FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended December 31, 1995
Commission file number 0-17084
THE SMITHFIELD COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1167160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
311 County Street, Portsmouth, VA 23704
(Address of principal executive offices) (Zip Code)
(804) 399-3100
Registrant's telephone number, including area code
Not applicable
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 periods 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 practical date.
Common Stock, no par or stated value--1,422,160 shares as of February 2, 1996
INDEX
THE SMITHFIELD COMPANIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Condensed consolidated balance sheets--December 31, 1995
and March 31, 1995
Condensed consolidated statements of income--Three months
ended December 31, 1995 and 1994; Nine months ended
December 31, 1995 and 1994
Condensed consolidated statements of cash flows--Nine
months ended December 31, 1995 and 1994
Notes to condensed consolidated financial statements--
December 31, 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 4. Changes in Registrant's Certifying Accountant
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 March 31
1995 1995
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,701,995 $ 318,101
Receivables, less allowances
of $77,000 and $64,000 2,766,002 2,224,026
Inventories 2,112,085 6,065,746
Prepaid expenses and other 103,756 109,700
Deferred income taxes 165,000 165,000
----------- -----------
TOTAL CURRENT ASSETS 14,848,838 8,882,573
PROPERTY, PLANT AND EQUIPMENT 6,005,487 11,387,862
less allowances for depreciation 2,832,876 5,604,024
----------- -----------
3,172,611 5,783,838
OTHER ASSETS 713,720 2,776,805
---------- -----------
$18,735,169 $17,443,216
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 50,000 $ 100,000
Accounts payable 817,821 708,152
Other current liabilities 1,900,056 1,387,492
----------- -----------
TOTAL CURRENT LIABILITIES 2,767,877 2,195,644
LONG-TERM DEBT 1,000,000
DEFERRED INCOME TAXES 15,000
SHAREHOLDERS' EQUITY
Common stock, no par or stated
value--authorized 5,000,000 shares;
issued and outstanding 1,422,617
shares and 1,465,262 shares 5,293,722 5,752,656
Retained earnings 10,673,570 8,479,916
----------- -----------
15,967,292 14,232,572
----------- -----------
$18,735,169 $17,443,216
=========== ===========
Note: The balance sheet at March 31, 1995 has been derived
from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended
December 31 December 31
1995 1994 1995 1994
Net sales $7,441,206 $7,321,115 $15,311,833 $15,018,785
Cost of goods sold 4,758,742 4,534,790 9,642,113 9,581,402
---------- ---------- ---------- ----------
GROSS PROFIT 2,682,464 2,786,325 5,669,720 5,437,383
Other operating revenue 24,581 2,677 32,754 61,719
---------- ---------- ---------- ----------
2,707,045 2,789,002 5,702,474 5,499,102
Selling, general and
administrative expenses 2,002,914 1,951,860 4,717,327 4,370,023
---------- ---------- ---------- ----------
OPERATING INCOME 704,131 837,142 985,147 1,129,079
Interest income(expense),net 89,706 (40,541) 158,832 (142,816)
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPER-
ATIONS BEFORE INCOME TAXES 793,837 796,601 1,143,979 986,263
Income taxes 279,000 319,000 407,000 395,000
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 514,837 477,601 736,979 591,263
Discontinued operations
(net of income taxes):
Income from operations of
Bunker Hill - 255,689 144,078 565,792
Gain on sale of Bunker Hill - - 1,699,155 -
---------- ---------- ---------- ----------
INCOME FROM DISCONTINUED
OPERATIONS - 255,689 1,843,233 565,792
---------- ---------- ---------- ----------
NET INCOME $ 514,837 $ 733,290 $2,580,212 $1,157,055
========== ========== ========== ==========
Earnings per share:
Continuing operations $ .36 $ .33 $ .51 $ .40
Discontinued operations - .17 1.28 .38
---------- ---------- ---------- ----------
EARNINGS PER SHARE $ .36 $ .50 $ 1.80 $ .78
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING 1,423,753 1,467,219 1,436,672 1,478,118
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended December 31
1995 1994
OPERATING ACTIVITIES
New income $2,580,212 $1,157,055
Income from discontinued operations (1,843,233) (565,792)
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 533,996 782,711
(Gain)loss on disposal of property
and equipment 35,309 (6,042)
Decrease in deferred taxes (15,000)
Change in assets and liabilities:
Trade receivables (1,638,488) (1,305,766)
Inventories 587,793 285,880
Prepaid expenses and other (23,029) (109,141)
Accounts payable and other
current liabilities 778,112 1,870,069
---------- ----------
Net cash used in continuing operations 995,672 2,108,974
Net cash from discontinued operations 144,078 565,792
---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,139,750 2,674,766
INVESTING ACTIVITIES
Proceeds from the sale of Bunker Hill 11,969,760
Expenses and income taxes related to
the sale of Bunker Hill (1,815,285)
Purchase of intangible assets (43,068) (300,000)
Purchase of property and equipment (149,485) (217,914)
Proceeds from sale of property and
equipment 7,000 17,875
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 9,968,922 (500,039)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 2,000,000 3,200,000
Principal payments on revolving line
of credit and long-term debt (3,050,000) (4,675,000)
Cash dividends paid (215,844) (192,112)
Repurchase of common stock (458,934) (157,023)
NET CASH USED IN ---------- ----------
FINANCING ACTIVITIES (1,724,778) (1,824,135)
---------- ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 9,383,894 350,592
Cash and cash equivalents at
beginning of year 318,101 313,697
CASH AND CASH ---------- ----------
EQUIVALENTS AT END OF PERIOD $9,701,995 $ 664,289
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and nine month periods ended December 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending March 31,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K
for the year ended March 31, 1995.
NOTE B--INVENTORIES
The components of inventory consist of the following:
December 31, 1995 March 31, 1995
Finished Goods $1,331,597 $3,641,963
Production Materials:
Meats 335,958 1,421,858
Other Ingredients 85,018 419,262
Packing Materials 359,512 582,663
---------- ----------
$2,112,085 $6,065,746
========== ==========
NOTE C--SALE OF THE ASSETS OF BUNKER HILL
On August 23, 1995, the Company sold most of the assets of its Bunker Hill
division to Castleberry/Snow's Brands, Inc. The gain on the sale was
$1.7 million after income tax expense of $1.0 million. All results of
operations for periods prior to the sale have been restated to present the
Company's former Bunker Hill division as a discontinued operation.
NOTE D--SHAREHOLDERS' EQUITY
During the nine months ended December 31, 1995 the Company purchased and
retired 42,645 shares of its Common Stock at a cost of $458,934.
Subsequent to December 31, 1995 the Company purchased and retired an
additional 457 shares of its Common Stock at a cost of $5,027.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company produces and markets a wide range of branded food products
primarily to the retail grocery, food service and gourmet food industries.
The Company also markets its products through direct mail and its own retail
outlets. The Company's business is somewhat seasonal with its direct mail
and gourmet food operations having disproportionate sales during the
Christmas season. This traditionally makes the Company's third quarter sales
and income the highest of the fiscal year.
Results of Operations
Net sales from continuing operations for the three months ended December 31,
1995 increased 1.6% to $7,441,206 compared to $7,321,115 for the three months
ended December 31, 1994. Net sales from continuing operations for the nine
months ended December 31, 1995 increased 2.0% to $15,311,833 compared to
$15,018,785 for the nine months ended December 31, 1994.
Gross profit for the three months ended December 31, 1995 decreased to 36%
compared to 38% for the three months ended December 31, 1994. This was the
first quarterly reduction in gross profit in seven quarters. The reduced
gross profit is the result of increased pork prices.
Other operating revenue was lower during the nine months ended December 31,
1995 compared to 1994. Prior year included an insurance settlement of
approximately $40,000.
Selling, general and administrative expenses increased 2.6% and 7.9% during
the three and nine months ended December 31, 1995 respectively, compared to
the prior year. Most of the increase was in selling expenses due to the
increased marketing and promotional expenses needed to maintain market share
due to competitive pressures and to procure new business. The increase in
general and administrative expenses was less than 2% during the three and
nine month periods ended December 31, 1995, compared to 1994.
The significant change in interest is the result of extinguishing the
Company's revolving credit loan and investing the remaining proceeds of the
sale of Bunker Hill into highly liquid debt instruments.
Liquidity and Capital Resources
On August 23, 1995 the Company sold its Bunker Hill division to
Castleberry/Snow's Brands, Inc. After the payment of expenses and income
taxes the Company received net proceeds of approximately $10,150,000. The
Company repaid its outstanding revolving credit loan and invested much of
the remaining proceeds in short-term highly liquid debt instruments. On
December 31, 1995, approximately $9.5 million was invested.
The Company will continue its strategy of looking for growth through
acquisitions in higher margin segments of the food industry. Having a
significant amount of cash on hand as well as available funds on its line of
credit, the Company believes it is in an excellent position to invest in
assets which will increase shareholder value over time.
Until a meaningful acquisition is completed which would shift our assets into
higher yielding investments, lower interest rates on the Company's short term
securities will have a negative impact on quarterly income.
As of December 31, 1995, the Company had all of its $10 million revolving
credit loan available.
The Company traditionally increases inventory during the first six months of
its fiscal year to meet the increased demand for its products during the
Christmas season. The Company finances the increase in inventory through its
operating cash flow and the use of some of its short term securities.
PART II. OTHER INFORMATION
Item 4 - Changes in Registrant's Certifying Accountant
On October 1, 1995, our former auditors, Ernst & Young L.L.P. sold its local
practice to Coopers & Lybrand L.L.P. As a result of the sale of the practice,
the Company decided to evaluate whether to retain Ernst & Young L.L.P.
or engage new auditors. A decision was reached on February 7, 1996 to engage
Coopers & Lybrand L.L.P. and was approved by the Board of Directors.
The Accountant's report on the consolidated financial statements for the past
two years included a non-qualified opinion. There were no disagreements with
Ernst & Young L.L.P. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to their satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their report.
Item 6 - Exhibits and Reports on Form 8-K
a.) 16. Letter re change in certifying accountant
27. Financial Data Schedule
b.) The Company did not file any reports on Form 8-K during the three months
ended December 31, 1995.
SIGNATURES
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.
THE SMITHFIELD COMPANIES, INC.
(registrant)
DATE: February 9, 1996 /s/ Richard S. Fuller
______________________________
Richard S. Fuller
President and Chief Executive
Officer
DATE: February 9, 1996 /s/ Mark D. Bedard
______________________________
Mark D. Bedard
Treasurer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Unaudited Consolidated Financial Statements of The Smithfield Companies,
Inc. for the three months ended December 31, 1995, and is qualified in its
entirety by reference to such Unaudited Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 9,701,995
<SECURITIES> 0
<RECEIVABLES> 2,843,002
<ALLOWANCES> 77,000
<INVENTORY> 2,112,085
<CURRENT-ASSETS> 14,848,838
<PP&E> 6,005,487
<DEPRECIATION> 2,832,876
<TOTAL-ASSETS> 18,735,169
<CURRENT-LIABILITIES> 2,767,877
<BONDS> 0
<COMMON> 5,293,722
0
0
<OTHER-SE> 10,673,570
<TOTAL-LIABILITY-AND-EQUITY> 18,735,169
<SALES> 15,311,833
<TOTAL-REVENUES> 15,344,587
<CGS> 9,642,113
<TOTAL-COSTS> 14,359,440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,143,979
<INCOME-TAX> 407,000
<INCOME-CONTINUING> 736,979
<DISCONTINUED> 1,843,233
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,580,212
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
</TABLE>
Ernst & Young L.L.P.
Fairfax Square, Tower II
8075 Leesburg Pike
Vienna, Virginia 22187
February 9, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read Part II, Item 4 on Form 10-Q dated February 9, 1996 of
The Smithfield Companies, Inc. and are in agreement with the statements
contained on Page 8 therein. We have no basis to agree or disagree with
other statements of the registrant contained therein or elsewhere in the
Form 10-Q.
/s/ Ernst & Young, L.L.P.
