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Smart Balance Inc. Reports Operating Results (10-Q)

November 05, 2009 | About:
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10qk

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Smart Balance Inc. (SMBL) filed Quarterly Report for the period ended 2009-09-30.

SMART BALANCE INC. is committed to providing superior tasting heart healthier alternatives in every category it enters by avoiding trans fats naturally balancing fats and/or reducing saturated fats total fat and cholesterol. The company's products include Smart Balance Buttery Spreads Milk Butter Blend Sticks Cream Cheese Peanut Butter Microwave Popcorn Cooking Oil Mayonnaise Non-Stick Cooking Spray and Cheese. Smart Balance Inc. is one of the five fastest growing food companies in the United States according to Nielsen sales figures. Smart Balance Inc. has a market cap of $353.9 million; its shares were traded at around $5.65 with and P/S ratio of 1.6.

Highlight of Business Operations:

Operating income increased 34% to $3.5 million for the three months ended September 30, 2009 compared with $2.6 million for the corresponding period in 2008. The $0.9 million increase reflects the $4.6 million increase in gross margin, partially offset by the $3.7 million increase in operating expenses. Excluding non-cash charges for stock based-compensation and depreciation and amortization of $5.3 million in 2009 and $4.9 million in 2008, operating income increased $1.3 million to $8.7 million in 2009 from $7.4 million in 2008.

Other expenses were $1.4 million for the three months ended September 30, 2009 compared to other expenses of $5.0 million in the corresponding period in 2008. The results for 2009 and 2008 included net interest expense of $1.2 and $4.5 million, respectively. Included in the 2009 net interest expense is a $0.4 million loss on derivatives related to our interest rate swap, compared to a $2.6 million loss in 2008. Additionally, in 2008, there was $0.1 million expense of accelerated financing amortization due to the early paydown of debt.

Operating income was $9.2 million for the nine months ended September 30, 2009 compared to $4.0 million for the corresponding period in 2008. Operating income increased $5.2 million, as the $18.4 million increase in gross margin was largely offset by a $13.2 million increase in operating expenses. Excluding non-cash charges for stock based-compensation and depreciation and amortization of $15.8 million in 2009 and $14.3 million in 2008, operating income increased $6.6 million to $24.9 million in 2009 from $18.3 million in 2008.

Other expenses were $4.2 million for the nine months ended September 30, 2009 compared to other expenses of $10.9 million in the corresponding period in 2008. The results for 2009 and 2008 included net interest expense of $3.6 and $9.8 million, respectively. Included in the 2009 net interest expense is a $0.9 million loss on derivatives related to our interest rate swap, compared to a $2.6 million loss in 2008. Additionally, in 2009, there was $0.1 million expense of accelerated financing amortization due to the early paydown of debt, compared with $1.0 million in 2008.

Cash provided by operating activities was $8.6 million for the nine months ended September 30, 2009 compared to $4.7 million in the corresponding period in 2008. For the first nine months of 2009, we had a net income of $3.4 million, which included $12.1 million of non-cash stock-based compensation expenses and $3.9 million of depreciation and amortization, offset by increased working capital of $6.2 million and changes in deferred taxes and derivative liability of $4.7 million. For the first nine months of 2008, we had net losses of $4.3 million, which included $10.9 million of stock-based compensation expenses and $3.6 million of depreciation and amortization. Higher working capital needs in the first half of 2008 more than offset the benefit of these non-cash charges.

In conjunction with the GFA merger, on May 21, 2007, the Company entered into a loan arrangement with Banc of America Securities LLC and Bank of America, N.A. for $180 million in secured debt financing consisting of: (1) a $140 million first lien facility comprised of a $120 million term loan and a $20 million revolver and (2) a second lien facility comprised of a $40 million term loan. The first lien facility is secured by a first lien on all of the Company s assets and the second lien facility is secured by a second lien on all of the Company s assets. During the second quarter of 2009, the Company prepaid $5.0 million of the first lien debt. As a result of the prepayment, the Company wrote off approximately $0.1 million of deferred financing costs, which is included in other income (expense). Through September 30, 2009, the Company paid a total of approximately $95.5 million, consisting of $65.5 million in principal on its first lien term loan and $30 million on its second lien debt. The term loan of the first lien facility will mature on May 21, 2014 and the revolving loan under the first lien facility will mature on May 21, 2013. The term loan of the second lien facility will mature on November 18, 2014.

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