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Form 8-K LIFEWAY FOODS INC For: Nov 10

November 10, 2014 4:34 PM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section�13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):���November 10, 2014
LIFEWAY FOODS, INC.

(Exact name of registrant as specified in its charter)
ILLINOIS
000-17363
36-3442829
(State or other jurisdiction of
incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
6431 West Oakton St. Morton Grove, IL
60053
(Address of principal executive offices)
(Zip code)
Registrants telephone number, including area code: (847)�967-1010

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule�425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule�14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule�14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule�13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Item 2.02
Results of Operations and Financial Condition.
On November 10, 2014, Lifeway Foods, Inc. (the Company) announced the Companys third quarter results for 2014.

A copy of the press release is attached as Exhibit 99.1 to this Form 8-K.��This Form 8-K and Exhibit 99.1 are each being furnished to the Securities and Exchange Commission (the SEC) pursuant to Item 2.02 of Form 8-K and are therefore not to be considered filed with the SEC.
Item 9.01
Financial Statements and Exhibits.

(d)���Exhibits
99.1�����������Press release date November 10, 2014.
2

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

LIFEWAY FOODS, INC.
Dated:��� November 10, 2014
By:��
/s/ Edward Smolyansky �
Edward Smolyansky�
Chief Financial and Accounting Officer, Secretary and Treasurer
3

EXHIBIT INDEX
Exhibit No.
Description
99.1
Press release dated November 10, 2014.

4

EXHIBIT 99.1

Lifeway Foods Announces Results for the Third Quarter of 2014

Third Quarter Net Sales Increase 27% to $30.1 Million
Morton Grove, IL  November 10, 2014  Lifeway Foods, Inc., (Nasdaq: LWAY),�a leading supplier of cultured dairy products known as kefir and organic kefir, today announced results for the third quarter ended September 30, 2014.

Our strong double digit net sales growth in the third quarter demonstrates the continued demand for our nutritious probiotic kefir products, said Julie Smolyansky, CEO of Lifeway Foods, Inc. Greater brand awareness, increased distribution, and successful new product innovation helped us deliver another quarter of profitability despite continued pressure from increased milk prices. We are committed to executing on our long-term growth strategy and believe there are compelling opportunities ahead as we expand with new and existing customers.

Third Quarter Results
Total consolidated net sales increased 27%, or $6.3 million, to $30.1 million during the three-month period ended September 30, 2014 from $24.0 million during the same three-month period in 2013.

Gross profit for the third quarter of 2014 was $7.4 million compared to $6.9 million in the third quarter of the prior year. The Company's gross profit margin decreased to 25% in the third quarter of 2014 versus 29% in the third quarter of 2013. The decrease was primarily attributable to an approximate 20% increase in the cost of milk, the Companys largest raw material, compared to the same period last year. In addition, gross profit for the quarter was impacted by an increase in depreciation expense of $0.6 million related to a true-up on Starfruit leasehold improvements and expense associated with assets placed in service at the Lifeway Wisconsin location.

In the third quarter, general and administrative expenses increased to $2.6 million from $1.7 million the prior year. This increase is primarily due to start up costs associated with the purchase of the Golden Guernsey dairy plant.

Total operating expenses increased 20% or $1.0 million to $5.6 million during the third quarter of 2014, from $4.7 million during the same period in 2013. This increase was primarily attributable to an increase in general and administrative expenses.

Total operating income was $1.8 million during the third quarter of 2014, from $2.2 million during the same period in 2013.��The slight decrease in operating income is related to the decrease in gross profit and increased operating expenses.


The Companys third quarter 2014 effective tax rate was 43% compared to 29% in the same period last year. The company expects the full year tax rate for fiscal 2014 to be comparable to the full year tax rate for fiscal 2013.

Total net income was $1.0 million, or $0.06 per diluted share, for the three-month period ended September 30, 2014 compared to $1.7 million, or $0.10 per diluted share, in the same period in 2013.

Nine Month Results
Total consolidated net sales increased by $17.6 million, or approximately 25%, to $88.8 million during the nine-month period ended September 30, 2014 from $71.3 million during the same nine-month period in 2013.�

Gross profit for the first nine-months of 2014 decreased to $22.0 million, compared to $22.8 million in the same period in the prior year. The Company's gross profit margin was 25% in the first nine-months of 2014 compared to 32% in the same period last year.

Total net income was $2.8 million, or $0.17 per share, for the nine-month period ended September 30, 2014 compared to $5.5 million, or $0.33 per share, in the same period in 2013.

Balance Sheet/Cash Flow Highlights
The Company had $2.8 million in cash and cash equivalents as of September 30, 2014 compared to $1.2 million at September 30, 2013. This increase is primarily due to the acquisition of the Golden Guernsey dairy plant in the second quarter of 2013. Total stockholders equity was $45.7 million as of September 30, 2014, which is an increase of $2.3 million when compared to September 30, 2013.

Conference Call
The Company will host a conference call to discuss these results with additional comments and details on Monday, November 10, 2014 at 4:30 p.m. ET. The call will be broadcast live over the Internet hosted at the Investor Relations section of Lifeway Foods website at www.lifeway.net, and will be archived online through November 24, 2014. 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, Inc. (Nasdaq: LWAY), recently named one of Fortune Small Business' Fastest Growing Companies for the sixth consecutive year, is America's leading supplier of the cultured dairy products known as kefir and organic kefir. Lifeway Kefir is a dairy beverage that contains 10 exclusive live and active probiotic cultures plus ProBoost". In addition to its line of Kefir products, the company produces a variety of Frozen Kefir and probiotic cheese products. Lifeway also sells frozen kefir, kefir smoothies and kefir parfaits through its Starfruit" retail stores.

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
Investor Relations:
ICR
Katie Turner
646.277.1228
























LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, 2014 and 2013 (Unaudited) and December 31, 2013

September 30,
December 31,
2014
2013
2013
ASSETS
Current assets
Cash and cash equivalents
$ 2,795,429 $ 1,240,730 $ 3,306,608
Investments
3,057,214 2,506,463 2,516,380
Certificates of deposits in financial institutions
 115,373 15,373
Inventories
7,134,857 8,382,287 6,899,008
Accounts receivable, net of allowance for doubtful accounts and discounts ($1,300,000 and $1,350,000 and $1,050,000)
11,803,145 11,313,652 10,444,839
Prepaid expenses and other current assets
54,944 88,629 128,323
Other receivables
26,720 89,100 103,272
Deferred income taxes
360,765 394,277 322,071
Refundable income taxes
842,425 423,242 1,014,947
Total current assets
26,075,499 24,553,753 24,750,821
Property and equipment, net
21,874,520 21,637,492 20,824,448
Intangible assets
Goodwill
14,068,091 14,068,091 14,068,091
Other intangible assets, net of accumulated amortization of $5,005,117, $4,376,640 and $4,468,359 at September 30, 2014 and 2013 and at December 31, 2013, respectively
3,238,683 3,929,360 3,750,441
Total intangible assets
17,306,774 17,997,451 17,818,532
Other Assets
Long-term accounts receivable, net of current portion
270,599 280,000 280,000
Total assets
$ 65,527,392 $ 64,468,696 $ 63,673,801
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of notes payable
$ 877,038 $ 878,088 $ 875,002
Accounts payable
7,318,512 5,429,988 6,723,179
Accrued expenses
1,243,876 1,323,213 1,284,060
Accrued income taxes
 1,292,762 ---
Total current liabilities
9,439,426 8,924,051 8,882,241
Notes payable
8,339,282 9,214,853 8,999,012
Deferred income taxes
2,065,221 2,917,213 2,843,426
Total liabilities
19,843,929 21,056,117 20,724,679
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, 2014, September 30, 2013 and December 31, 2013
6,509,267 6,509,267 6,509,267
Paid-in-capital
2,032,516 2,032,516 2,032,516
Treasury stock, at cost
(�8,187,682 ) (�8,187,682 ) (�8,187,682 )
Retained earnings
45,367,487 43,056,422 42,587,214
Accumulated other comprehensive income (loss), net of taxes
(�38,125 ) 2,056 7,807
Total stockholders' equity
45,683,463 43,412,579 42,949,122
Total liabilities and stockholders' equity
$ 65,527,392 $ 64,468,696 $ 63,673,801



LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income
For the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)

(Unaudited)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2014
2013
2014
2013
Sales
$ 32,704,435 $ 26,601,341 $ 97,359,630 $ 80,030,021
Less: discounts and allowances
(�2,594,213 ) (�2,808,811 ) (�8,552,286 ) (�8,772,576 )
Net sales
30,110,222 30,110,222 23,792,530 23,792,530 88,807,344 88,807,344 71,257,445 71,257,445
Cost of goods sold
21,697,954 16,513,357 64,812,489 47,217,179
Depreciation expense
1,010,966 410,797 2,022,204 1,226,629
Total cost of goods sold
22,708,920 16,924,154 66,834,693 48,443,808
Gross profit
7,401,302 6,868,376 21,972,651 22,813,637
Selling expenses
2,804,127 2,815,126 9,977,636 8,291,960
General and administrative
2,627,566 1,671,080 7,115,393 5,567,649
Amortization expense
178,919 178,201 536,758 533,884
Total operating expenses
5,610,612 4,664,407 17,629,787 14,393,493
Income from operations
1,790,690 2,203,969 4,342,864 8,420,144
Other income (expense):
Interest and dividend income
22,739 36,535 86,664 82,166
Rental income
1,201 2,231 2,900 8,889
Interest expense
(�62,084 ) (�59,887 ) (�194,377 ) (�133,610 )
Gain on sale of investments, net
reclassified from OCI
(�22,940 ) 161 39,190 121,441
Gain on sale of equipment
85,077  8,592 
Other Income
 209,175 1,674 219,404
Total other income (expense)
23,993 188,215 (55,357 ) 298,290
Income before provision for income taxes
1,814,683 2,392,184 4,287,507 8,718,434
Provision for income taxes
789,005 702,257 1,507,234 3,258,928
Net income
$ 1,025,678 $ 1,689,927 $ 2,780,273 $ 5,459,506
Basic and diluted earnings per common share
0.06 0.10 0.17 0.33
Weighted average number of shares outstanding
16,346,017 16,346,017 16,346,017 16,346,017
COMPREHENSIVE INCOME
Net income
$ 1,025,678 $ 1,689,927 $ 2,780,273 $ 5,459,506
Other comprehensive income
����(loss), net of tax:
����Unrealized gains (losses) on
������investments (net of tax)
(�93,679 ) 29,356 (�22,524 ) 17,079
����Less reclassification adjustment
������for (gains) losses included in
������net income (net of taxes)
13,702 (�91 ) (23,408 ) (�68,614 )
Comprehensive income
$ 945,701 $ 1,719,192 $ 2,734,341 $ 5,407,971


LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2014 and 2013 (Unaudited)

(Unaudited)
September 30,
2014
2013
Cash flows from operating activities:
Net income
$ 2,780,273 $ 5,459,506
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization
2,558,962 1,760,513
Gain on sale of investments, net
(�39,190 ) (�121,441 )
Deferred income taxes
(�783,607 ) (�231,218 )
Bad debt expense
76,049 26,819
Gain on sale of equipment
(8,592 ) (209,175 )
(Increase) decrease in operating assets:
Accounts receivable
(�1,548,110 ) (�2,612,905 )
Other receivables
76,552 (�80,275 )
Inventories
(�235,849 ) (�2,443,101 )
Refundable income taxes
172,522 (338,414 )
Prepaid expenses and other current assets
73,379 33,509
Increase (decrease) in operating liabilities:
Accounts payable
595,333 1,173,263
Accrued expenses
(�40,184 ) 167,536
Income taxes payable
 1,038,451
Net cash provided by operating activities
3,677,538 3,623,068
Cash flows from investing activities:
Purchases of investments
(�2,319,742 ) (�2,877,968 )
Proceeds from sale of investments
1,736,946 2,281,792
Redemption of certificates of deposits
15,000 334,627
Purchases of property and equipment
(�3,052,303 ) (�8,205,669 )
Proceeds from sale of equipment
89,076 537,500
Net cash used in investing activities
(3,531,023 ) (7,929,718 )
Cash flows from financing activities:
Dividends paid
 (1,307,861 )
Net proceeds from debt issuance
 4,975,000
Repayment of notes payable
(�657,694 ) (�405,985 )
Net cash used in financing activities
(�657,694 ) 3,261,154
Net decrease in cash and cash equivalents
(511,179 ) (1,045,496 )
Cash and cash equivalents at the beginning of the period
3,306,608 2,286,226
Cash and cash equivalents at the end of the period
$ 2,795,429 $ 1,240,730


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