August 31, 2006. Future payments under the lease will amount to
approximately $33,000, $35,000 and $25,000 for the years ending
2004, 2005 and 2006 respectively. Since November 1, 2002, the
effective date of the acquisition, rent expense under this agreement
totaled $13,431.
D. The Stock Purchase Agreement, including its Amendments, for Virginia
Honey and the merger agreement for Halifax provide for future
payments to the former owners. See Note 11 relating to these
potential payments.
E. The Company has brand name product licensing agreements, which
contain provisions for minimum future royalty payments. During 2003,
the Company paid $271,000 in royalty payments under these licensing
agreements. The minimum future royalty payments are $370,000,
$414,000, and $60,000 for the years ending 2004, 2005 and 2006
respectively.
6. EMPLOYEE BENEFIT PLANS
The Company has established a qualified 401(k) profit sharing plan
covering its non-union employees. Participants may elect to defer a
portion of annual compensation. The Company may contribute amounts at the
discretion of the board of directors.
The Company expensed 401(k) matching contributions of $67,000, $59,000 and
$29,000 in 2003, 2002 and 2001, respectively.
Additionally, the Company participates in two multi-employer plans that
provide benefits to the Company's union employees. Contributions to the
plans for the years ended December 31, 2003, 2002 and 2001 were $33,000,
$31,000 and $31,000, respectively.
7. MAJOR CUSTOMER
In the year ending December 31, 2003, the Company had sales to one
customer representing 19% and sales to another customer representing 13%
of total annual net sales. At December 31, 2003, these customers had open
accounts receivable balances of $1,390,000 and $578,000 respectively. At
December 31, 2002 the Company had sales to one customer representing 19%
and sales to another customer representing 12% of total annual net sales.
At December 31, 2002, these customers had open accounts receivable
balances of $1,016,000 and $634,000 respectively. In 2001, the Company had
sales to one customer representing 12% of total annual net sales.
32
8. CAPITAL
On September 11, 1996, the Company adopted the Vita Food Products, Inc.
1996 Stock Option Plan pursuant to which 325,000 shares of common stock
have been reserved for issuance upon the exercise of options designated as
either an "incentive stock option" or as a "nonqualified stock option."
These options vest at 20% per year and may be granted to employees or
other constituencies of the Company, including members of the board of
directors who are employees. On September 11, 1996, the Company also
adopted the Vita Food Products, Inc. 1996 Stock Option Plan for
Non-Employee Directors. The plan was amended and restated in 2000 to
provide for 175,000 shares of common stock to be reserved for issuance
upon the exercise of options designated as a "nonqualified stock option."
These options become fully vested six months after issuance and may be
granted to directors who are not employees of the Company. Generally,
options are exercisable for a period of ten years from the date of grant.
Further, in September 1996, the Company adopted the 1996 Employee Stock
Purchase Plan pursuant to which 150,000 shares of common stock have been
reserved for issuance.
Information with respect to the stock option plans follows:
Year ended December 31, 2003 2002 2001
----------------------- ---- ---- ----
Options outstanding at beginning
of year 328,500 221,500 168,500
Options granted 35,000 157,000 58,500
Options exercised 32,200 40,800 2,500
Options forfeited 16,900 9,200 3,000
----------- ----------- -----------
Options outstanding at end
of year 314,400 328,500 221,500
=========== =========== ===========
Weighted average remaining
contractual life 7.3 YRS. 8.0 yrs. 7.5 yrs.
Options exercisable 173,120 150,400 147,400
=========== =========== ===========
Option prices per share granted $4.00-$5.15 $4.00-$6.00 $1.50-$2.75
=========== =========== ===========
Weighted Average Exercise Price 2003 2002 2001
------------------------------- ---- ---- ----
January 1, $3.42 $2.53 $2.60
December 31, 3.52 3.42 2.53
Exercised 3.08 2.58 1.50
Exercisable 3.03 2.75 2.52
Forfeited 4.20 3.49 3.50
9. EMPLOYMENT CONTRACTS
The Company has employment agreements with two officers of the Company,
extending through December 2003. Under the terms of these agreements, the
officers are entitled to be paid a salary of $240,030 annually (adjusted
annually for increases of at least the cost of living index), plus
bonuses, if any, and certain perquisites. One of the officers had his
employment agreement renewed on substantially the same terms and
conditions through December 2007.
The Company entered into an employment agreement with an officer of
Virginia Honey in conjunction with the purchase of Virginia Honey. The
agreement extends to December 31, 2004 and calls for the officer to
receive a salary of $300,000 per year with, at the sole discretion of
Virginia Honey's board of directors, a maximum raise equal to the
percentage increase in the cost of living index. In addition, the
33
Company entered into an employment agreement with an officer of Halifax in
conjunction with the purchase of Halifax. The agreement extends to
December 31, 2007 and calls for the officer to receive a salary of
$242,500 per year with a 3% per year increase starting January 1, 2004.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and
short-term debt approximates fair value due to the short-term nature of
these instruments. The fair value of the Company's notes payable is based
on rates currently available for debt with similar terms and maturities
from the bank issuing the Loan discussed in Note 3.
11. ACQUISITIONS
THE VIRGINIA HONEY COMPANY, INC.
Effective July 1, 2001 Vita acquired 100% of the outstanding shares of
capital stock of Virginia Honey from Terry W. Hess. The results of
Virginia Honey have been included in the Company's consolidated financial
statements since the effective date. Virginia Honey is a manufacturer and
distributor of honey, salad dressings, sauces, jams and jellies and gift
baskets. As a result of the acquisition, the Company is leveraging its
sales and distribution network to provide national exposure to the
products of Virginia Honey. The Company also expects to introduce products
that will be jointly developed, thereby increasing the market presence of
Vita and Virginia Honey.
The aggregate purchase price, including direct costs of the acquisition,
of $4,884,437 was paid in cash. The Stock Purchase Agreement, including
its Amendments, for Virginia Honey provides for future payments to the
former owner based upon 20% of five times the average quarterly EBITDA
less certain debt obligations of Virginia Honey, for the period from
January 2001 through December 31, 2002. The present value of this
calculation resulted in $797,512, and has been recorded as a liability at
December 31, 2003 and, as discussed in Note 3 above, is payable on April
1, 2005. The remaining payments under the Stock Purchase Agreement to the
former owner of Virginia Honey and the payments per the merger agreement
to the former owner of Halifax will be based on the earnings of Vita
Specialty Foods, the combined earnings of Halifax and Virginia Honey.
There are two periods of measurement remaining, the first covers January
1, 2003 until December 31, 2005 and the second covers January 1, 2006
until December 31, 2007.
As a result of the Halifax merger agreement discussed below, the
operations of Virginia Honey and Halifax have been merged effective
November 1, 2002. Accordingly, EBITDA applicable to the future contingent
payments due to Mr. Hess will be determined based upon a formula included
as part of that merger agreement. Should Virginia Honey maintain its
current profitability levels, the Company estimates that total remaining
payments, with a net present value of approximately $1.9 million, would be
due and payable as contingent consideration in accordance with the
provisions of the Stock Purchase Agreement.
The unaudited consolidated results of operation on a pro forma basis as
though Virginia Honey had been acquired as of the beginning of 2001 are as
follows ($000's except earnings per share data):
Twelve months ended December 31, 2001
-------------------------------- ----
Net sales $ 38,452
Net income $ 1,547
Basic earnings per share $ 0.42
Diluted earnings per share $ 0.41
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Virginia Honey
acquisition been consummated as of the above dates, nor are they
indicative of future operating results.
34
THE HALIFAX GROUP, INC.
Effective November 1, 2002, Vita Food Products, Inc. acquired all of the
issued and outstanding shares of capital stock of Halifax, a Georgia
corporation, from Robert J. Budd and certain affiliates or associates of
Mr. Budd. Since the effective date, the results of Halifax have been fully
integrated with the results of Virginia Honey. This merger of Halifax and
Virginia Honey has resulted in a new subsidiary named Vita Specialty
Foods. Halifax is a manufacturer and distributor of licensed brand-named
sauces, marinades, salad dressings, various gourmet products and branded
gift items, many of which are similar to those of Virginia Honey. The
Company expects to enjoy both market synergies and production efficiencies
as a result of this merger.
On the November 6, 2002 closing date, as a direct cost of the acquisition,
the Company paid cash of $450,000 to Mr. Budd in partial payment of the
$795,781 preexisting debt owed to him by Halifax. The discounted value of
the remaining debt has been recorded by the Company as a long-term
obligation as discussed in Note 3 above. The Company also assigned to Mr.
Budd any potential rights or exposure associated with an unresolved legal
case involving Halifax. The merger agreement further provides for two
future contingent payments to Mr. Budd. The first will be based upon 45%
of five times the Halifax portion of Vita Specialty Food's average
quarterly EBITDA. The agreement includes a formula that allocates EBITDA
between Halifax and Virginia Honey, based on the proportion of each unit's
products sold.
This EBITDA will be averaged quarterly for calendar years 2003 through
2005. This first contingent payment will be reduced by the remaining
balance of the preexisting debt discussed above. The second contingent
payment will be determined the same way except the percent will be reduced
from 45% to 30% and will be based upon the calendar years 2006 and 2007.
If payable, the first payment will be paid on or before April 1, 2006 and
the second will be paid on or before April 1, 2008 and both will be
recorded as additional acquisition costs. Should Vita Specialty Foods
maintain its current profitability levels, the Company estimates that
there would be no remaining payment due as contingent consideration in
accordance with the provisions of the merger agreement. The following
table summarizes the fair values of the assets acquired and the
liabilities assumed at the date of acquisition:
AT NOVEMBER 1, 2002
(in 000's)
---------------------------------------
Current assets $ 1,815
Property, plant and equipment 982
Other assets 560
Goodwill 1,562
-------
Total assets acquired 4,919
Current liabilities (3,670)
Long-term debt (1,005)
-------
Total liabilities assumed (4,675)
-------
Net assets acquired $ 244
=======
35
During 2003, the following adjustments were made to the purchase price
allocation:
(in $000's)
--------------------------------------------------------------------
Exit costs incurred in acquisition $ 725
Deferred tax asset relating to the exit costs (317)
Changes in estimated valuation allowance
relating to the acquired net operating loss carryforwards 267
Changes to estimates relating to inventory and relating to
inventory and accounts receivable reserves 70
-----
Adjustment to the original purchase price allocation $ 745
=====
None of the amount of goodwill is expected to be deductible for tax purposes.
The unaudited consolidated results of operation on a pro forma basis as though
Halifax had been acquired as of the beginning of 2001 are as follows ($000's
except earnings per share data):
Twelve months ended December 31, 2002 2001
-------------------------------- ---- ----
Net sales $ 50,275 $ 43,756
Net income $ 970 $ 1,036
Basic earnings per share $ 0.26 $ 0.28
Diluted earnings per share $ 0.25 $ 0.28
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Halifax acquisition been
consummated as of the above dates, nor are they indicative of future operating
results.
ACQUISITION AND EXIT COSTS
In connection with the acquisition of Halifax, the Company's management approved
and initiated plans to restructure the operations of pre-acquisition Halifax to
eliminate redundant facilities and headcount, reduce cost structure and better
align the operating expenses with existing economic conditions. Consequently,
the Company recorded $724,503 of costs relating to activities of pre-acquisition
Halifax such as severance and related benefits, the cost of abandoned
leaseholds, the cost to vacate the leased facilities and other pre-acquisition
liabilities. These costs were accounted for under EITF 95-3, "Recognition of
Liabilities in Connection with Purchase of Business Combinations". These costs
were recognized as a liability assumed in the acquisition and included in the
allocation of the purchase price.
The acquisition and exit costs consist of the following:
Closedown Employee
of Severance
Facility & Related Other Total
---------- ---------- ---------- ----------
Exit costs incurred in acquisition $ 497,538 $ 111,699 $ 115,266 $ 724,503
Payments made during the twelve
months ending December 31, 2003 481,247 111,699 115,266 708,212
Acquisition cost accrual, December 31, ---------- ---------- ---------- ----------
2003 (all current obligations) $ 16,291 $ -- $ -- $ 16,291
========== ========== ========== ==========
36
12. BUSINESS SEGMENTS
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Following the provisions of SFAS No. 131, the Company is
reporting two operating business segments in the same format as reviewed
by the Company's senior management. Segment one, Vita, processes and sells
various herring, and cured and smoked salmon products throughout the
United States and Mexico. Segment two, Vita Specialty Foods, combines the
products of Virginia Honey and Halifax and manufactures and distributes
honey, salad dressings, sauces, marinades, jams and jellies and gift
baskets throughout North America. Management uses operating profit as the
measure of profit or loss by business segment. The significant accounting
policies as described in Note 1 were utilized in the preparation of the
financial statements for both segments.
Business segment information is as follows ($000's):
Twelve months ended December 31, 2003 2002 2001
-------------------------------- ---- ---- ----
GOODWILL
Vita $ -- $ -- $ --
Vita Specialty Foods 8,311 7,566 5,239
------- ------- -------
Total Goodwill $ 8,311 $ 7,566 $ 5,239
======= ======= =======
TOTAL ASSETS
Vita $20,056 $18,566 $16,256
Vita Specialty Foods 9,028 7,976 3,812
------- ------- -------
Total Assets $29,084 $26,542 $20,068
======= ======= =======
NET SALES
Vita $27,216 $28,096 $26,173
Vita Specialty Foods 23,714 14,767 5,809
------- ------- -------
Total Net Sales $50,930 $42,863 $31,982
======= ======= =======
OPERATING PROFIT
Vita $ 612 $ 1,887 $ 1,400
Vita Specialty Foods 1,890 1,028 699
------- ------- -------
Total Operating Profit $ 2,502 $ 2,915 $ 2,099
======= ======= =======
NET INCOME
Vita $ 148 $ 983 $ 809
Vita Specialty Foods 900 463 347
------- ------- -------
Total Net Income $ 1,048 $ 1,446 $ 1,156
======= ======= =======
DEPRECIATION AND AMORTIZATION
Vita $ 540 $ 491 $ 470
Vita Specialty Foods 416 311 160
------- ------- -------
Total Depreciation and Amortization $ 956 $ 802 $ 630
======= ======= =======
CAPITAL EXPENDITURES
Vita $ 389 $ 1,034 $ 590
Vita Specialty Foods 747 211 131
------- ------- -------
Total Capital Expenditures $ 1,136 $ 1,245 $ 721
======= ======= =======
37
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2003 2003 2003 2003
---- ---- ---- ----
REVENUES $ 12,957 $ 12,855 $ 11,651 $ 13,467
GROSS PROFIT 4,022 4,158 3,841 3,809
NET INCOME 307 320 145 276
BASIC EARNINGS PER SHARE 0.08 0.08 0.04 0.07
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,776,562 3,777,895 3,792,993 3,809,857
DILUTED EARNINGS PER SHARE 0.08 0.08 0.04 0.07
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,846,987 3,872,585 3,948,284 3,994,167
FOR THE THREE MONTH PERIOD ENDED
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2002 2002 2002 2002
---- ---- ---- ----
REVENUES $ 10,067 $ 8,785 $ 9,292 $ 14,719
GROSS PROFIT 3,078 2,814 2,794 4,646
NET INCOME 304 132 208 802
BASIC EARNINGS PER SHARE 0.08 0.04 0.06 0.21
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,729,683 3,739,721 3,759,459 3,771,280
DILUTED EARNINGS PER SHARE 0.08 0.03 0.05 0.21
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,815,393 3,858,071 3,879,538 3,863,607
38
SCHEDULE 1. VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DISCOUNTS, RETURNS AND DOUBTFUL ACCOUNTS
(IN THOUSANDS)
BALANCE AT BALANCE AT
CALENDAR BEGINNING CHARGED TO WRITE-OFFS & ACQUISITION OF END
YEAR OF YEAR EXPENSE COLLECTIONS SUBSIDIARY OF YEAR
---- ------- ------- ----------- ---------- -------
2001 $194 105 90 0 $209
2002 $209 6 39 101 $277
2003 $277 74 50 0 $301
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No changes in accountants or disagreements with accountants on accounting
and financial disclosure occurred.
ITEM 9A. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of the Company's
management team, the principal executive officer and principal financial officer
have evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures as defined in Rules 13a - 14(c) and 15d -
14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of December 31, 2003 and, based on their evaluation, have concluded
that these controls and procedures are effective. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls during the fiscal quarter ended December 31,
2003 and up to the date of this Annual Report on Form 10-K. There were no
significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.
Disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and Procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
the Company in the reports that it files under the Exchange Act is accumulated
and communicated to the Company's management, including its principal executive
officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote.
39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 10 is incorporated herein by
reference to the information set forth under the captions "Election of
Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive Proxy Statement for the 2004
Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Compensation of Executive Officers"
in the Company's definitive Proxy Statement for the 2004 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by this Item 12 is incorporated by reference to
the information set forth under the caption "Security Ownership of Principal
Holders and Management" in the Company's definitive Proxy Statement for the 2004
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is incorporated by reference to
the information set forth under the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement for the 2004 Annual
Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item 14 is incorporated by reference to
the information set forth under the caption "Audit Committee Disclosure" in the
Company's definitive Proxy Statement for the 2004 Annual Meeting of
Stockholders.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1), (a)(2) and (d): The Company has filed its consolidated financial
statements and financial statement schedule in Part II, Item 8 of this Annual
Report on Form 10-K.
(a)(3) and (c): Listed below are the exhibits filed as part of this Annual
Report on Form 10-K:
40
NUMBER EXHIBIT TITLE
- ------ -------------
(1) 2.1 Stock Purchase Agreement, dated as of June 29, 2001, between
Vita Food Products, Inc., Virginia Honey Company, Inc. and
Terry W. Hess (Ex. 2.1)
(2) 2.2 Merger Agreement, dated as of October 17, 2002, between the
Company, Vita Holdings, Inc., Vita/Halifax Acquisition
Company, Halifax, Robert J. Budd, Oak Hill Family LLC and
Terry W. Hess (Ex 2.2)
(3) 3.1 Articles of Incorporation of the Company (Ex. 3.1)
(3) 3.2 By-laws of the Company (Ex. 3.2)
(3) 4.1 Form of Common Stock Certificate (Ex. 4.1)
(4) 10.1 Loan and Security Agreement dated as of September 5, 2003 by
and between the Company and LaSalle National Bank, N.A. (Ex.
10.1)
(3) 10.2 Form of 1996 Employee Stock Option Plan (Ex. 10.4)x
(3) 10.3 Form of 1996 Stock Option Plan for Non-Employee Directors (Ex.
10.5)x
(3) 10.4 Form of Employment Agreement between the Company and Stephen
D. Rubin (Ex. 10.7)x
(5) 10.4.1 Amendment One to Employment Agreement between the Company and
Stephen D. Rubin (Ex. 10.4.1)x
(3) 10.5 Form of Employment Agreement between the Company and Clark L.
Feldman (Ex. 10.8)x
(5) 10.5.1 Amendment One to Employment Agreement between the Company and
Clark L. Feldman (Ex. 10.5.1)x
- ----------
(1) Incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on August 30, 2001. Form 8-K Exhibit Number is included in
parenthesis following the title of the exhibit.
(2) Incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on November 6, 2002. Form 8-K Exhibit Number is included in
parenthesis following the title of the exhibit.
(3) Incorporated by reference to Form SB-2 Registration Statement (File No.
333-5738), filed with the Securities and Exchange Commission on September 23,
1996. Form SB-2 Exhibit Number is included in parenthesis following the title of
the exhibit.
(4) Incorporated by reference to Form 10-Q for the fiscal quarter ended
September 30, 2003, filed with the Securities and Exchange Commission on
November 14, 2003. Form 10-Q Exhibit Number is included in parenthesis following
the title of the exhibit.
(5) Incorporated by reference to Form 10-QSB for the fiscal quarter ended June
30, 1999, filed with the Securities and Exchange Commission on August 9, 1999.
Form 10-QSB Exhibit Number is included in parenthesis following the title of the
exhibit.
x Indicates an employee benefit plan, management contract or compensatory plan
or arrangement.
41
NUMBER EXHIBIT TITLE
- ------ -------------
10.6 Employment Agreement dated as of January 1, 2004 between the
Company and Clark L. Feldman x*
(3) 10.7 Long Term Supply/Purchase Agreement dated as of September 1,
1992 by and between the Company and Barry's Limited (Ex. 10.9)
(3) 10.8 Gorenstein Agreement dated September 20, 1996 by and among the
Company, Stephen D. Rubin, Clark L. Feldman, Sam Gorenstein,
David Gorenstein and J.B.F. Enterprises (Ex. 10.26)
(1) 10.9 Form of Employment Agreement, dated as of July 1, 2001,
between Virginia Honey Company, Inc. and Terry W. Hess (First
Exhibit to Ex. 2.1)x
(6) 10.10 Amended and Restated Loan and Security Agreement, dated August
15, 2001 (Ex. 10.11)
(6) 10.10.1 First Amendment to Amended and Restated Loan and Security
Agreement, dated July 31, 2002 (Ex. 10.11.1)
14.1 Code of Ethics*
21.1 Subsidiary of the Company*
31.1 Principal Executive Officer Certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002*
31.2 Principal Financial Officer Certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002*
32.1 Principal Executive Officer Certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002*
32.2 Principal Financial Officer Certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002*
- ----------
(6) Incorporated by reference to Form 10-Q for the fiscal quarter ended
September 30, 2002, filed with the Securities and Exchange Commission on
November 14, 2002. Form 10-Q Exhibit Number is included in parenthesis following
the title of the exhibit.
* Filed herewith.
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on February 26, 2004, with respect to its
press release announcing its results of operations for the quarter and year
ended December 31, 2003.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
VITA FOOD PRODUCTS, INC.
By: /s/Stephen D. Rubin/s/
--------------------------------
Stephen D. Rubin
President
Date: March 26, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the following capacities on March 26, 2004.
Signatures Title
/s/Stephen D. Rubin/s/ Director and President
- --------------------------- (Principal Executive Officer)
Stephen D. Rubin
/s/Clark L. Feldman/s/ Director, Executive Vice President and Secretary
- ---------------------------
Clark L. Feldman
/s/Clifford K. Bolen/s/ Executive Vice President, Chief Financial Officer
- --------------------------- and Treasurer
Clifford K. Bolen (Principal Financial and Accounting Officer)
/s/Terry W. Hess/s/ Chief Executive Officer of Virginia Honey and
- --------------------------- Director
Terry W. Hess
/s/Michael Horn/s/ Director
- ---------------------------
Michael Horn
/s/Neal Jansen/s/ Director
- ---------------------------
Neal Jansen
/s/Paul R. Lederer/s/ Director
- ---------------------------
Paul R. Lederer
s/Steven A. Rothstein/s/ Director
- ---------------------------
Steven A. Rothstein
/s/John C. Seramur/s/ Director
- ---------------------------
John C. Seramur
/s/Joel D. Spungin/s/ Director
- ---------------------------
Joel D. Spungin
/s/Robert J. Budd/s/ Director
- ---------------------------
Robert J. Budd
43
EXHIBIT INDEX
NUMBER EXHIBIT TITLE
- ------ -------------
(1) 2.1 Stock Purchase Agreement, dated as of June 29, 2001, between
Vita Food Products, Inc., Virginia Honey Company, Inc. and
Terry W. Hess (Ex. 2.1)
(2) 2.2 Merger Agreement, dated as of October 17, 2002, between the
Company, Vita Holdings, Inc., Vita/Halifax Acquisition
Company, Halifax, Robert J. Budd, Oak Hill Family LLC and
Terry W. Hess (Ex 2.2)
(3) 3.1 Articles of Incorporation of the Company (Ex. 3.1)
(3) 3.2 By-laws of the Company (Ex. 3.2)
(3) 4.1 Form of Common Stock Certificate (Ex. 4.1)
(4) 10.1 Loan and Security Agreement dated as of September 5, 2003 by
and between the Company and LaSalle National Bank, N.A. (Ex.
10.1)
(3) 10.2 Form of 1996 Employee Stock Option Plan (Ex. 10.4)x
(3) 10.3 Form of 1996 Stock Option Plan for Non-Employee Directors (Ex.
10.5)x
(3) 10.4 Form of Employment Agreement between the Company and Stephen
D. Rubin (Ex. 10.7)x
(5) 10.4.1 Amendment One to Employment Agreement between the Company and
Stephen D. Rubin (Ex. 10.4.1)x
(3) 10.5 Form of Employment Agreement between the Company and Clark L.
Feldman (Ex. 10.8)x
(5) 10.5.1 Amendment One to Employment Agreement between the Company and
Clark L. Feldman (Ex. 10.5.1)x
- ----------
(1) Incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on August 30, 2001. Form 8-K Exhibit Number is included in
parenthesis following the title of the exhibit.
(2) Incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on November 6, 2002. Form 8-K Exhibit Number is included in
parenthesis following the title of the exhibit.
(3) Incorporated by reference to Form SB-2 Registration Statement (File No.
333-5738), filed with the Securities and Exchange Commission on September 23,
1996. Form SB-2 Exhibit Number is included in parenthesis following the title of
the Exhibit.
(4) Incorporated by reference to Form 10-Q for the fiscal quarter ended
September 30, 2003, filed with the Securities and Exchange Commission on
November 14, 2003. Form 10-Q Exhibit Number is included in parenthesis following
the title of the Exhibit.
(5) Incorporated by reference to Form 10-QSB for the fiscal quarter ended June
30, 1999, filed with the Securities and Exchange Commission on August 9, 1999.
Form 10-QSB Exhibit Number is included in parenthesis following the title of the
exhibit.
x Indicates an employee benefit plan, management contract or compensatory plan
or arrangement.
44
NUMBER EXHIBIT TITLE
- ------ -------------
10.6 Employment Agreement dated January 1, 2004 between the Company
and Clark L. Feldman x*
(3) 10.7 Long Term Supply/Purchase Agreement dated as of September 1,
1992 by and between the Company and Barry's Limited (Ex. 10.9)
(3) 10.8 Gorenstein Agreement dated September 20, 1996 by and among the
Company, Stephen D. Rubin, Clark L. Feldman, Sam Gorenstein,
David Gorenstein and J.B.F. Enterprises (Ex. 10.26)
(1) 10.9 Form of Employment Agreement, dated as of July 1, 2001,
between Virginia Honey Company, Inc. and Terry W. Hess (First
Exhibit to Ex. 2.1)x
(6) 10.10 Amended and Restated Loan and Security Agreement, dated August
15, 2001 (Ex. 10.11)
(6) 10.10.1 First Amendment to Amended and Restated Loan and Security
Agreement, dated July 31, 2002 (Ex. 10.11.1)
14.1 Code of Ethics*
21.1 Subsidiary of the Company*
31.1 Principal Executive Officer Certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002*
31.2 Principal Financial Officer Certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002*
32.1 Principal Executive Officer Certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002*
32.2 Principal Financial Officer Certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002*
- ----------
(6) Incorporated by reference to Form 10-Q for the fiscal quarter ended
September 30, 2002, filed with the Securities and Exchange Commission on
November 14, 2002. Form 10-Q Exhibit Number is included in parenthesis following
the title of the exhibit.
* Filed herewith.
45