Smart Balance Announces 2007 Fourth-Quarter and Full-Year Results
PARAMUS, N.J., March 14 /PRNewswire-FirstCall/ -- Smart Balance Inc.
The Company also completed part of the recapitalization of its balance sheet with the redemption of all its outstanding public warrants associated with the original initial public offering. The redemption generated $76.5 million in cash, of which approximately $40 million was used to pay down debt in the quarter.
"I am pleased with the progress we made in the seven months since acquiring the business," said Stephen B. Hughes, Smart Balance Chairman and CEO. "Net sales grew 26.3% for the fourth quarter and 27.8% for the year, on an operating basis, compared to last year. Excluding product placement costs, which will benefit results in the future, net sales were up over 30% in the fourth quarter versus last year.
"We made excellent progress on the sell-in of our 'Plus Six' grocery distribution initiative. I am encouraged by the widespread customer acceptance of this program and expect a significant expansion in our range of products on the shelf by the end of June 2008," remarked Hughes. "Looking at operating basis results for the year, operating income before non-cash expenses grew 26% versus last year."
2007 GAAP Results
The Company indicated that its reported GAAP financial statements include the results of its acquisition of GFA Brands, Inc. since the date of acquisition on May 21, 2007. Because there were no operations prior to the acquisition, prior periods are not comparable. The Company has provided results on an operating basis following the GAAP results. The operating basis results should not be viewed in isolation or as a substitute for reported GAAP results. A reconciliation of operating basis results to GAAP results is provided for in the accompanying tables.
Fourth Quarter -- Net sales were $50.7 million for the fourth quarter. Fourth quarter operating loss was $17.4 million, which included $21.4 million of non-cash charges. Fourth quarter net loss was $15.4 million, which included $16.1 million of non-cash charges, after applicable taxes. Net loss for the fourth quarter of 2007 was $1.41 on a per share basis. See tables below for the non-cash items affecting operating loss, net loss and for net loss on a per share basis.
Full-year 2007 -- Net sales were $111.0 million, which reflected operations after the May 21, 2007 acquisition. Full-year operating loss was $11.4 million, which included $27.8 million of non-cash charges. Full-year net loss was $64.5 million, which included $70.5 million of non-cash charges, after applicable taxes. Net loss for 2007 was $4.12 on a per share basis. See table below for the items affecting operating loss, net loss and for net loss on a per share basis.
Items Affecting GAAP Operating Loss -- 2007 Fourth Quarter Full Year $ in Millions Operating Loss (17.4) (11.4) Non-cash charges affecting Operating Loss: FAS 123R Stock Option Expense (1.9) (6.7) Depreciation & Amortization (1.0) (2.6) Performance Based Shares (18.5) (18.5) (21.4) (27.8) Items Affecting GAAP Net Loss -- 2007 $ in Millions Fourth Quarter Full Year Net Loss (15.4) (64.5) Non-cash charges affecting Net Loss: FAS 123R Stock Option Expense (1.2) (4.0) Depreciation & Amortization (1.4) (2.4) Performance Based Shares (18.5) (18.5) Gain (loss) on Derivative Liability 5.0 (45.6) Gain (loss) on Derivative Liability (16.1) (70.5) Net Loss Per Share -- 2007 $ Per Share - basic and diluted Fourth Quarter Full Year Net Loss (0.45) (2.61) Less: Unpaid dividends on cumulative preferred stock 0.96 1.51 Net Loss available for common shares (1.41) (4.12)
2007 Operating Basis Results
The following discussion of operating basis results includes the operating results of Smart Balance Inc. from the date of its acquisition of GFA Brands, Inc. on May 21, 2007 and the operating results of GFA Brands prior to the acquisition. Management believes that this presentation provides more useful information because it reflects the performance of the operating entity in both the current and prior periods presented. The operating basis results should not be viewed in isolation or as a substitute for reported GAAP results. A reconciliation of operating basis results to GAAP results is provided in the accompanying tables.
Fourth Quarter -- Net sales increased 26.4% to $50.7 million in 2007, from $40.1 million in 2006, due to higher prices in most categories and increased volume from higher consumer demand for Smart Balance(R) spreads, peanut butter, cooking oil, and mayonnaise, partially offset by timing of introductory trade and promotion costs. Excluding product placement fees, net sales increased 30.6%. Market shares for spreads, peanut butter, cooking oil, and mayonnaise all increased versus the prior year. Gains in volume were slightly offset by lower volume in microwave popcorn primarily due to category contraction. Within the quarter, October reflected carryover volume weakness that resulted from the absence of third quarter marketing spending due to debt covenant restrictions and the transition to a new sales agency. In the second half of the fourth quarter, volume picked up as a result of increased consumer marketing support, with November registering the highest volume month ever recorded in cases sold. Pricing was higher on most items in the fourth quarter reflecting the cumulative effect of increases during 2007.
Gross profit increased 20.6% to $23.4 million in 2007 from $19.4 million in 2006 due primarily to higher sales volume. Gross profit as a percent of net sales decreased to 46.2% in 2007 from 48.4% in 2006, as higher input costs were only partially offset by selling price increases. Input costs increased in all major commodities used in the company's products, notably in oils (e.g. soybean, palm fruit, and canola).
Operating income declined $23.1 million to a $17.4 million loss in 2007 from a $5.7 million gain in 2006 as the gain at gross profit was more than offset by increased general and administrative expenses, marketing investments, and selling costs. General and administrative expenses increased $18.9 million primarily due to the non-cash expenses of $18.5 million related to the release of performance based shares from escrow, $1.9 million in FAS 123R Stock Option expense, and $1.0 million for depreciation and amortization. Excluding these non-cash charges, operating income declined $1.8 million to $4.0 million in 2007 from $5.8 million in 2006.
Full-year 2007 -- Net sales increased 27.7% to $175.5 million in 2007 from $137.4 million in 2006, due to higher volumes and higher prices in most categories. The increase in volume was due to higher consumer demand for Smart Balance(R) spreads, peanut butter, cooking oil, and mayonnaise and distribution gains for Smart Balance(R) items introduced in the prior year, notably peanut butter, cooking oil, and mayonnaise. Gains in volume were slightly offset by lower volume in microwave popcorn primarily due to category contraction. Market shares for spreads, peanut butter, cooking oil, and mayonnaise all increased versus the prior year. Pricing increased on most items as input costs continued to rise throughout 2007. In the spreads category, the Company announced average price increases for March and August, 2007, of approximately 8% and 7%, respectively. There were no announced price increases in 2006.
Gross profit increased 24.4% to $84.1 million in 2007 from $67.6 million in 2006 due primarily to higher sales volume. Gross profit as a percentage of net sales decreased to 47.9% in 2007 from 49.2% in 2006, as higher input costs were only partially offset by selling price increases. Input costs increased in all major commodities used in the Company's products, notably in oils (e.g. soybean, palm fruit, and canola). Oils costs continued to rise throughout the year.
Operating income declined $21.4 million to $2.4 million in 2007 from $23.8 million in 2006 as the gain at gross profit was more than offset by increased general and administrative expenses, selling costs, and marketing investments. General and administrative expenses increased $29.3 million primarily due to non-cash expenses of $18.5 million expense related to the release of performance based shares from escrow, $6.7 million in FAS 123R Stock Option expense, and $2.6 million for depreciation and amortization. Excluding these non-cash charges, operating income increased $6.3 million to $30.2 million in 2007 from $23.9 million in 2006.
2008 Outlook
Smart Balance's outlook for 2008 reflects continued growth in net sales on an operating basis in line with its long-term target of approximately 30% through both volume and pricing growth. Three innovations developed in 2007 will be expanding in 2008: extra virgin olive oil spreads, omega-3 enhanced spreads and 50/50 butter blend. These new products have created a catalyst for our "Plus Six" distribution initiative. Pricing will reflect the prior year increases as well as the announced price increase on most spreads in February, 2008. Gross profit as a percent of net sales will be lower in 2008 versus 2007 as pricing actions are expected to continue to trail rising input costs, notably oils used in the majority of Smart Balance's products. Marketing and infrastructure investments are expected to increase in order to support growth. In March 2008, the Company paid down an additional $30 million in debt and expects to continue to pay down debt as appropriate. The Company also expects to continue to meet all covenants related to long-term debt.
FORWARD-LOOKING STATEMENTS
Statements made in this press release that are not historical facts, including statements about the Company's plans, strategies, beliefs and expectations, are forward-looking and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may include use of the words "expect", "anticipate", "plan", "intend", "project", "may", "believe" and similar expressions. Forward-looking statements speak only as of the date they are made, and, except for the Company's ongoing obligations under the U.S. federal securities laws, the Company undertakes no obligation to publicly update any forward-looking statement, whether to reflect actual results of operations, changes in financial condition, changes in general economic or business conditions, changes in estimates, expectations or assumptions, or circumstances or events arising after the issuance of this press release. Actual results may differ materially from such forward-looking statements for a number of reasons, including those risks and uncertainties set forth in the Company's filings with the SEC and the Company's ability to:
-- raise prices as fast as commodity costs increase; -- introduce and expand distribution of new products; -- meet marketing and infrastructure needs; -- meet long-term debt covenants; and -- continue to grow net sales.
About Smart Balance Inc.
Smart Balance Inc.
SMART BALANCE INC. AND SUBSIDIARY Consolidated Statements of Operations Three months Three months ended ended December 31, December 31, 2007 2006 Net sales $50,665,641 $ - Cost of goods sold 27,232,228 - Gross profit 23,433,413 - Operating expenses: Selling, general and administrative 40,819,963 827,042 Total operating expenses 40,819,963 827,042 Operating loss (17,386,550) (827,042) Other income (expense): Interest income 143,904 1,098,769 Interest expense (3,655,465) - (Loss) gain income on derivative liability 4,976,728 (11,229,539) Other expense (1,159,981) - Total other income (expense) 305,186 (10,130,770) Loss before income taxes (17,081,364) (10,957,812) (Benefit) provision for income taxes (1,654,748) 97,612 Net loss $(15,426,616) $(11,055,424) Less: Unpaid dividends on cumulative $33,096,545 $ - preferred stock Net loss available for common shares $(48,523,161) $(11,055,424) Net loss per share - basic and diluted $(1.41) $(0.77) Weighted average shares outstanding - basic and diluted 34,433,180 14,355,945 Twelve months Twelve months ended ended December 31, December 31, 2007 2006 Net sales $111,038,295 $ - Cost of goods sold 58,715,013 - Gross profit 52,323,282 - Operating expenses: Selling, general and administrative 63,773,174 1,924,602 Total operating expenses 63,773,174 1,924,602 Operating loss (11,449,892) (1,924,602) Other income (expense): Interest income 2,449,614 4,220,026 Interest expense (9,677,881) - (Loss) gain income on derivative liability (45,556,198) (15,266,445) Other expense (1,019,608) - Total other income (expense) (53,804,073) (11,046,419) Loss before income taxes (65,253,965) (12,971,021) (Benefit) provision for income taxes (705,897) 808,140 Net loss $(64,548,068) $(13,779,161) Less: Unpaid dividends on cumulative preferred stock $37,159,012 $ - Net loss available for common shares $(101,707,080) $(13,779,161) Net loss per share - basic and diluted $(4.12) $(0.96) Weighted average shares outstanding - basic and diluted 24,667,344 14,355,945 Smart Balance Inc. Reconciliation of Operating Basis to GAAP Basis
In 2007, the GAAP operating loss includes certain expenses (non-cash) related to the release of performance based shares from escrow, FAS 123R stock option expense and amortization that did not exist for GFA in prior periods. In order to provide a more meaningful comparison of operating performance with prior periods, we have removed those items from the 2007 operating basis results set forth below. Furthermore, in 2006 and 2005, operating loss for the parent company consisted largely of formation costs and other expenses incurred in seeking and evaluating potential business combinations. We have added these expenses back to the operating basis results below, as GFA incurred its own operating expenses for these periods, and the inclusion of the parent company's expenses prior to the date of acquisition, which consisted primarily of formation expenses, make it difficult to compare operating results period to period. With the information set forth below, management and stockholders would be better able to determine whether or not sales, gross profit or operating income of the acquired business have improved in 2007 compared with prior periods. The operating basis results provided below are intended to assist the reader in comparing the operating performance of the GFA business we acquired, for the periods before and after the acquisition. However, they do not indicate what actual consolidated results would have been had we acquired GFA on January 1, 2005.
The operating basis results should not be viewed in isolation or as a substitution for GAAP results.
GAAP Basis Operating Basis (1) Add GFA Results (2) As reported Prior to the Add Form 10-K Acquisition Adjustments Three Months Ended December 31, 2007 Net Sales 50,665,641 - - Operating Income (17,386,550) - - Three Months Ended December 31, 2006 Net Sales - 40,117,765 - Operating Income (827,042) 5,745,603 827,042 Twelve Months Ended December 31, 2007 Net Sales 111,038,295 64,406,415 117,311 Operating Income (11,449,892) 12,697,997 1,152,317 Twelve Months Ended December 31, 2006 Net Sales - 137,404,155 - Operating Income (1,924,602) 23,847,056 1,924,602 2007 vs 2006 2007 vs 2006 Increase Increase Operating (decrease) (decrease) Basis $ % Three Months Ended December 31, 2007 Net Sales 50,665,641 10,547,876 26.29% Operating Income (17,386,550) (23,132,153) -402.61% Three Months Ended December 31, 2006 Net Sales 40,117,765 Operating Income 5,745,603 Twelve Months Ended December 31, 2007 Net Sales 175,562,021 38,157,866 27.77% Operating Income 2,400,422 (21,446,634) -89.93% Twelve Months Ended December 31, 2006 Net Sales 137,404,155 Operating Income 23,847,056 (1) To add GFA results for the entire reporting period as necessary (2) To remove Smart Balance, Inc. (parent company) pre-acquisition expenses from the results prior to the acquisition date, May 21, 2007. Parent company expenses incurred beginning May 21, 2007 remain included in operating basis results (3) adjustment due to reclass of Damaged Goods Sales in Q3 which included ytd Q2 amounts Smart Balance Inc. Operating Basis Results Three Three Twelve Twelve Months Months Months Months Ended Ended Ended Ended December December December December (in 000's) 31, 2007 31, 2006 31, 2007 31, 2006 Net Sales $50,666 $40,118 $175,562 $137,404 Cost of Goods Sold 27,232 20,722 91,436 69,853 Gross Profit 23,433 19,395 84,126 67,551 Gross Margins 46.3% 48.3% 47.9% 49.2% Marketing 11,738 4,939 25,670 21,548 Selling 5,686 4,220 18,592 14,001 G&A 23,395 4,491 37,463 8,154 Total SG&A 40,820 13,650 81,726 43,704 Operating Income (Loss) (17,387) 5,746 2,400 23,847 % of Net Sales -34.3% 14.3% 1.4% 17.4% Operating Income includes the following non-cash items: FAS 123R Stock Options 1,912 - 6,689 - Performance Based Shares Release 18,456 - 18,456 - Depreciation 42 7 121 26 Amortization 1,022 - 2,504 - 21,432 7 27,770 26 Operating Income net of non- cash items: 4,045 5,752 30,171 23,873 % of Net Sales 8.0% 14.3% 17.2% 17.4%
The Company indicated that its reported GAAP financial statements include the results of its acquisition of GFA Brands, Inc. since the date of acquisition on May 21, 2007. Because there were no operations prior to the acquisition, prior periods are not comparable. The Company has provided results on an operating basis following the GAAP results. The operating basis results should not be viewed in isolation or as a substitute for reported GAAP results.
SMART BALANCE INC. AND SUBSIDIARY Consolidated Balance Sheets December 31, December 31, 2007 2006 Assets Current assets: Cash and cash equivalents $37,648,754 $569,142 Investments held in trust - restricted - 101,073,611 Accounts receivable, net of allowance of $228,871 11,733,117 - Accounts receivable - other 799,470 141,260 Inventories 7,202,198 - Prepaid taxes 6,517,833 - Prepaid expenses and other assets 1,454,866 354,077 Deferred tax asset 1,079,509 555,283 Total current assets 66,435,747 102,693,373 Property and equipment, net 1,805,331 - Other assets: Goodwill 374,885,923 - Intangible assets, net 159,645,634 - Deferred costs, net 3,519,412 3,589,990 Other assets 74,975 800 Total other assets 538,125,944 3,590,790 Total assets $606,367,022 $106,284,163 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $20,355,419 $4,798,884 Advances from stockholders - 206,276 Income taxes payable 1,035,149 - Deferred underwriting fees - 3,573,035 Derivative liability - 32,284,925 Total current liabilities 21,390,568 40,863,120 Deferred interest income - 432,623 Long term debt 119,504,174 - Deferred tax liability 53,293,528 - Total liabilities 194,188,270 41,295,743 Commitment and contingencies Common stock, subject to possible conversion, 2,550,892 shares at conversion value - 19,661,116 Stockholders' equity Series A Convertible Preferred stock, $.0001 par value, 50,000,000 shares authorized; 15,388,889 issued and outstanding, liquidation preference, $175,659,013 (converted on January 3, 2008) 175,659,013 - Common stock, $.0001 par value, 250,000,000 shares authorized; 43,113,863 (2007) and 15,951,050 (2006) issued and outstanding (including 2,550,892 shares subject to conversion at December 31, 2006) 4,311 1,595 Additional paid in capital 315,479,759 59,741,972 Retained deficit (78,964,331) (14,416,263) Total stockholders' equity 412,178,752 45,327,304 Total liabilities and stockholders' equity $606,367,022 $106,284,163
CONTACT: Linda Percefull of TBC Public Relations, +1-847-438-1834,
+1-201-568-9300,
Web site: http://www.smartbalance.com/
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