Smart Balance Inc. Reports Operating Results (10-Q)
Smart Balance Inc. has a market cap of $414.1 million; its shares were traded at around $6.61 with a P/E ratio of 94.4 and P/S ratio of 1.8. SMBL is in the portfolios of Chuck Royce of Royce& Associates.
Highlight of Business Operations:Our operating income was $5.8 million for the three months ended March 31, 2010 compared with operating income of $3.2 million for the corresponding period in 2009. Operating income increased $2.6 million, as the $5.0 million increase in gross margin was partially offset by a $2.4 million increase in operating expenses, reflecting higher marketing investments to support growth and higher selling expenses due to the increased shipments of dairy products.
We incurred other expenses of $1.3 million for the three months ended March 31, 2010 and in the corresponding period in 2009. The results for 2010 and 2009 included net interest expense of $1.0 and $1.1 million, respectively. Included in the 2009 net interest expense was a $0.5 million gain on derivatives related to our interest rate swap.
Ongoing cash saving from the realignment is estimated to be $2.7 million annually. Associated with these changes, there will be a charge to earnings in the second quarter of $3.0 to $3.5 million. Total general and administrative expenses are expected to range from $48 to $49 million for 2010, excluding any charges for the realignment, reflecting a half-year of savings. These estimates may change depending on the final details of the organizational changes.
Cash provided by operating activities was $8.1 million for the three months ended March 31, 2010 compared to $2.9 million in the corresponding period in 2009. For the first three months of 2010, we had net income of $3.0 million, which included $3.8 million of non-cash stock-based compensation expenses and $1.3 million of depreciation expense, offset by increased working capital needs of $1.3 million. For the first three months of 2009, we had net income of $1.1 million, which included $4.0 million of non-cash stock-based compensation expenses and $1.2 million of depreciation expense, offset by increased working capital needs of $2.0 million.
On November 4, 2009, the Company, through its wholly-owned subsidiary GFA Brands, Inc. (the “Borrower”), entered into a Credit Agreement (the “Credit Agreement”) with the various Lenders named therein (the “Lenders”), and Bank of Montreal, as Administrative Agent (the “Agent”). The Credit Agreement provides for $100 million in secured debt financing consisting of a $55 million term loan (the “Term Loan”) and a $45 million revolving credit facility (the “Revolver”). The Revolver includes a $5 million sublimit for the issuance of letters of credit and a $5 million sublimit for swing line loans. Subject to certain conditions, the Borrower, to the extent existing Lenders decline to do so by adding additional Lenders, may increase the Term Loan or increase the commitments under the Revolver (or a combination of the two) up to an aggregate additional amount of $5 million, at the Borrower s option.
After the close of the transaction, total debt outstanding under the Credit Agreement totaled approximately $60.6 million comprised of $55 million of Term Loan debt and $5.6 million of borrowings under the Revolver. During the fourth quarter of 2009, the Company paid approximately $4.0 million on its Revolver and during the first quarter of 2010 it paid $1.1 million of its scheduled requirements. On April 30, 2010 the Company paid $6.5 million of which $1.6 million reduced the Revolver to zero and $4.9 million was applied against the Term Loan bringing the total debt outstanding to $49.0 million.
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