Lifeway Foods Reports Third Quarter 2015 Results

MORTON GROVE, Ill., Nov. 9, 2015 /PRNewswire/ — Lifeway Foods, Inc., (Nasdaq: LWAY), the leading U.S. supplier of kefir cultured dairy products, today reported financial results for the third quarter of its fiscal 2015 ended September 30, 2015.

“This year we have made good progress on our strategic initiatives as evidenced by our solid results for the third quarter,” said Julie Smolyansky, CEO of Lifeway Foods, Inc. “We are committed to providing the highest quality kefir products and our performance demonstrates the strong and continued demand for Lifeway Kefir. Our team is diligently focused on creating innovative products, expanding distribution across new and existing retail channels, and growing Lifeway’s brand awareness. We are confident in our ability to develop our business into a global, healthy food products company as we execute on the tremendous opportunities ahead of us.”

Third Quarter Results

Third quarter 2015 total consolidated net sales decreased 2% to $29.6 million from $30.1 million in the third quarter of 2014. The Company’s third quarter net sales were impacted by significantly higher customer promotional allowances.

Cost of goods sold as a percentage of net sales, excluding depreciation expense, was approximately 67% during the third quarter compared to approximately 72% for the same period last year. This decrease was primarily driven by lower milk prices partially offset by an increase in promotional allowances and discounts given to customers. Gross profit as a percent of net sales increased to 31% from 26% last year.

Selling expenses decreased approximately 4% to $2.7 million during the third quarter of 2015 from $2.8 million in the third quarter of 2014.

General and administrative expenses increased $1.5 million to $4.1 million from $2.6 million in the same three-month period last year. The increase is primarily a result of increases in salaries and professional fees primarily associated with the Company’s delayed SEC filings.

Provision for income taxes was $0.9 million, or a 50.9% effective rate, for the third quarter of 2015 compared to $1.2 million, or a 54.2% effective tax rate, during the same period in 2014.

Net income was $0.9 million, or $0.05 per diluted share, in the three-month period ended September 30, 2015 compared to net income of $1.0 million, or $0.06 per diluted share, in the same period in 2014.

First Nine Months of Fiscal 2015

Total consolidated net sales increased by $0.2 million, or approximately 0.3%, to $89.0 million during the nine-month period endedSeptember 30, 2015 from $88.8 million during the same nine-month period in 2014.

Cost of goods sold as a percentage of net sales, excluding depreciation expense, was approximately 71% during the first nine months of fiscal 2015 compared to approximately 73% for the same period last year. This improvement was primarily driven by lower milk prices partially offset by an increase in promotional allowances and discounts given to customers. Gross profit as a percent of net sales increased to 28% from 25% last year.

Selling expenses decreased approximately 5% to $9.5 million during the first nine months of 2015 from $10.0 million in the first nine months of 2014.

General and administrative expenses increased $3.8 million to $10.9 million from $7.1 million in the same nine-month period last year. The increase is primarily a result of increases in salaries, Wisconsin facilities expenses, and professional fees primarily associated with the Company’s delayed SEC filings in 2015

Provision for income taxes was $1.7 million, or a 50.8% effective rate, for the first nine months of 2015 compared to $2.3 million, or a 53.8% effective tax rate, during the same period in 2014.

Net income was $1.6 million or $0.10 per share for the nine-month period ended September 30, 2015 compared to $2.0 million or$0.12 per share in the same period in 2014.

Balance Sheet/Cash Flow Highlights

The Company had cash and cash equivalents of approximately $5.0 million as of September 30, 2015 compared to cash and cash equivalents of $3.3 million as of December 31, 2014.  The Company also generated $4.4 million in cash from operating activities in the first nine-months of 2015 compared to $3.7 million in the year ago period.

Stock Repurchase Program

In September, the Company’s Board of Directors authorized a stock repurchase program for up to 250,000 shares of common stock or up to $3.5 million. There were no share repurchases during the nine months ended September 30, 2015.

Conference Call

The Company will host a conference call to discuss these results with additional comments and details on Monday, November 9, 2015at 4:30 p.m. ET. The call will be broadcast live over the Internet hosted at the Investor Relations section of Lifeway Foods’ website atwww.lifewaykefir.com, and will be archived online through November 23, 2015. In addition, listeners may dial 877-407-3982 in North America, and international listeners may dial 201-493-6780. Participants from the Company will be Julie Smolyansky, President and Chief Executive Officer, and Edward Smolyansky, Chief Financial Officer and Chief Operating Officer.

About Lifeway Foods

Lifeway Foods (LWAY), recently named one of Forbes Best Small Companies, is America’s leading supplier of the probiotic fermented beverage known as kefir. In addition to its line of drinkable kefir, the company also produces frozen kefir, specialty cheeses and a ProBugs line for kids. Lifeway’s tart and tangy cultured dairy products are now sold across the United States, Canada, Latin Americaand the United Kingdom. Learn how Lifeway is good for more than just you at www.lifewaykefir.com.

Find Lifeway Foods, Inc. on Facebook: www.facebook.com/lifewaykefir
Follow Lifeway Foods on Twitter: http://twitter.com/lifeway_kefir
YouTube: http://www.youtube.com/user/lifewaykefir

Forward Looking Statements

This news release contains forward-looking statements. Investors are cautioned that actual results may differ materially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, competitive pressures and other important factors detailed in the Company’s reports filed with the Securities and Exchange Commission.

Contact:

Lifeway Foods, Inc.

Phone: 877.281.3874

Email: info@Lifeway.net

Investor Relations:

ICR

Katie Turner

Hunter Wells

646.277.1228

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

September 30, 2015 and December 31, 2014

September 30,

December 31,

2015

2014

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

5,010,669

$

3,260,244

Investments, at fair value

2,512,537

2,779,140

Certificates of deposits in financial institutions

534,678

149,965

Inventories

6,931,773

5,814,219

Accounts receivable, net of allowance for doubtful

accounts and discounts of $1,100,000 and $1,050,000 at September 30, 2015 and  December 31, 2014, respectively

10,753,485

10,213,541

Prepaid expenses and other current assets

53,966

251,922

Other receivables

37,850

134,338

Deferred income taxes

612,159

408,340

Refundable income taxes

129,426

1,140,796

Total current assets

26,576,273

24,152,505

Property and equipment, net

21,602,426

21,892,395

Intangible assets

Goodwill

14,068,091

14,068,091

Other intangible assets, net

2,523,006

3,059,764

Total intangible assets

16,591,097

17,127,855

Other Assets

Long-term accounts receivable, net of current portion

294,767

251,683

Total assets

$

65,064,563

$

63,424,438

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Current maturities of notes payable

$

840,000

$

872,285

Accounts payable

5,190,593

5,586,755

Accrued expenses

3,104,452

2,066,076

Accrued income taxes

448,891

Total current liabilities

9,583,936

8,525,116

Notes payable

7,329,328

8,124,515

Deferred income taxes

1,806,539

2,075,095

Total liabilities

18,719,803

18,724,726

Stockholders’ equity

Common stock, no par value; 40,000,000 shares authorized; 17,273,776 shares issued; 16,346,017 shares outstanding at September 30, 2015 and December 31, 2014

6,509,267

6,509,267

Paid-in-capital

2,032,516

2,032,516

Treasury stock, at cost

(8,187,682)

(8,187,682)

Retained earnings

46,189,101

44,543,618

Accumulated other comprehensive loss, net of taxes

(198,442)

(198,007)

Total stockholders’ equity

46,344,760

44,699,712

Total liabilities and stockholders’ equity

$

65,064,563

$

63,424,438

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

For the Three Months and Nine Months Ended September 30, 2015 and 2014

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Gross sales

$

33,519,071

$

32,704,435

$

102,913,996

$

97,359,630

Less: discounts and promotional allowances

(3,920,406)

(2,594,213)

(13,872,019)

(8,552,286)

Net sales

29,598,665

30,110,222

89,041,977

88,807,344

Cost of goods sold

19,929,639

21,697,954

62,778,735

64,812,489

Depreciation expense

613,830

610,966

1,808,988

2,022,204

Total cost of goods sold

20,543,469

22,308,920

64,587,723

66,834,693

Gross profit

9,055,196

7,801,302

24,454,254

21,972,651

Selling expenses

2,706,375

2,804,127

9,486,177

9,977,636

General and administrative

4,117,811

2,627,566

10,919,862

7,115,393

Amortization expense

178,919

178,919

536,758

536,758

Total operating expenses

7,003,105

5,610,612

20,942,797

17,629,787

Income from operations

2,052,091

2,190,690

3,511,457

4,342,864

Other income (expense):

Interest and dividend income

25,259

22,739

86,477

86,664

Rental income

1,800

1,201

5,400

2,900

Interest expense

(55,698)

(62,084)

(179,468)

(194,377)

(Loss)/Gain on sale of investments, net

reclassified from OCI

839

(22.940)

(21,098)

39,190

Gain on sale of property and equipment

200

85,077

243,283

8,592

Other income (expense), net

(205,000)

(303,796)

1,674

Total other income (expense)

(232,600)

23,993

(169,202)

(55,357)

Income before provision for income taxes

1,819,491

2,214,683

3,342,255

4,287,507

Provision for income taxes

926,639

1,201,005

1,696,772

2,307,234

Net income

$

892,852

$

1,013,678

$

1,645,483

$

1,980,273

Basic and diluted earnings per common share

$

0.05

$

0.06

$

0.10

$

0.12

Weighted average number of

common shares outstanding

16,346,017

16,346,017

16,346,017

16,346,017

COMPREHENSIVE INCOME

Net income

$

892,852

$

1,013,678

$

1,645,483

$

1,980,273

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on investments (net of tax)

(183,170)

(93,679)

(247,645)

(22,524)

Less reclassification adjustment for (gains) losses and other than temporary impairments included in net income (net of taxes)

124,395

13,702

247,210

(23,408)

Comprehensive income

$

834,047

$

933,701

$

1,645,048

$

1,934,341

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2015 and 2014

(Unaudited)

September 30,

2015

2014

Cash flows from operating activities:

Net income

$

$1,645,483

$

1,980,273

Adjustments to reconcile net income to net cash flows from operating activities:

Depreciation and amortization

2,345,746

2,558,962

Loss (gain) on sale of investments, net

21,098

(39,190)

Impairment of investments

384,500

Deferred income taxes

(472,375)

(783,607)

Bad debt expense

250

76,049

Gain on sale of property and equipment

(243,083)

(8,592)

(Increase) decrease in operating assets:

Accounts receivable

(540,194)

(1,548,110)

Other receivables

53,674

76,552

Inventories

(1,117,554)

(235,849)

Refundable income taxes

1,011,370

972,522

Prepaid expenses and other current assets

197,956

73,379

Increase (decrease) in operating liabilities:

Accounts payable

(396,162)

595,333

Accrued expenses

1,038,376

(40,184)

Accrued income taxes

448,891

Net cash provided by operating activities

4,377,976

3,677,538

Cash flows from investing activities:

Purchases of investments

(1,369,285)

(2,319,742)

Proceeds from sale of investments

1,229,855

1,736,946

Redemption of certificates of deposits

249,965

15,000

Investments in certificates of deposits

(634,678)

Purchases of property and equipment

(1,618,716)

(3,052,303)

Proceeds from sale of property and equipment

342,780

89,076

Net cash used in investing activities

(1,800,079)

(3,531,023)

Cash flows from financing activities:

Repayment of notes payable

(827,472)

(657,694)

Net cash used in financing activities

(827,472)

(657,694)

Net (decrease) increase in cash and cash equivalents

1,750,425

(511,179)

Cash and cash equivalents at the beginning of the period

3,260,244

3,306,608

Cash and cash equivalents at the end of the period

$

$5,010,669

$

2,795,429

Supplemental cash flow information

Cash paid for income taxes

$

1,120,000

$

2,131,658

Cash paid for interest

$

177,521

$

195,275