FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 2O549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1998
-------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
Commission file number 0-7166
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DOUGHTIE'S FOODS, INC.
(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0903892
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2410 WESLEY STREET, PORTSMOUTH, VIRGINIA 23707
(Address of principal executive offices)
(757) 393-6007
(Registrant's telephone number, including area code)
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1 par value - 1,495,023 shares as of October 23,1998
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited) <F1>
<CAPTION>
September 26, December 27,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 16,890 $ 26,929
Accounts receivable - trade, net 7,660,515 8,566,995
Inventories 4,581,769 4,669,291
Deferred income taxes 372,220 372,220
Prepaid expenses and other
current assets 139,434 68,166
------------- ------------
Total Current Assets 12,770,828 13,703,601
------------- ------------
PROPERTY, PLANT AND EQUIPMENT -
AT COST:
Land 280,827 280,827
Buildings 3,608,055 3,608,055
Delivery equipment 246,091 169,195
Plant and refrigeration equipment 1,680,117 1,590,626
Office equipment 505,698 491,078
------------- ------------
6,320,788 6,139,781
Less - accumulated depreciation 3,714,917 3,513,216
------------- ------------
2,605,871 2,626,565
------------- ------------
OTHER ASSETS 108,705 114,651
------------- ------------
$ 15,485,404 $ 16,444,817
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 533,333 $ 533,333
Accounts payable 3,489,350 3,198,641
Income taxes payable 404,788 891,657
Accrued salaries, commissions and
bonuses 136,965 182,965
Other accrued liabilities 106,661 63,948
------------- ------------
Total Current Liabilities 4,671,097 4,870,544
LONG-TERM DEBT - less current portion 1,407,106 2,737,910
------------- ------------
Total Liabilities 6,078,203 7,608,454
------------- ------------
STOCKHOLDERS' EQUITY:
Common stock - $1 par value;
authorized 4,000,000 shares,
issued and outstanding 1,495,023
shares 1,495,023 1,495,023
Additional paid-in capital 2,807,037 2,807,037
Retained earnings 5,105,141 4,534,303
------------- ------------
Total Stockholders' Equity 9,407,201 8,836,363
------------- ------------
$ 15,485,404 $ 16,444,817
============= ============
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <F1>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
------------------------------------ -----------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET SALES $ 23,596,821 $ 24,172,942 $ 65,892,880 $ 64,548,286
COST OF GOODS SOLD 19,939,578 20,452,419 55,346,692 54,058,033
------------- ------------- ------------- ------------
GROSS PROFIT 3,657,243 3,720,523 10,546,188 10,490,253
------------- ------------- ------------- ------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,181,826 3,131,104 9,277,082 9,009,172
INTEREST EXPENSE 40,227 62,279 140,482 177,677
------------- ------------- ------------- ------------
3,222,053 3,193,383 9,417,564 9,186,849
------------- ------------- ------------- ------------
INCOME BEFORE INCOME TAXES 435,190 527,140 1,128,624 1,303,404
INCOME TAX EXPENSE 163,196 197,678 423,234 488,777
------------- ------------- ------------- ------------
NET INCOME $ 271,994 $ 329,462 $ 705,390 $ 814,627
============= ============= ============= ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,495,023 1,495,091 1,495,023 1,496,415
============= ============= ============= ============
EARNINGS PER SHARE:
BASIC $ .18 $ .22 $ .47 $ .54
============= ============= ============= ============
DILUTED $ .18 $ .22 $ .47 $ .54
============= ============= ============= ============
CASH DIVIDENDS PER SHARE $ .03 $ .027 $ .09 $ .081
============= ============= ============= ============
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <F1>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
September 26, September 27,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 705,390 $ 814,627
Adjustments to reconcile net income
to net cash provided by
(used for) operations:
Depreciation 229,219 200,889
(Gain) loss on sale of property, plant
and equipment (4,389) 5,408
(Increase) decrease in assets:
Accounts receivable - trade, net 906,480 (1,839,273)
Inventories 87,522 (505,994)
Prepaid expenses and other current
assets (71,268) (112,750)
Other assets 5,946 (19,075)
Increase (decrease) in liabilities:
Accounts payable 290,709 2,333,697
Income taxes payable (486,869) 413,777
Accrued salaries, commissions and
bonuses (46,000) 38,050
Other accrued liabilities 42,713 67,112
------------ ------------
1,659,453 1,396,468
------------ ------------
Cash flows from investing activities:
Additions to property, plant and
equipment (240,214) (263,924)
Proceeds from sale of property,
plant and equipment 36,078 924,758
------------ ------------
(204,136) 660,834
------------ ------------
Cash flows from financing activities:
Changes in long-term debt, including
current portion (1,330,804) (2,139,166)
Acquisition of treasury stock 0 (6,459)
Cash dividends (134,552) (119,712)
------------ ------------
(1,465,356) (2,265,337)
------------ ------------
Net (decrease) in cash (10,039) (208,035)
Cash at beginning of period 26,929 372,687
------------ ------------
Cash at end of period $ 16,890 $ 164,652
============= =============
<FN>
<F1>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
DOUGHTIE'S FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1
- ------
The consolidated financial statements include the accounts of Doughtie's Foods,
Inc. (the "Company") and its wholly owned subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation.
Although the accompanying financial statements are unaudited, management
believes that they contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as of September 26,
1998 and December 27, 1997, results of operations for the quarters ended
September 26, 1998 and September 27, 1997 and the nine months ended September
26, 1998 and September 27, 1997 and cash flows for the nine months ended
September 26, 1998 and September 27, 1997. The results of operations for the
periods cited above are not necessarily indicative of the results to be expected
for the full year.
NOTE 2
- ------
On February 28, 1997, the Company sold the assets of its manufacturing
division's barbecue and chili business for approximately $840,000 in cash.
Barbecue and chili sales accounted for less than 5% of consolidated 1996 sales
volume. The net pretax gain on the sale was approximately $50,000.
On April 14, 1997, the Company sold the assets of its manufacturing division's
deli meats business for approximately $486,000. The terms of the sale were a
$286,000 cash down payment with the $200,000 balance in the form of secured
notes. Deli meat sales accounted for less than 5% of consolidated 1996 sales
volume. The net pretax gain on the sale was approximately $140,000.
NOTE 3
- ------
Inventories are stated at the lower of last-in, first-out (LIFO) cost or market.
Because inventory valuations under the LIFO method are based on an annual
determination, estimates must be made at interim dates of year-end costs and
levels of inventories. The possibility of variations between estimated year-end
costs and levels of LIFO inventories and the actual year-end amounts may
materially affect the results of operations as finally determined for the full
year.
NOTE 4
- ------
Cash paid for interest totaled $40,227 and $62,279 for the quarters ended
September 26, 1998 and September 27, 1997 and $140,482 and $177,677 for the nine
months ended September 26, 1998 and September 27, 1997, respectively.
Cash paid for income taxes totaled $111,000 and $0 for the quarters ended
September 26, 1998 and September 27, 1997 and $910,000 and $73,000 for the nine
months ended September 26, 1998 and September 27, 1997, respectively.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Sales for the quarter ended September 26, 1998 were $23.6 million or
2.4% lower than sales for the prior year's third quarter of $24.2 million. Sales
for the nine months ended September 26, 1998 were $65.9 million or 2.1% higher
than sales of $64.5 million for the prior year's first nine months. Sales to
multi-unit customers account for the majority of the nine month increase. This
increase was partially offset by a reduction in sales caused by the disposition
of the manufacturing division in the first and second quarters of 1997 and also
a decrease in business related to a reduction in the military installations
served under the contract with the Department of Defense in the second and third
quarters of 1998.
The Company's gross profit margin (gross profit as a percentage of net
sales) increased from 15.39% in the quarter ended September 27, 1997, to 15.50%
for the quarter ended September 26, 1998. The third quarter increase was caused
by the decreased business with the Department of Defense which had a lower gross
profit margin. The gross profit margin for the nine months decreased from 16.25%
in 1997 to 16.01% in 1998. The slight decline is due to the disposition of the
manufacturing division, which had a higher markup.
The Company's selling, general and administrative expenses, expressed
as a percentage of net sales, increased from 12.95% for the third quarter of
1997 to 13.47% for the quarter ended September 26, 1998 and increased from
13.95% for the first nine months of 1997 to 14.08% for the nine months ended
September 26, 1998. The increase for the nine month period and quarter was a
result of the decrease in sales under the Department of Defense contract without
a corresponding decrease in selling, general and administrative expense.
Interest expense for the quarter ended September 26, 1998 decreased to
.17% of sales compared to .26% of sales for the third quarter of 1997 and
decreased to .21% of sales for the nine months ended September 26, 1998 compared
to .28% of sales for the first nine months of 1997. Decreased borrowing levels
and lower interest rates were the cause of the decreased expense. As the
interest on the Company's debt is both London Interbank Offered Rates (LIBOR)
and prime related, interest expense will increase or decrease in subsequent
periods based on fluctuations in these rates and the borrowing levels of the
Company.
Income tax expense was $423,200 for the nine months ended September 26,
1998 compared to $488,800 for the corresponding period of 1997. The decrease in
income tax expense relates to decreased earnings, as the effective tax rate was
unchanged.
The Company reported net income of $705,400 or $.47 per share for the
first nine months of 1998 compared to net income of $814,600 or $.54 per share
in the first nine months of 1997.
Liquidity
- ---------
The Company uses a number of liquidity indicators for internal evaluation
purposes. Certain of these measures as of September 26, 1998 and December
27,1997 are set forth below:
September 26, December 27,
1998 1997
------------ ------------
Total Debt to Total Debt Plus
Stockholders' Equity .17 .27
Current Assets to Current
Liabilities 2.73 2.81
Inventory Turnover (The
Annualized Cost of Goods
Sold to Ending Inventory) 16.11 15.23
The total debt to total debt plus stockholders' equity ratio decreased from
.27 on December 27, 1997 to .17 on September 26, 1998 due to the decrease in
accounts receivable, the proceeds of which were used to reduce long-term debt.
The inventory turnover rate increased from 15.23 in 1997 to 16.11 in 1998,
as a result of increased sales and management focus on inventory levels, due
primarily to warehouse constraints.
On February 28, 1997, the Company sold the assets of its manufacturing
division's barbecue and chili business for approximately $840,000 in cash.
Barbecue and chili sales accounted for less than 5% of consolidated 1996 sales
volume. The net pretax gain on the sale was approximately $50,000.
On April 14, 1997, the Company sold the assets of its manufacturing
division's deli meats business for approximately $486,000. The terms of the sale
were a $286,000 cash down payment with the $200,000 balance in the form of
secured notes. Deli meat sales accounted for less than 5% of consolidated 1996
sales volume. The net pretax gain on the sale was approximately $140,000.
Capital Resources
- -----------------
The Company's debt financing at September 26, 1998, consisted of the
following:
A $7,500,000 revolving bank note at LIBOR plus 1.50%. The LIBOR rate at
September 26, 1998 was 5.63%. The note is due three years after the annual
renewal date, currently July, 2001, subject to annual renewal. As of September
26, 1998, the Company had borrowed $590,440 against this credit line and had
$6,909,560 of additional borrowing capacity.
A $2,000,000 Industrial Revenue Bond from a bank for the purpose of
expanding the Company's plant and office facilities in Portsmouth, Virginia at
an annual interest rate of 91.50% of prime. The prime rate at September 26, 1998
was 8.50%. As of September 26, 1998, the Company had fully utilized the
Industrial Revenue Bond and the outstanding balance was $500,000.
A $1,750,000 bank term loan at LIBOR plus 1.50%. The loan is to be repaid
in quarterly installments of $100,000. As of September 26, 1998, the outstanding
balance was $850,000. The funds were used to finance the increased inventory and
accounts receivable required to service a one-year contract awarded to the
Company in January 1996 by the United States Department of Defense to furnish
food items to various military installations. The contract contains three yearly
renewal options and was renewed for 1998.
While the Company does not anticipate a material increase in its capital
requirements in the near future, such an increase, if it occurs, is likely to be
met through additional long-term debt financing.
Year 2000 Compliance
- --------------------
Many computer systems, programs, components, and other hardware with
embedded microcontrollers currently record years in a two-digit format. Such
systems, if not modified, will be unable to recognize properly dates beyond 1999
- -- the so-called "Year 2000 Problem." The Company relies on its computer
systems, applications and devices in operating and monitoring various aspects of
its business. The Company also relies, directly and indirectly, on systems of
customers, suppliers, and financial institutions. Management has divided this
issue into three sections: its own computer systems, its own embedded systems,
and the computer systems of third party suppliers.
With respect to the Company's computer systems, Management believes all
critical hardware and third party software to be "Year 2000 Compliant."
Approximately 80% of the Company's custom software has been modified with the
remaining 20% scheduled to be completed by January 1, 1999. Testing of the
computer system has begun and should be completed by March 1999. Management
believes its computer systems will be "Year 2000 Compliant" at that time. The
Company estimates the total cost of modifying its computers and software to be
about $50,000, with about $20,000 having been expensed in the second and third
quarters of 1998. The Company has been and expects to continue to fund the costs
of Year 2000 compliance through operating cash flows.
The Company uses several systems containing embedded microcontrollers.
Management is in the process of evaluating such systems.
The Company relies on the computer systems of third party suppliers and
customers. While the Company is querying major suppliers and customers regarding
their readiness for the Year 2000, Management cannot guarantee the accuracy of
the representations. The Company expects to have contacted approximately 50
suppliers and customers by March 1999. The Company purchases its inventory from
numerous vendors and believes that the failure of a limited number of suppliers
to be Year 2000 Compliant would not materially affect the Company's operations
given the number of alternative suppliers. The Company has also considered the
possibility of one or more major customers being temporarily unable to meet its
financial obligations because of the Year 2000 Problem and believes that
existing lines of credit are sufficient to compensate for such potential
temporary shortfall in cash flow.
There are numerous uncertainties relating to addressing Year 2000 issues,
including the actual cost and effort of implementing corrective measures, the
degree to which outside parties appropriately address their Year 2000 issues,
and other factors, some of which are beyond the Company's control, and all of
which may cause results to be different from those currently anticipated by the
Company. Doughtie's is developing contingency plans to minimize any potential
problems.
---------------------------
Forward-Looking Information
---------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward- looking statements. This Quarterly Report on Form 10-Q, the
Company's Annual Report to Shareholders, the Company's Annual Report on Form
10-K or any Form 8-K of the Company or any other written or oral statements made
by or on behalf of the Company may include forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. Forward-looking statements are inherently subject to the
uncertainties of future events, so that actual results could differ materially
from expectations which are stated or implied in, or could be inferred from such
forward-looking statements. Among the kinds of uncertainties that can affect and
should be considered in evaluating the Company's forward-looking statements are
uncertainties related to economic conditions, government and regulatory
policies, customer plans and commitments, changes in the capital markets
affecting the Company's capital structure and cost of capital, and the Company's
competitive environment. Readers are therefore cautioned not to place undue
reliance on any forward-looking statement, which speaks only as of the date such
statement is made.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or its
subsidiary is a party or to which any of their property is the subject.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended September
26, 1998.
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 thereunto duly authorized.
DOUGHTIE'S FOODS, INC.
/s/ Marion S. Whitfield, Jr.
-----------------------------------------
November 10, 1998 By: Marion S. Whitfield, Jr.
(Signature)
Senior Vice President
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF DOUGHTIE'S FOODS, INC. FOR THE
NINE MONTHS ENDED SEPTEMBER 26, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> SEP-26-1998
<CASH> 17
<SECURITIES> 0
<RECEIVABLES> 8,481
<ALLOWANCES> 821
<INVENTORY> 4,582
<CURRENT-ASSETS> 12,771
<PP&E> 6,321
<DEPRECIATION> 3,715
<TOTAL-ASSETS> 15,485
<CURRENT-LIABILITIES> 4,671
<BONDS> 1,407
<COMMON> 1,495
0
0
<OTHER-SE> 7,912
<TOTAL-LIABILITY-AND-EQUITY> 15,485
<SALES> 65,893
<TOTAL-REVENUES> 65,893
<CGS> 55,347
<TOTAL-COSTS> 64,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 1,129
<INCOME-TAX> 424
<INCOME-CONTINUING> 705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
