LWAY Lifeway Foods Inc

Lifeway Foods, Inc., (Nasdaq:LWAY), the leading U.S. supplier of kefir cultured dairy products, today reported financial results for the fourth quarter and fiscal year ended December 31, 2015.

“In 2015, we took decisive steps to better position Lifeway for future growth,” said Julie Smolyansky, CEO of Lifeway Foods, Inc. “These include strategic investments in new product innovation, continued investment in Lifeway’s production capabilities, and new additions to our team. Additionally, we ramped up our marketing and advertising initiatives as well as increased our investments in trade promotions, both of which have led to a strong start thus far in 2016.”

Fourth Quarter Results

Fourth quarter 2015 net sales decreased 2% to $29.5 million from $30.2 million in the fourth quarter of 2014. Gross sales increased 4.9% driven by higher sales of the Company’s Kefir products that were more than offset by increased trade promotions and allowances.

Gross profit as a percent of net sales improved to 24.2% from 22.9%% in the year ago period. The margin rate improvement reflects lower milk costs, offset partially by increased trade promotion and higher labor costs.

Selling expenses decreased approximately 28% to $3.3 million during the fourth quarter of 2015 from $4.6 million in the fourth quarter of 2014. The reduction reflects reduced salaries and administrative related costs in the fourth quarter of 2015. General and administrative expenses increased $0.5 million to $2.8 million from $2.3 million compared to the same period last year primarily due to the elevated level of professional fees.

Net income was approximately $328,000, or $0.02 per diluted share, in the fourth quarter of 2015 compared to a loss of $26,000, or $0.00 per diluted share, in the same period in 2014.

Fiscal 2015Net sales for the year ended December 31, 2015 were $118.6 million, essentially consistent with the $119.0 million reported last year. The net sales performance reflects a 5.4% increase in gross sales driven by higher volume of the Company’s drinkable Kefir. The total volume increase was slightly more than offset by elevated trade promotions and allowances.

Gross profit as a percent of net sales improved to 26.6% from 24.3% in the year ago period. The margin rate improvement reflects lower milk costs, offset partially by increased trade promotion and higher labor costs.

Selling expenses decreased approximately 12% to $12.8 million in fiscal 2015 from $14.5 million in the prior year. The decline in selling expenses reflects reduced salaries and administrative expenses, partially offset by higher advertising costs. General and administrative expenses increased $4.3 million to $13.7 million in fiscal 2015 from $9.4 million last year. The higher general and administrative expenses is primarily a result of higher salaries and higher professional fees due in part to costs associated with remediating internal accounting controls and the related delays in the Company’s financial reporting as well as redundancies associated with and the change in Lifeway’s certified public accountants. 

The effective tax rate for fiscal 2015 was 50.6%% compared to 53.4% in the same period in 2014. The higher tax rate in 2014 reflects provisions for tax exposures that did not recur in 2015.

Net income was $2.0 million, or $0.12 per share, for the year ended December 31, 2015 compared to $2.0 million, or $0.12 per share, in fiscal 2014.  

Balance Sheet/Cash Flow HighlightsThe Company had cash and cash equivalents of approximately $5.6 million as of December 31, 2015 compared to cash and cash equivalents of $3.3 million as of December 31, 2014. The Company generated $6.7 million in cash from operating activities during 2015 compared to $5.1 million during 2014 primarily driven by reductions in net working capital.

Conference CallThe Company will host a conference call to discuss these results with additional comments and details on Wednesday, March 16, 2016 at 10:00 a.m. ET. The call will be broadcast live over the Internet hosted at the Investor Relations section of Lifeway Foods’ website at www.lifewaykefir.com, and will be archived online through March 29, 2016. 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, Ed Smolyansky, Chief Operating Officer, and John Waldron, Chief Financial Officer.

About Lifeway FoodsLifeway Foods, Inc. (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 available throughout the United States and on a small, but growing basis, in Canada, Latin America and 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 StatementsThis 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.

 

	LIFEWAY FOODS, INC. AND SUBSIDIARIES
	Consolidated Statements of Income and Comprehensive Income
	December 31, 2015, 2014 and 2013
	(In thousands, except per share data)
						2015					2014				2013
	Gross Sales				$	137,244				$	130,216			$	108,966
	Less: discounts and allowances					(18,657	)				(11,256	)			(11,442	)
	Net sales					118,587					118,960				97,524
	Cost of goods sold					84,573					87,561				68,275
	Depreciation expense					2,413					2,536				1,626
	Total cost of goods sold					86,986					90,097				69,901
	Gross profit					31,601					28,863				27,623
	Selling expenses					12,752					14,534				11,296
	General and administrative					13,730					9,378				7,583
	Amortization expense					716					716				713
	Total operating expenses					27,198					24,628				19,592
	Income from operations					4,403					4,235				8,031
	Other income (expense):
	Interest and dividend income					112					122				116
	Rental income					7					4				12
	Interest expense					(236	)				(277	)			( 203	)
	Gain (Loss) on sale of investments, net reclassified from OCI					(72	)				99				195
	Gain (Loss) on sale of equipment					253					7				(305	)
	Impairment of investments					(475	)				--				--
	Other Income (Expense)					--					8				11
	Total other income (expense)					(411	)				(37	)			(174	)
	Income before provision for income taxes					3,992					4,198				7,857
	Provision for income taxes					2,020					2,242				2,867
	Net income				$	1,972				$	1,956			$	4,990
	Basic and diluted earnings per common share				$	0.12				$	0.12			$	0.31
	Weighted average number of shares outstanding					16,331					16,346				16,346
	COMPREHENSIVE INCOME
	Net income				$	1,972				$	1,956			$	4,990
	Other comprehensive income (loss), net of tax:
	Unrealized gains (losses) on investments, net of $30, $94 and ($50) of taxes					(47	)				(146	)			64
	Reclassifications to earnings:
	Other than temporary impairment of investments, net of $84 of taxes					130					--				--
	Realized (gains) losses on investments, net of ($28), $39 and $85 of taxes					44					(60	)			(110	)
	Comprehensive income				$	2,099				$	1,750			$	4,944

LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2015 and 2014
(In thousands)
		December 31,
		2015				2014
Current assets
Cash and cash equivalents		$	5,646			$	3,260
Investments, at fair value			2,216				2779
Certificates of deposits in financial institutions			513				150
Inventories			7,664				5,814
Accounts receivable, net of allowance for doubtful accounts and discounts of
$1,800 and $1,050 in 2015 and 2014 respectively			9,604				10,214
Prepaid expenses and other current assets			156				252
Other receivables			45				134
Deferred income taxes			556				408
Refundable income taxes			449				1,141
Total current assets			26,849				24,152
Property and equipment, net			21,375				21,892
Intangible assets
Goodwill & indefinite-lived intangibles			14,068				14,068
Other intangible assets, net			2,344				3,060
Total intangible assets			16,412				17,128
Other Assets
Long-term accounts receivable, net of current portion			282				252
Total assets		$	64,918			$	63,424
Current liabilities
Current maturities of notes payable		$	840			$	872
Accounts payable			7,138				5,587
Accrued expenses			2,793				2,066
Accrued income taxes			52				--
Total current liabilities			10,823				8,525
Notes payable			7,119				8,125
Deferred income taxes			1,719				2,074
Total liabilities			19,661				18,724
Stockholders' equity
Common stock, no par value; 40,000 shares authorized;
17,274, shares issued; 16,210 and 16,346  shares
outstanding at 2015 and 2014			6,509				6,509
Paid-in-capital			2,033				2,033
Treasury stock, at cost			(9,730	)	)		(8,188		)
Retained earnings			46,516				44,544
Accumulated other comprehensive loss, net of taxes			(71	)	)		(198		)
Total stockholders' equity			45,257				44,700
Total liabilities and stockholders' equity		$	64,918			$	63,424

LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2015, 2014 and 2013
(In thousands)
		December 31,
		2015					2014						2013
Cash flows from operating activities:
Net income		$	1,972				$	1,956					$	4,990
Adjustments to reconcile net income to operating cash flow:
Depreciation and amortization			3,129					3,252						2,339
Loss (Gain) on sale of investments, net			72					(99		)				(196		)
Impairment of investments			475					—						—
Deferred income taxes			(585	)				(720		)				(238		)
Bad debt expense			73					205						33
(Gain) Loss on sale of equipment			(253	)				(7		)				305
(Increase) decrease in operating assets:
Accounts receivable			537					55						(1,742		)
Other receivables			59					(31		)				(94		)
Inventories			(1,849	)				1,085						(960		)
Refundable income taxes			691					(126		)				(930		)
Prepaid expenses and other current assets			95					(124		)				(6		)
Increase (decrease) in operating liabilities:
Accounts payable			1,551					(1,136		)				2,466
Accrued expenses			726					782						128
Income taxes payable			52					—						(254		)
Net cash provided by operating activities			6,745					5,092						5,841
Cash flows from investing activities:
Purchases of investments			(1,489	)				(3,280		)				(3,519		)
Proceeds from sale of investments			1,714					2,774						3,001
Redemption of certificates of deposits			272					15						424
Investments in certificates of deposit			(635	)				(150		)				—
Purchases of property and equipment			(1,995	)				(3,684		)				(8,480		)
Proceeds from sale of equipment			353					65						711
Net cash used in investing activities			(1,780	)				(4,261		)				(7,863		)
Cash flows from financing activities:
Purchase of treasury stock			(1,542	)				—						—
Dividends paid			—					—						(1,308		)
Net proceeds from debt issuance			—					—						4,975
Repayment of notes payable			(1,037	)				(877		)				(625		)
Net cash provided by (used in) financing activities			(2,579	)				(877		)				3,042
Net increase (decrease) in cash and cash equivalents			2,386					(46		)				1,020
Cash and cash equivalents at the beginning of the year			3,260					3,306						2,286
Cash and cash equivalents at the end of the year		$	5,646				$	3,260					$	3,306
Supplemental cash flow information:
Cash paid for income taxes		$	2,245				$	3,080					$	4,363
Cash paid for interest		$	235				$	267					$	206

Contact:       
Lifeway Foods, Inc.     
Phone: 877.281.3874     
Email: info@Lifeway.net
        
Investor Relations:
ICR
Katie Turner
Hunter Wells
646.277.1228