SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
March 31, 1996 0-17084
THE SMITHFIELD COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Virginia 54-1167160
(State or other jurisdic- (I.R.S. Employer
tion of incorporation) Identification No.)
311 County Street, Portsmouth, VA 23704
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code:(804) 399-3100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par or Stated Value
(Title of Class)
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant computed by reference to the average bid and asked prices on
June 7, 1996: $8,308,249
The number of shares outstanding of each of the Registrant's classes of
Common Stock, as of June 7, 1996 was 1,376,460 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended March 31, 1996
are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders meeting are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
General
Through its operating units, The Smithfield Companies, Inc. ("the Company")
produces and markets a wide range of branded food products to the retail
grocery and food service industries. The Company has the legal right through
two of its units (Smithfield Ham and Joyner) to label certain of its aged, dry
cured hams as genuine "Smithfield" hams, a term that can be used by only two
other companies. The use of this term is protected by the laws of the
Commonwealth of Virginia and enforced by the United Stated States Department
of Agriculture.
The Company was incorporated in Virginia in 1981 as Pruden Foods, Inc.
The name was changed to The Smithfield Companies, Inc. in 1985.
The Company does not raise or slaughter animals or grow any vegetable
products, but instead purchases all meats and ingredients for processing and
curing. The Company purchases its meats and ingredients from a variety of
suppliers and it is not dependent on any one particular supplier for a
material portion of meats, ingredients or packaging materials.
The Smithfield Ham and Products Co., Inc.
Founded in 1917 as a specialty food producer emphasizing genuine
"Smithfield" hams, Smithfield Ham has evolved from a cured meat producer and
meat canner to become primarily a producer of frozen barbeques and chilies
for the food service and retail grocery industries. Smithfield Ham began
producing frozen barbeques in 1985 primarily for the food service industry.
The frozen line accounts for 75% of the unit's sales and includes pork,
chicken and beef barbeques and frozen chili. The frozen line is marketed
under the "James River", "Smitty Pig" and "Virginia's Choiec" brands primarily
in the Mid-Atlantic states. This frozen line increased from 59% of total
sales in 1995 and has been growing consistently since 1985. Management
believes the frozen products have significant growth potential.
Smithfield Ham produces and markets barbeque sauces in plastic and glass
containers and portion control packets for both the food service and retail
grocery industries. It also markets horseradish sauces, deviled meat spreads,
canned barbeques, country hams and genuine "Smithfield" hams under the "Amber"
brand. 17% of Smithfield Ham's sales is composed of cured hams, honey glazed
hams, canned meat products and meat spreads in glass containers marketed under
the following brands: "James River", "Princess Anne" and "Amber". These
products are sold in the Mid-Atlantic states to retail grocery accounts and,
jointly with Joyner, by direct mail through seasonal consumer catalogs.
The remaining 8% of the units sales relates to barbeque and horseradish
sauces sold to the fast food industry. These products are marketed primarily
in the southeast under the "James River" brand.
V. W. Joyner & Co.
Founded in 1889, V. W. Joyner & Co. is a curer and packer of genuine
"Smithfield" hams under the "Joyner" brand and a curer and packer of country
hams under the "Red Eye" brand. Joyner has expanded its business by further
processing these two main products into various sliced, cooked and pressed
variations for both the food service and retail grocery industry. The curing
procedures for genuine Smithfield and country hams have not changed
appreciably in the last 100 years, which accounts for the distinct and readily
identifiable taste associated with these hams.
Joyner's sales are concentrated in Virginia, but Joyner maintains a large
number of small accounts throughout the country. In addition, Joyner sells
by direct marketing through seasonal consumer catalogs in combination with
Smithfield Ham.
Joyner's business is highly seasonal, concentrated during the Thanksgiving
and Christmas holiday period. As a result, the third fiscal quarter
accounted for 46% of Joyner's annual sales.
Pruden Packing Co., Inc.
Established in 1917 by P. D. Pruden, Pruden's first 50 years involved a
number of activities, including curing country hams and other pork products,
ginning cotton and packing potatoes and watermelons. By the late 1960's,
Pruden focused exclusively on curing and packing dry cured pork products,
including country hams, bacon and shoulders, which remain its primary products.
Pruden markets its country meats primarily in Virginia and North Carolina
under the "Peanut City" and "Pruden" brands. It also exports hams and
shoulders to the Caribbean under its own and private label brands. Pruden's
top ten customers account for approximately 77% of its sales.
Pruden's business is highly seasonal, concentrated during the Thanksgiving
and Christmas holiday period. As a result, the third fiscal quarter
accounted for 42% of its annual sales.
Pruden was acquired in 1986 by the Company. The plant is located in
Suffolk, Virginia.
Williamsburg Foods, Inc./The Peanut Shop, Inc.
These two subsidiaries are operated as one unit of the Company and involve a
manufacturing facility which operates as Williamsburg Foods, Inc. and four
retail stores, which trade as "The Peanut Shop".
The manufacturing facility processes high quality extra large Virginia
peanuts and premium cashews, which it packs in vacuum sealed tins and other
containers for its own retail store, for sale to other retailers, and for
direct marketing to consumers through its seasonal retail catalogs. In
addition, Williamsburg also packs, under its label, other specialty products
such as pistachios, cashews and soups, and purchases for resale related peanut
products, including candy and peanut butter. All of these products are
marketed under "The Peanut Shop of Williamsburg" label to specialtyu customers
throughout the country.
The retail stores, currently located in the southeastern United States, are
located in tourist oriented shopping areas. Each store operates with a
separate name depicting its location (i.e. The Peanut Shop of Williamsburg).
The stores feature their own brand of peanuts and peanut products, an
extensive line of other nut products and a large selection of the Company's
cured meat products. Management will continue to look for additional
locations to open retail stores.
Williamsburg Foods, Inc. and The Peanut Shop, Inc. were acquired in 1986.
The manufacturing facility is located near Williamsburg in James City
County, Virginia.
The New Orleans School of Cooking and Louisiana General Store
This operation, which was acquired in August, 1992, is a unique multi-
faceted specialty food retailer which combines a single-session tourist
cooking school, retail store and mail order operation.
The cooking school caters to tourists visiting New Orleans and provides
education on the Louisiana culture and the preparation of local "Cajun
cooking". A meal is prepared during the class and served to the participants.
The retail store features local food and gift items unique to the New Orleans
area.
Marketing and Customers
The Company is not dependent on any single customer or few customers, the
loss of any one or more of which would have a material adverse effect on the
Company. No customer accounts for more than 10% of the Company's
consolidated sales.
Each unit has developed a marketing strategy which emphasizes quality
products, customer service and maximum use of its regional brand awareness by
consumers. Whenever possible the "Smithfield" name is emphasized by
Smithfield Ham and Joyner to take advantage of the name's favorable image in
the food industry and with consumers. The units have wholesale accounts
throughout the United States, but the primary market area is the states of
Virginia, Maryland, North Carolina, South Carolina, West Virginia, Tennessee,
Georgia and Florida, and the District of Columbia.
At Smithfield Ham, an executive supervises three sales executives and a
network of regional brokers. Smithfield Ham utilizes volume discounts and
co-op advertising to promote its products. Products are distributed by its
fleet of five trucks but many customers use their own trucks to pick up
Smithfield Ham products. The unit does no media advertising except related
to its direct marketing (catalog) business, where direct consumer response
ads are placed in selected national and regional magazines.
At Joyner, the general manager and the sales manager are responsible for all
food service and retail grocery accounts and supervision of a small group of
brokers around the country. Located within one mile of each other, Joyner
and Smithfield Ham share the same delivery fleet of five trucks for Virginia
deliveries and generally use common carrier or customer pickup for sales
outside Virginia.
Joyner utilizes volume discounts, co-op advertising and point-of-sale
advertising to promote its products. Like Smithfield Ham, Joyner does no
media advertising except related to its direct marketing (catalog) efforts
with Smithfield Ham.
Currently, there are only four producers of genuine "Smithfield" hams. By
the laws of the Commonwealth of Virginia, a genuine Smithfield ham must be
dry cured and aged for a minimum of six months and the processing must take
place within the town limits of Smithfield, Virginia. The law is enforced by
both state and federal meat regulatory personnel. The Company's Smithfield
Ham and Joyner units are two of the four producers currently permitted to
call certain of their hams genuine "Smithfield", thus creating a unique and
protected market for their two brands of this specialty ham.
Pruden sells primarily to retail grocery chains and retail distributors in
eastern Virginia and eastern North Carolina. Pruden's president and its
general manager supervise all sales activities. Pruden uses volume discounts
and co-op advertising but does no other media advertising. Pruden distributes
its products on two trucks within its geographical market, although several of
Pruden's primary distributors pick up products from its plant in Suffolk,
Virginia. Pruden exports dry cured hams and other pork products to a number
of Caribbean Islands in the fall of each year.
Williamsburg sells to a wide variety of specialty retail outlets and
catalogers throughout the country. Its vice president and general manager
and the sales manager are responsible for generating these sales through
direct calls, "fancy food" trade shows and trade publications. Williamsburg's
direct consumer marketing (catalog) sales are generated from two mass mailings
per year. Wholesale distribution is largely by common carrier. The balance
of Williamsburg's sales are accounted for by its subsidiary, The Peanut Shop,
Inc., which operates four retail stores.
The New Orleans School of Cooking and Louisiana General Store obtains a
significant portion of its sales from tourists visiting the New Orleans area.
The Company has one sales person who works with the tourism industry in
generating groups to attend classes. Its general manager is responsible for
all direct consumer catalog sales and sales to various wholesale customers.
Wholesale distribution is largely by common carrier.
The New Orleans School of Cooking and Louisiana General Store is located in
the famous Jackson Brewery Shopping complex next to the Mississippi River in
New Orleans' French Quarter. The Company's administrative offices, warehouse
and mail order operations are located in a 7,500 square foot facility in an
industrial section of Jefferson Parish, Louisiana.
Raw Materials
The Company's primary raw materials consist of fresh and frozen pork products
purchased domestically or imported. Should increases in the cost of raw
materials occur, the Company may not be able to pass such increases through
to its customers. The Company has a number of suppliers throughout the
United States and Canada and has not experienced any difficulty in obtaining
adequate supplies of these raw materials.
Competition
Because of the Company's variety of products and its sales to both the
retail grocery industry and the food service industry, its competitors are
likewise varied and numerous. Smithfield Ham competes with several large and
small regional food processors. Joyner and Pruden primarily compete with a
number of small ham processors of similar size located in Virginia and North
Carolina. Williamsburg competes with a number of peanut processors of similar
size located in Virginia and North Carolina. New Orleans competes with one
other cooking school and various retail stores that sell local "Louisiana"
products. The Company believes that all of its units compete effectively with
other food processors by providing products of predictable quality and
consistency, and responsive service to its customers.
Employees
As of March 31, 1996, the Company had approximately 90 full-time employees
and 71 part-time employees. During the peak holiday period from September
through December, the Company typically has employed up to an additional 50
seasonal employees. All hourly, non-clerical employees at Pruden are
represented by Local 25/65 of the United Auto Workers and on May 1, 1995
extended their collective bargaining agreement for an additional three years.
At Smithfield Ham and Joyner, all hourly, non-clerical employees are
represented by Local 1046 affiliated with the Laborers' International Union of
North America, AFL-CIO, and are in the first year of a three year contract.
All other units are non-union. Virginia is a right-to-work state.
None of the units with collective bargaining agreements has ever experienced
a strike and the Company considers its employee relations to be good.
Government Regulation
Food products purchased, processed and sold by the Company are subject to
various federal, state and local laws and regulations, including the federal
Meat Inspection Act and the Food and Drug Act. Smithfield Ham, Joyner and
Pruden are subject to United States Department of Agriculture regulations
regarding quality, labeling and sanitary control. Pruden has been under the
U. S. Department of Agriculture's Total Quality Control System Program (TQC)
since 1985, which enables Pruden to self-inspect its products and production
conditions and techniques. The Company is also subject to various federal,
state and local regulations regarding work place health and safety,
environmental protection, equal employment opportunity and other matters.
Trademarks
All significant brand names used by the Company are protected by actual or
pending federal trademark registration.
ITEM 2. PROPERTIES
The Smithfield Ham plant is located on seven acres in Smithfield,
Virginia. The office and manufacturing facilities have a total of 41,012
square feet. The Joyner facility with 30,714 square feet on three acres is
also located in Smithfield. Pruden occupies a 32,127 square foot facility on
three acres in Suffolk, Virginia. Williamsburg occupies a 10,000 square foot
facility on 1.5 acres in James City County, Virginia. The New Orleans
warehouse facility is approximately 7,500 square feet on 1/4 acre in Jefferson
Parish, Louisiana. The Company also owns an office building with
approximately 13,000 square feet of leaseable space. The Company occupies
approximately 3,000 square feet and the remaining portion is available for
lease. The Company also owns equipment and vehicles used in its operations.
The Company owns all of its property free of any liens or encumbrances. In
addition to this property the Company has operating leases for each of its
retail operations. Commitments associated with these leases are disclosed in
the notes to the consolidated financial statements.
All of the Company's facilities have access to municipal sewer systems.
Management believes that the sewage treatment facilities available to the
Company are and will continue to be adequate.
The Company believes its facilities and equipment are generally well
maintained and have a capacity adequate for the Company's current needs.
ITEM 3. LEGAL PROCEEDINGS
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDERS MATTERS
Common Stock Market Prices and Dividends on page 20 of the annual
annual shareholders report for the year ended March 31, 1996
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 5 of the annual shareholders
report for the year ended March 31, 1996 is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
and Results of Operations on pages 6 and 7 of the annual
shareholders report for the year ended March 31, 1996 is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of Coopers & Lybrand L.L.P., independent auditors,
and the Consolidated Financial Statements included on pages 8
through 16 of the annual shareholders report for the year ended
March 31, 1996 are incorporated herein by reference.
Quarterly Results of Operations on page 18 of the annual
shareholders report for the year ended March 31, 1996 is
incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the Company's proxy statement,
with respect to directors of the Company, is incorporated herein
by reference in response to this item. The information
contained on page 19 of the annual shareholders report for
the year ended March 31, 1996 with respect to executive
officers, is incorporated herein by reference in response to
this item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Company's proxy statement, with
respect to executive compensation and transactions, is
incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Company's proxy statement,
with respect to security ownership of certain beneficial owners
and management is incorporated herein by reference in response to
this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Company's proxy statement,
with respect to certain relationships and related transactions,
is incorporated herein by reference to this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2)--the response to this portion of Item 14 is submitted
as a separate section of this report.
(3) Exhibits:
3.1 Amended and Restated Articles of Incorporation. Filed
August 9, 1988, as Exhibit 3.1 to the Registrant's Form
S-1, and incorporated herein by reference.
3.2 Bylaws. Filed August 9, l988, as Exhibit 3.2 to the
Registrant's Form S-1, and incorporated herein by
reference.
4.1 Amended and Restated Rights Agreement, as Exhibit 4.1 to
the Registrant's Form 8-K as of July 31, 1991 and
amended on Form 8 on August 29, 1991, and incorporated
herein by reference.
10.1 Stock Option Plan, adopted June 7, l988. Filed August 9,
1988, as Exhibit 10.1 to the Registrant's Form S-1, and
incorporated herein by reference.
10.2 Employment Agreements, dated June 7, 1988, with Richard
S. Fuller and Peter D. Pruden, III.
Filed August 9, 1988, as Exhibit 10.2 to the Registrant's
Form S-1, and incorporated herein by reference.
10.3 Incentive bonus practice. Filed August 9, l988, as Exhibit
10.5 to the Registrant's Form S-1, and incorporated herein
by reference.
10.4 Profit Sharing Plan. Filed June 29, 1989 as Exhibit 10.5
to the Registrant's Forms 10-K for the year ended March 31,
1989, and incorporated herein by reference.
10.5 Employee Stock Ownership Plan. Filed June 29, 1989 as
Exhibit 10.6 to the Registrant's Form 10-K for the year
ended March 31, 1989, and incorporated herein by reference.
10.6 Definitive agreement to sell the assets of the Bunker Hill
Division dated June 8, 1995. Filed June 28, 1995 as
Exhibit 10.7 to the registrant's Form 10-K for the year
ended March 31, 1995, and incorporated herein by reference.
21.1 Subsidiaries of the Registrant. Filed herewith.
(b) Reports filed on Form 8-K for the quarter ended March 31, 1996--None
(c) The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) The response to this portion of Item 14 is submitted as a separate
section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
THE SMITHFIELD COMPANIES, INC.
By S/ Richard S. Fuller
Richard S. Fuller, President
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and dates indicated.
Name Capacity Date
S/ James L. Cresimore Chairman of the Board June 21, 1996
James L. Cresimore
S/ Richard S. Fuller President and Chief June 21, 1996
Richard S. Fuller Executive Officer
(Principal Executive
Officer)
S/ Peter D. Pruden, III Executive Vice June 21, 1996
Peter D. Pruden, III President, Secretary
and Director
S/ Mark D. Bedard Treasurer and Chief June 21, 1996
Mark D. Bedard Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
S/ Bernard C. Baldwin,III Director June 21, 1996
Bernard C. Baldwin, III
S/ Edward Acree Director June 21, 1996
Edward Acree
S/ Frank H. Buhler Director June 21, 1996
Frank H. Buhler
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a) (1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED MARCH 31, 1996
THE SMITHFIELD COMPANIES, INC.
PORTSMOUTH, VIRGINIA
FORM 10-K--ITEM 14 (a) (1) AND (2)
THE SMITHFIELD COMPANIES, INC.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of The Smithfield Companies,
Inc. and subsidiaries, included in the annual report of the Registrant to its
shareholders for the year ended March 31, 1996, are incorporated by reference
in Item 8:
Consolidated balance sheets--March 31, 1996 and 1995
Consolidated statements of income--Years ended
March 31, 1996, 1995 and 1994
Consolidated statements of cash flows--Years ended March 31,
1996, 1995 and 1994
Notes to consolidated financial statements--March 31, 1996
The following consolidated financial statement schedule of The Smithfield
Companies, Inc. and subsidiaries is included in Item 14 (d):
Schedule II--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
The following reports of independent auditors of The Smithfield Companies,
Inc. are included herewith:
Report of Coopers & Lybrand L.L.P.--Year ended March 31, 1996
Report of Ernst & Young LLP--Years Ended March 31, 1995 and 1994
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THE SMITHFIELD COMPANIES, INC.
COL. A COL.B COL.C COL.D COL.E
___________ ___________ __________ ________ ____________ _________
Balance at ADDITIONS Balance
Description Beginning Charged Charges Deductions at end of
of Period to Costs to Other Describe (1) Period
& Expenses Accounts
Describe
___________ ___________ __________ ________ ____________ _________
Year ended March 31, 1996:
Deducted from
asset accounts:
Allowance for
doubtful accounts $64,000 $27,300 $27,300 $64,000
======= ======= ======= =======
Year ended March 31, 1995:
Deducted from
asset accounts:
Allowance for
doubtful accounts $66,000 $51,400 $53,400 $64,000
======= ======= ======= =======
Year ended March 31, 1994:
Deducted from
asset accounts:
Allowance for
doubtful accounts $48,000 $66,800 $48,800 $66,000
======= ======= ======= =======
(1) Uncollectible accounts written off, net of recoveries.
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
The Smithfield Companies, Inc.
Our report on the consolidated financial statements of The Smithfield
Companies, Inc. and subsidiaries has been incorporated by reference in this
Form 10-K from page 17 of the 1996 Annual Report to Shareholders of The
Smithfield Companies, Inc. and subsidiaries. In connection with our audit of
such financial statements, we have also audited the related financial
statement schedules listed in item 14 (a)(1) & (2) of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information
required to be included therein.
s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Virginia Beach, Virginia
May 17, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
The Smithfield Companies, Inc.
We have audited the accompanying consolidated balance sheet of The Smithfield
Companies, Inc. as of March 31, 1995, and the related consolidated statements
of income and cash flows for each of the two years in the period ended March
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain a reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Smithfield Companies, Inc. as of March 31, 1995, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended in conformity with generally accepted accounting principles.
s/Ernst & Young LLP
ERNST & YOUNG LLP
Vienna, Virginia
May 24, 1995
THE SMITHFIELD COMPANIES, INC.
1996 ANNUAL REPORT
[product photographs]
<PAGE>
[product photographs]
<PAGE>
CONTENTS
Letter to Shareholders 2
Selected Financial Data 5
Management's Discussion and Analysis 6
Consolidated Financial Statements 8
Notes to Consolidated Financial
Statements 11
Report of Independent Accountants 17
Quarterly Results of Operations 18
Directors, Executive Officers and
Management 19
Corporate Information 20
[product photographs]
[CAPTION] The Smithfield Companies, Inc. is a diversified
producer of specialty food products. The Company
markets its products primarily to the retail
grocery, food service and gourmet food industries
as well as through its own retail outlets and
consumer catalogs. Its five operating units are
The Smithfield Ham and Products Co., V.W. Joyner
& Co., Pruden Packing Co., Williamsburg Foods
and The New Orleans School of Cooking.
<PAGE>
To Our Fellow Shareholders
[photograph of Richard S. Fuller, President and CEO]
[CAPTION] Richard S. Fuller, President and CEO
Fiscal 1996 was a year of significant developments and achievements at The
Smithfield Companies. As the year began,aggressive plans were in place to
position the Company for long-term growth and profitability and by year end we
had realized tangible results.
Management spent considerable time and effort during fiscal 1995 developing
a strategic plan for your Company's future which outlines specific requirements
for businesses we will invest in and operate. The goal of these efforts is to
increase shareholder wealth. The strategy is clear and straight-forward:
. Invest in specialty or niche food or food related
businesses that enjoy value-added margins;
. Product lines must be in growth categories with
leading or strong marketplace position;
. Businesses must have a consistent and
predictable cash flow.
We began the process of implementing these guidelines by looking within
and determined that our Bunker Hill Foods business did not fulfill our long-term
goals. While Bunker Hill had contributed approximately 57% of sales and 44% of
earnings to Smithfield over the previous few years, it competed in the highly
competitive retail grocery distribution channel in a declining canned meat
category which is dominated by national companies. On August 23, 1995 we sold
our Bunker Hill Foods Division to Castleberry/Snows Brand's, Inc. of Augusta,
Georgia for approximately $12 million which resulted in an after-tax gain of
$1.7 million. The proceeds from the sale liquidated existing long-term debt,
placed the Company in a substantial cash position and will allow us to
significantly raise our investment in growth segments of the food industry.
Our specialty food brands pictured on this year s annual report are
product lines that represent higher margin investments with solid growth
potential.
FINANCIAL PERFORMANCE
Operating revenues from continuing operations for the year ended March 31,
1996 grew modestly to a record $18.2 million compared to $17.9 million a year
earlier. Net income also reached a record high $2,651,759, a 90% increase over
1995 results of $1,392,509. Per share income increased 97% from $.94 to $1.85
per share, another record.
The substantial increase in net income is attributable to an after-tax
gain of $1,699,155 related to the sale of assets of the Company's Bunker Hill
Division. Income from continuing operations for the year ended March 31, 1996
grew to $808,526 compared to $541,676 the previous year. The improvement is
primarily due to interest income from the invested proceeds from the Bunker Hill
sale.
As a result of record earnings and the sale of the Bunker Hill assets,
Smithfield's financial condition improved significantly at year end. Total
assets were $17.7 million of which $9.9 million was cash and cash equivalents.
Working capital was $12.0 million up from $6.7 million the previous year and our
current ratio was 7.7 to 1. Our debt to equity declined to 11% from 23% a year
earlier. Stockholders' equity was $15.9 million or 90% of total capitalization.
Book value at year end was $11.22 per share.
The Smithfield Companies, Inc.
2
<PAGE>
The Company is in a strong financial position and is well positioned to take
advantage of growth opportunities.
CASH INVESTMENTS
On March 31, 1996 approximately 55% of our asset base was cash placed in
safe but low yielding investments. Since August of 1995 we have averaged over
$9.0 million invested in a tax-free industrial revenue bond pool. The
individual bonds are backed by the good faith of the debtors and a letter of
credit from a major bank. The investments offer liquidity by allowing weekly
investing or withdrawals. The Company is not exposed to principal gains or
losses due to fluctuating interest rates. Smithfield enjoyed an average
effective taxable yield of 6.07% on invested cash in the year just completed
which compares to an average taxable yield of 6.3% on thirty year treasuries for
the same period. Until a meaningful acquisition is completed which would shift
our funds into a higher yielding investment, lower interest rates on our short-
term securities will have a negative effect on earnings.
SHARES PURCHASED
Although our stock price climbed to a record level this past fiscal year,
it remained undervalued and we decided to continue our open market purchases of
Smithfield Companies' shares. During the just completed year we acquired 49,102
shares. As of this writing we have repurchased approximately 300,000 shares
since 1990 at an average cost of about $7.80 per share. In view of our strong
balance sheet and as long as market conditions seem favorable, the Company will
be inclined to purchase additional shares.
DIVIDENDS
In November your Board of Directors declared a special dividend of $.12 per
share which was paid in January. The special dividend represented approximately
10% of the gain realized from the Bunker Hill sale and was in addition to the
regular quarterly dividend.
The Smithfield Companies regular annual paid dividends rose to $.20 per
share, an 11% increase from $.18 per share paid the previous year. Fiscal 1996
makes the fifth consecutive year that
[graphs]
1996 1995 1994 1993 1992
Net Income (in thousands) $ 2,652 $ 1,393 $ 939 $ 1,387 $ 1,171
Income from continuing
operations (in thousands) $ 809 $ 542 $ 294 $ 507 $ 219
Net sales (in thousands) $18,180 $17,854 $17,738 $16,466 $13,929
1996 Annual Report
3
<PAGE>
dividends have increased. The Company will continue to consider dividend
increases as circumstances permit.
NEW DIRECTOR
The Company will succeed in the future in part because of the strong
leadership of your Board of Directors. In November, Bernard C. Baldwin, III,
an attorney with the Lynchburg, Virginia firm of Edmunds and Williams, was
appointed a director of The Smithfield Companies. Mr. Baldwin serves on several
other corporate boards and has been our general counsel for ten years.
Bernard's background and experience have added measurably to the overall
strength of our Company and we count on his input in the coming years.
[graphs]
1996 1995 1994 1993 1992
Shareholders' Equity
(in thousands) $15,894 $14,233 $13,262 $13,020 $12,087
Regular Dividends $ 0.20 $ 0.18 $ 0.16 $ 0.13 $ 0.08
SPECIAL APPRECIATION
In an era of downsizing, plant closings and early retirements that
have cast a shadow over employer and employee loyalty, one only needs to look
within The Smithfield Companies to find a spirit of dedication and hard work
that runs counter to that trend. Shortly after the close of World War II, a
seventeen year old named Alton Gwaltney joined our Smithfield business
working in the batching and weighing department of the Smithfield Ham and
Products Co. Always willing to learn and grow, Alton worked in all aspects
of production, research, sales and administration to eventually rise to
executive vice president of that operation. In September of this past year
Alton celebrated his fiftieth year with Smithfield. The Smithfield Companies
is grateful for Alton Gwaltney's leadership by example. He is truly a mentor
to us all.
OUTLOOK
We're excited about the products and strategies that will help us
grow in fiscal 1997 and beyond. We have the specialty brands and management
in place to meet our goals and we have the financial strength to pursue
opportunities in the higher growth and higher margin segments of the food
industry.
Yes, fiscal 1996 was a year of significant achievements, but it would
not have been possible without the tremendous effort put forth by our
dedicated employees. They made it happen and what happened has set the stage
for a future that promises many challenges and opportunities. Our job is to
meet those challenges and capitalize on those opportunities in a way that
will add value to your investment in Smithfield. I can assure you we will
work diligently to that end.
/s/ RICHARD S. FULLER
-------------------------------
RICHARD S. FULLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JUNE 3, 1996
The Smithfield Companies, Inc.
4
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED MARCH 31
1996 1995 1994 1993 1992
<S> <C>
Income Statement Data:
Net sales $ 18,180 $ 17,854 $ 17,738 $ 16,466 $ 13,929
Cost of goods sold 11,527 11,335 11,814 10,947 10,117
Gross profit 6,653 6,519 5,924 5,519 3,812
Other operating revenue (expense) 54 59 21 15 (65)
Selling, general and administrative expenses 5,750 5,524 5,321 4,584 3,187
Operating income 957 1,054 624 950 560
Interest income (expense), net 247 (151) (137) (111) (194)
Income from continuing operations
before income taxes 1,204 903 487 839 366
Income taxes 395 361 193 332 147
Income from continuing operations 809 542 294 507 219
Income from discontinued operations 1,843 851 645 880 952
Net income $ 2,652 $ 1,393 $ 939 $ 1,387 $ 1,171
Earnings per share:
Continuing operations $ 0.56 $ 0.37 $ 0.20 $ 0.32 $ 0.14
Discontinued operations 1.29 0.58 0.43 0.56 0.60
Earnings per share $ 1.85 $ 0.94 $ 0.62 $ 0.89 $ 0.74
Dividends per share of common stock $ 0.32 $ 0.18 $ 0.16 $ 0.13 $ 0.08
Balance Sheet Data (at period end):
Working capital $ 11,980 $ 6,687 $ 7,004 $ 6,217 $ 6,021
Total assets 17,679 17,443 17,667 17,211 16,762
Long-term debt - 1,000 2,425 1,625 2,100
Stockholders' equity 15,894 14,233 13,262 13,020 12,087
</TABLE>
1996 Annual Report
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company produces and markets branded foods 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 CONTINUING OPERATIONS
The following table shows, for the periods indicated, items included in
Selected Financial Data as a percentage of sales and the percentage changes
in the dollar amounts of such items compared to the prior period.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
PERCENTAGE OF SALES CHANGE
FISCAL YEARS FISCAL YEARS
ENDED MARCH 31 ENDED MARCH 31
<S> <C> 1996 VS 1995 VS
1996 1995 1994 1995 1994
Net sales 100.0% 100.0% 100.0% 1.8% 0.7%
Cost of goods sold 63.4 63.5 66.6 1.7 (4.0)
Gross profit 36.6 36.5 33.4 2.1 10.0
Other operating revenue 0.3 0.3 0.1 (9.9) 186.3
Selling, general and administrative expenses 31.6 30.9 30.0 4.1 3.8
Income from operations 5.3 5.9 3.5 (9.3) 68.9
Interest expense (0.2) (0.9) (0.8) (75.2) 10.1
Other income 1.5 0.0 0.0 NM 0.9
Income from continuing operations
before income taxes 6.6 5.0 2.7 33.3 85.3
Income taxes 2.2 2.0 1.0 9.4 87.0
Income from continuing operations 4.4% 3.0% 1.7% 49.3 84.1
</TABLE>
NM-Not meaningful
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales in 1996 were $18.2 million compared to $17.9 million in 1995.
Sales in most categories remained relatively constant as compared to the prior
year. Cost of sales decreased as a percentage of net sales to 63.4% for the year
ended March 31, 1996 from 63.5% for the year ended March 31, 1995.
Selling expenses increased as a percentage of net sales to 13.8% for the
year ended March 31, 1996 from 12.2% for the year ended March 31, 1995. Most of
the increase is due to higher marketing and promotional expenses needed to
maintain market share due to competitive pressures and to procure new business.
General and administrative expenses decreased as a percentage of net sales
to 17.9% for the year ended March 31, 1996 from 18.7% for the year ended March
31, 1995. The decrease was primarily due to a cost cutting effort in the
Company's specialty foods division.
The significant change in net interest, from expense of $151,538 during 1995
to income of $246,983 during 1996, is the result of extinguishing the Company's
revolving credit loan and investing the remaining proceeds from the sale of
Bunker Hill into highly liquid debt instruments.
Income tax expense from continuing operations as a percentage of income from
continuing operations before income taxes was 32.8% for the year ended March 31,
1996 compared to 40.0% for the year ended March 31, 1995. The decrease is the
result of $215,000 in interest income from tax-exempt municipal bond funds.
Income from continuing operations increased to $808,526 or $.56 per share in
1996 compared to $541,676 or $.37 per share in 1995. The weighted average shares
of common stock outstanding was 1,432,724 in 1996 and 1,474,948 in 1995. The
difference in weighted average shares is due to the repurchase of 49,102 shares
in 1996 and 22,846 shares in 1995.
The Smithfield Companies, Inc.
6
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales in 1995 were $17.9 million compared to $17.7 million in 1994. The
Company had sales increases in its specialty food businesses which was generally
offset by lower sales in the cured meat business due to lower selling prices as
a result of lower raw material costs.
Cost of sales decreased as a percentage of net sales to 63.5% for the year
ended March 31, 1995 from 66.6% for the year ended March 31, 1994. The lower
costs were due to favorable pork prices compared to the prior year.
Selling expenses increased as a percentage of net sales to 12.2% for the year
ended March 31, 1995 from 11.7% for the year ended March 31, 1994. Lower raw
material costs and competitive pressures have required the Company to increase
its marketing and promotional expenditures to the retail grocery trade to help
increase sales and expand market share.
The increase in general and administrative expenses during the year was
primarily attributable to the overall increase in the consumer price index.
Net interest expense increased to $151,538 for the year ended March 31, 1995
compared to $136,872 for the year ended March 31, 1994. Although the Company's
average debt outstanding decreased from $2.9 million in 1994 to $2.5 million in
1995, the Company's average interest rate increased from 4.8% in 1994 to 6.2%
in 1995.
Income tax expense as a percentage of income before income taxes was
consistent for the years ended March 31, 1995 and 1994.
Income from continuing operations increased to $541,676 or $.37 per share in
1995 compared to $294,162 or $.20 per share in 1994. The weighted average
shares of common stock outstanding was 1,474,948 in 1995 and 1,507,235 in 1994.
The difference in weighted average shares is due to the repurchase of 22,846
shares in 1995 and 59,392 shares in 1994.
LIQUIDITY AND CAPITAL RESOURCES
On August 23, 1995, the Company sold the assets of its Bunker Hill Division to
Castleberry/Snow's Brands, Inc. After payment of expenses and income taxes the
Company received net proceeds of approximately $10,150,000. The Company repaid
its outstanding credit loan and invested much of the remaining proceeds in
short-term highly liquid debt instruments. On March 31, 1996 approximately $9.7
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 credit
line, the Company believes it is in excellent position to invest in assets which
will increase shareholder value over time.
Until a meaningful acquisition is completed which would shift assets into
higher yielding investments, lower interest rates on the Company's short-term
investments will have a negative impact on earnings.
The Company believes its liquidity and capital resources to be excellent. The
Company's net cash flow from continuing operations during the year was
sufficient to fund its purchases of property, equipment and intangibles and to
satisfy its existing cash requirements.
The Company's debt financing at March 31, 1996 consists of a $10,000,000
revolving credit line from a bank at the lower of the Wall Street Journal's
quoted prime rate, the secondary market rate for certificates of deposit,
adjusted for reserves, plus .75%, or the LIBOR market rate plus .75% and expires
on March 27, 1997. As of March 31, 1996, the Company had no outstanding
balance on this credit line.
Management believes the Company's capital resources are sufficient to meet
all of its working capital requirements into the foreseeable future.
IMPACT OF INFLATION
Over the past three years, the effects of inflation on the Company's operations
have been minimal. If inflation rises substantially, competitive pressures may
make it difficult for the Company to pass the increases to the consumer.
1996 Annual Report
7
<PAGE>
CONSOLIDATED BALANCE SHEETS
THE SMITHFIELD COMPANIES, INC.
<TABLE>
<CAPTION>
MARCH 31
1996 1995
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 9,934,130 $ 318,101
Trade receivables, less allowance for doubtful
accounts of $64,000 in 1996 and 1995 990,968 2,224,026
Inventories 2,639,458 6,065,746
Prepaid expenses 65,009 109,700
Deferred income taxes 135,000 165,000
Total Current Assets 13,764,565 8,882,573
Property and Equipment
Land 396,342 406,968
Buildings 3,453,660 6,329,801
Machinery and equipment 1,297,104 3,388,116
Delivery equipment 160,444 379,426
Office furniture and equipment 715,800 883,551
6,023,350 11,387,862
Less accumulated depreciation 2,923,577 5,604,024
3,099,773 5,783,838
Other Assets
Trademarks and other intangibles 256,799 1,987,059
Other intangibles, primarily goodwill,
net of accumulated amortization 239,595 586,751
Deferred income taxes 115,000
Other 202,995 202,995
814,389 2,776,805
$17,678,727 $17,443,216
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ - $ 100,000
Accounts payable 447,043 708,152
Accrued compensation 218,876 317,407
Accrued expenses 876,181 730,500
Income taxes payable 242,173 339,585
Total Current Liabilities 1,784,273 2,195,644
Long-Term Debt, less current portion - 1,000,000
Deferred Income Taxes - 15,000
Stockholders' Equity
Preferred stock, $100 par value-authorized
250,000 shares none issued
Common stock, no par value, authorized
5,000,000 shares; outstanding 1,416,160 shares
and 1,465,262 shares 5,220,445 5,752,656
Retained earnings 10,674,009 8,479,916
15,894,454 14,232,572
$17,678,727 $17,443,216
</TABLE>
See notes to consolidated financial statements.
8 The Smithfield Companies, Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THE SMITHFIELD COMPANIES, INC.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
1996 1995 1994
<S> <C>
Net sales $18,180,219 $ 17,854,209 $ 17,737,451
Cost of goods sold 11,527,127 11,335,437 11,813,649
Gross profit 6,653,092 6,518,772 5,923,802
Other operating revenue 53,498 59,383 20,744
6,706,590 6,578,155 5,944,546
Operating expenses:
Selling 2,501,208 2,178,859 2,074,529
General and administrative 3,248,839 3,345,082 3,245,983
5,750,047 5,523,941 5,320,512
Operating income 956,543 1,054,214 624,034
Nonoperating income (expense):
Other income, primarily interest 285,580 4,205 4,599
Interest expense (38,597) (155,743) (141,471)
246,983 (151,538) (136,872)
Income from continuing operations
before income taxes 1,203,526 902,676 487,162
Federal and state income taxes 395,000 361,000 193,000
Income from continuing operations 808,526 541,676 294,162
Discontinued operations:
Income from operations of Bunker Hill less
income taxes of $95,000 in 1996,
$567,000 in 1995 and $425,000 in 1994 144,078 850,833 644,486
Gain on sale of Bunker Hill less
income taxes of $1,040,000 1,699,155 - -
Income from discontinued operations 1,843,233 850,833 644,486
Net income $ 2,651,759 $ 1,392,509 $ 938,648
Earnings per share:
Continuing operations $ 0.56 $ 0.37 $ 0.20
Discontinued operations 1.29 0.58 0.43
Earnings per share $ 1.85 $ 0.94 $ 0.62
</TABLE>
See notes to consolidated financial statements.
1996 Annual Report 9
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE SMITHFIELD COMPANIES, INC.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
1996 1995 1994
<S> <C>
Operating Activities
Net income $ 2,651,759 $ 1,392,509 $ 938,648
Income from discontinued operations (1,843,233) (850,833) (644,486)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 466,229 475,175 479,212
Loss (Gain) on disposal of property
and equipment 34,085 (6,042) 5,793
Decrease in deferred income taxes (100,000) (200,000) (80,000)
Change in assets and liabilities:
Trade receivables (334,447) 168,896 (112,760)
Inventories 139,745 (198,441) (96,224)
Prepaid expenses and other (23,618) 37,259 15,263
Accounts payable and accrued
compensation and expenses 247,048 257,140 (84,527)
Income taxes payable (97,412) 240,022 (28,631)
Net cash provided by continuing operations 1,140,156 1,315,685 392,288
Net cash provided by discontinued operations 621,849 1,853,974 793,095
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,762,005 3,169,659 1,185,383
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)
Acquisition:
Intangible assets (43,068) (311,503)
Inventories (650,000)
Purchase of property and equipment (182,106) (374,229) (1,260,686)
Proceeds from sale of property and equipment 14,600 17,875 28,058
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES 9,943,901 (1,317,857) (1,232,628)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 2,000,000 4,500,000 5,700,000
Principal payments on revolving line of credit
and long-term debt (3,100,000) (5,925,000) (4,900,000)
Cash dividends paid (457,666) (265,375) (240,617)
Repurchase of common stock (532,211) (157,023) (455,736)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (2,089,877) (1,847,398) 103,647
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,616,029 4,404 56,402
Cash and cash equivalents at beginning of year 318,101 313,697 257,295
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,934,130 $ 318,101 $ 313,697
</TABLE>
See notes to consolidated financial statements.
10 The Smithfield Companies, Inc.
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. - MARCH 31, 1996
NOTE A - Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of The Smithfield Companies, Inc. and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Cash Equivalents: The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Segment Information: The Smithfield Companies, Inc. and its subsidiaries are
engaged principally in a single business segment designated as "food
processing". As a federally inspected food processor, the Company is engaged
in the processing and/or distribution of cured meats, smoked meats and other
food products. No single customer accounts for more than 10% of net sales.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Concentrations of Credit Risk: Financial instruments that potentially
subject the Company to credit risk consist primarily of cash equivalents and
trade receivables. All of the Company' s cash equivalents are in high quality,
highly liquid short-term municipal bond funds. The carrying amount of these
cash equivalents approximate fair value because of their short maturities and
fluctuating interest rates. Credit risk with respect to trade receivables are
limited because the Company has a large number of diverse customers, thus
spreading the trade credit risk. The Company does not have a policy for
requiring collateral on its cash equivalents and trade receivables.
Inventories: Inventories are valued at lower of cost (determined on the
first-in, first-out method) or market.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is provided over the estimated useful lives of the assets using the
straight-line and accelerated methods (buildings 10-40 years; machinery and
equipment 7-10 years; delivery equipment 3-10 years; office furniture and
equipment 5-10 years). Accelerated methods are used for income tax purposes.
Amortization of Intangibles: Intangibles include goodwill, trademarks, brand
names and organizational costs. Goodwill is being amortized over twenty years
using the straight-line method. Trademarks, brand names and organizational
costs are being amortized over their estimated useful lives of four to twenty
years using the straight-line method. Accumulated amortization of intangibles
is $446,000 and $1,347,000 at March 31, 1996 and 1995, respectively.
Income Taxes: Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Earnings Per Share: Earnings per share are calculated by dividing net income
by the weighted average number of shares of Common Stock outstanding (1,432,724
in 1996; 1,474,948 in 1995; 1,507,235 in 1994). Outstanding stock options have
not been included as they have an insignificant effect on the computation.
NOTE B - Inventories
Inventories at March 31, 1996 and 1995 consisted of the following:
1996 1995
Finished goods $ 1,244,061 $ 3,641,963
Production materials:
Meats 986,548 1,421,858
Other ingredients 92,350 419,262
Packing ingredients 316,499 582,663
$ 2,639,458 $ 6,065,746
1996 Annual Report 11
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. - MARCH 31, 1996
NOTE C - Long-Term Debt
1996 1995
Note payable, due in quarterly installments
of $25,000 plus interest at 7% 100,000
Secured line of credit loan payable to
bank with interest due currently 1,000,000
1,100,000
Less current portion 100,000
$ 1,000,000
The Company has a secured line of credit agreement with a bank. The
agreement provides the Company with a $10 million line of credit loan which can
be used for all working capital needs and for acquisitions of companies in the
food business. The loan bears interest at the lower of The Wall Street
Journal's quoted prime rate, the secondary market rate for certificates of
deposit, adjusted for reserves, plus .75%, or the LIBOR market rate plus .75%
and is subject to renewal on March 27, 1997.
The total amount borrowed under this agreement cannot exceed the sum of the
Company' s consolidated accounts receivable and consolidated inventories.
Amounts borrowed are collateralized by all of the Company' s trade receivables,
inventories and intangible assets.
Under the terms of this agreement, the Company, among other things, agrees to
(1) maintain a minimum fixed charge coverage ratio, as defined, of 2:1 and (2)
maintain a maximum debt to tangible net worth ratio, as defined, of 1.25:1. The
loan agreement defines tangible net worth as net worth less intangible assets.
The Company paid $45,225 in 1996, $166,913 in 1995 and $138,495 in 1994 in
interest on all indebtedness. $6,628 was accrued at March 31, 1995.
NOTE D - Stockholders' Equity
CAPITAL STOCK
The Company is authorized to issue up to 5,250,000 shares of stock of all
classes, of which 5,000,000 shares are to be designated Common Stock and 250,000
shares are to be designated Preferred Stock. The Company's Common Stock has no
par value. The Company's Preferred Stock (none outstanding) has a par value of
$100.00 per share.
The Company's Preferred Stock may be issued in one or more series, with each
series to have distinctive serial designations and such preferences,
limitations, and relative rights as shall be permitted by law and established by
resolution of the Board of Directors providing for the issue of such Preferred
Stock. Each series of Preferred Stock may have the number of shares, voting
powers, redemption provisions, dividend rights, liquidation preferences,
convertibility features, and sinking fund entitlements as shall be set forth in
such Board resolution.
On July 31, 1991, the Board of Directors authorized 100,000 shares of voting
Series A Junior Participating Cumulative ($300 per share semi-annually)
Preferred Stock pursuant to the Shareholder Rights Plan discussed below.
The issuance of Preferred Stock may have the effect of delaying, deferring,
or preventing a change in control of the Company without any further action by
holders of the Company's Common Stock and may adversely affect the rights of
existing stockholders.
12 The Smithfield Companies, Inc.
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. - MARCH 31, 1996
STOCK OPTIONS
Under the Company's Stock Option Plan selected employees of the Company may
be granted options to purchase Common Stock. Such options may be designated
Incentive Stock Options, as defined under the Internal Revenue Code, or
Nonstatutory Stock Options at the time the option is granted. The exercise
price of the options may not be less than 100% of the fair market value of the
Company's Common Stock on the date of grant of such options, and the options
must be exercised within ten years. Other terms of the options will be
determined at the date of grant. A maximum of 200,000 shares of Common Stock
may be granted under this Plan. The options are exercisable two years from the
date of grant. At March 31,1996 the range of exercise prices is $6.75-9.50 and
the weighted average remaining contractual life of the options is 3.9 years. The
Company had 53,500, 77,500 and 52,500 shares which were exercisable at March 31,
1996, 1995 and 1994, respectively. At March 31, 1996, the weighted average
exercise price of those shares is $8.21.
The following is a summary of transactions for the Stock Option Plan:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
Options outstanding at March 31, 1993 78,500 $ 7.96
Granted 2,000 $ 7.75
Canceled (1,000) $ 7.00
Options outstanding at March 31, 1994 79,500 $ 7.95
Granted 4,000 $ 6.75
Options outstanding at March 31, 1995 83,500 $ 7.89
Canceled (27,000) $ 7.39
Options outstanding at March 31, 1996 56,500 $ 8.13
SHAREHOLDER RIGHTS PLAN
On July 31, 1991, the Board of Directors adopted a Shareholder Rights Plan
("Rights Plan") and declared a dividend of one Right for each outstanding share
of Common Stock. Under the terms of the Rights Plan, the Rights will be
exercisable only if a person, group or other entity that was not a 10%
shareholder as of July 1, 1991, becomes a 15% or more shareholder. Each Right
will entitle the holder, upon payment of the exercise price of $29.50, to
acquire one ten-thousandths of a share (a "unit") of Series A Junior
Participating Cumulative Preferred Stock. Each unit has the same voting rights
as one share of Common Stock. At the discretion of the Board of Directors, the
Company will be entitled to redeem the Rights for $.01 per Right at any time
before announcement that a 15% position has been acquired, and for 10 days after
the announcement.
If the Rights have not been redeemed, and any person, group or entity becomes
a 20% or more shareholder, each Right will entitle the holder, except the
acquiring person, group, or entity, upon payment of the exercise price, to
acquire Preferred Stock or Common Stock at the option of the Company, each
having a value equal to twice the Right's exercise price. Also, if the Company
were acquired in a merger or other business combination by such persons, group
or entity, or if 50% of its earning power or assets were sold in one transaction
or series of transactions, each Right would entitle the holder, except the
acquiring person, group or entity, to purchase securities of the surviving
company having a market value equal to twice the Right's exercise price. The
Rights will expire on July 31, 2001 unless previously exercised or redeemed by
the Board of Directors.
1996 Annual Report 13
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. - MARCH 31, 1996
An analysis of changes in Common Stock and Retained Earnings follow:
COMMON RETAINED
STOCK EARNINGS
Balance at March 31, 1993 $ 6,365,415 $ 6,654,751
Net Income 938,648
Dividends ($.16 per share) (240,617)
Repurchase of 59,392 Shares of Common Stock (455,736)
Balance at March 31, 1994 5,909,679 7,352,782
Net Income 1,392,509
Dividends ($.18 per share) (265,375)
Repurchase of 22,846 shares of Common Stock (157,023)
Balance at March 31, 1995 5,752,656 8,479,916
Net Income 2,651,759
Dividends ($.32 per share) (457,666)
Repurchase of 49,102 shares of Common Stock (532,211)
Balance at March 31, 1996 $ 5,220,445 $ 10,674,009
NOTE E - Sale of the Assets of Bunker Hill
On August 23, 1995, the Company sold most of the assets and transferred its
trade accounts payable of $327,000 of its Bunker Hill Division to
Castleberry/Snow's Brands, Inc. The Company received proceeds of approximately
$12,000,000 from the sale and recorded a gain of $1,699,155 after recording
income taxes of $1,040,000. All results of operations being reported for
periods prior to the sale have been reclassified to present the Company's
former Bunker Hill Division as a discontinued operation. Included in
discontinued operations were net sales of $6,079,751, $23,054,703 and
$22,988,969 for the years ended March 31, 1996, 1995 and 1994, respectively.
NOTE F - Employee Benefit Plans
PROFIT SHARING PLAN
The Company's profit sharing plan is a voluntary, defined contribution plan
which covers virtually all employees. The Company may contribute annually up to
a certain percentage of employee compensation to the plan. The Company
contributed $90,000, $100,000 and $60,000 in 1996, 1995 and 1994,
respectively, into this profit sharing plan.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company's Employee Stock Ownership Plan "the Plan" covers all employees
who have attained the required minimum age and length of service, except those
covered by a collective bargaining agreement. Contributions to the Plan, which
will be invested in the Company' s Common Stock, are made as determined by the
Board of Directors and are limited to certain percentages of the eligible
employees' compensation. The Company contributed $110,000, $75,000 and $70,000
into the Plan for the years ended March 31, 1996, 1995 and 1994, respectively.
14 The Smithfield Companies, Inc.
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. - MARCH 31, 1996
NOTE G - Income Taxes
Significant components of the Company's deferred tax liabilities and assets
as of March 31, 1996 and 1995 are as follows:
1996 1995
Deferred tax assets-current:
Accrued liabilities $ 101,000 $ 115,000
Inventory cost 13,000 30,000
Accounts receivable allowance 21,000 20,000
Book over tax depreciation 109,000 85,000
Book over tax amortization 6,000 -
Total deferred tax assets 250,000 250,000
Deferred tax assets (liabilities)-noncurrent:
Tax over book amortization (100,000)
Total deferred tax liabilities - (100,000)
Net deferred tax assets $ 250,000 $ 150,000
The provision for income taxes consists of the following:
1996 1995 1994
Continuing operations:
Currently payable:
Federal $ 405,000 $ 381,000 $ 192,000
State 60,000 58,000 26,000
465,000 439,000 218,000
Deferred:
Federal (60,000) (68,000) (22,000)
State (10,000) (10,000) (3,000)
(70,000) (78,000) (25,000)
395,000 361,000 193,000
Discontinued operations:
Currently payable:
Federal 1,009,000 599,000 423,000
State 156,000 90,000 57,000
1,165,000 689,000 480,000
Deferred:
Federal (26,000) (106,000) (48,000)
State (4,000) (16,000) (7,000)
(30,000) (122,000) (55,000)
1,135,000 567,000 425,000
$ 1,530,000 $ 928,000 $ 618,000
1996 Annual Report 15
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. - MARCH 31, 1996
The provision for income taxes varies from that computed using federal
statutory rates of 34%, as follows:
FOR THE YEAR ENDED MARCH 31
1996 1995 1994
Federal taxes at statutory rate $ 1,422,000 $ 789,000 $ 529,000
State taxes net of federal benefit 134,000 98,000 55,000
Trademark and goodwill amortization 7,000 28,000 29,000
Tax-exempt interest (73,000)
Other 40,000 13,000 5,000
$ 1,530,000 $ 928,000 $ 618,000
The Company made income tax payments of $1,727,412 in 1996, $887,978 in 1995
and $726,630 in 1994.
NOTE H - Other Financial Information
COMMITMENTS AND CONTINGENCIES
Employment agreements have been established with certain officers of the
Company. These agreements include clauses relating to salary and severance. The
Company also has incentive arrangements with certain officers of the Company.
LEASES
The Company's operating leases consist primarily of retail facilities, some
of which contain escalation clauses and renewal options for up to five years.
Aggregate minimum rental commitments under non-cancelable operating leases
having remaining terms of more than one year were $550,000 and are payable as
follows: 1997, $232,000; 1998, $179,000; 1999, $45,000; 2000, $45,000; 2001,
$45,000; 2002, $4,000.
Contingent rentals relate to retail sales space based on gross sales. Rent
expense is summarized as follows:
FOR THE YEAR ENDED MARCH 31
1996 1995 1994
Minimum rentals $ 254,343 $ 253,068 $ 275,677
Contingent rentals 74,258 71,792 70,453
TOTAL $ 328,601 $ 324,860 $ 346,130
RELATED PARTY TRANSACTIONS
In November 1995, Bernard C. Baldwin, III, an attorney with the Company's
law firm, was appointed to the Board of Directors. The Company paid $61,333 to
the law firm in 1996 of which $59,161 related to the sale of the assets of
Bunker Hill. Another member of the Board of Directors is president of a company
to which the Company paid fees of $12,000, $12,000 and $15,000 in 1996, 1995 and
1994, respectively. The chairman of the Company's Board of Directors is also
the board chairman of a food broker to which the Company paid sales commissions
of $68,377, $184,228 and $191,651 in 1996, 1995 and 1994, respectively, all of
which is included in discontinued operations. A fourth board member is
president of a company which supplied packaging materials to the Company in the
amount of $7,289, $37,518 and $48,051 in 1996, 1995 and 1994, respectively, of
which $30,315 and $38,751 in 1995 and 1994, respectively, is included in
discontinued operations.
16 The Smithfield Companies, Inc.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
THE SMITHFIELD COMPANIES, INC.
We have audited the accompanying consolidated balance sheet of The
Smithfield Companies, Inc. as of March 31, 1996 and the related consolidated
statements of income and cash flows for the year ended March 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated balance sheet of The Smithfield Companies, Inc. as
of March 31, 1995 and the related consolidated statements of income and cash
flows for each of the two years in the period ended March 31, 1995, were audited
by other auditors whose report, dated May 24, 1995, except for Note H which the
date was June 8, 1995, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management , as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Smithfield Companies, Inc. at March 31, 1996 and the consolidated results of its
operations and its cash flows for the year ended March 31, 1996 in conformity
with generally accepted accounting principles.
Virginia Beach, Virginia
May 17, 1996
1996 Annual Report 17
<PAGE>
Quarterly Results Of Operations
The following table presents quarterly results of operations for the years
ended March 31,1996 and 1995. (In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
---------------------------------------- ---------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
<S> <C>
Net sales $3,568 $4,302 $ 7,441 $2,868 $3,455 $ 4,243 $ 7,321 $ 2,835
Cost of goods sold 2,177 2,706 4,759 1,885 2,171 2,876 4,535 1,754
Gross profit 1,391 1,596 2,682 983 1,284 1,367 2,786 1,081
Other operating revenue 6 2 25 21 9 50 3 (2)
1,397 1,598 2,707 1,004 1,293 1,417 2,789 1,079
Selling, general and
administrative expenses 1,284 1,430 2,003 1,033 1,185 1,233 1,952 1,154
Operating income 113 168 704 (29) 108 184 837 (75)
Interest, net (19) 88 90 89 (46) (56) (40) (9)
Income from continuing oper-
ations before income taxes 94 256 794 60 62 128 797 (84)
Income taxes 38 90 279 (12) 25 51 319 (34)
Income from continuing
operations 56 166 515 72 37 77 478 (50)
Income from discontinued
operations 125 1,718 - - 121 189 255 285
Net income $ 181 $1,884 $ 515 $ 72 $ 158 $ 266 $ 733 $ 235
Earnings per share:
Continuing operations $ 0.04 $ 0.12 $ 0.36 $ 0.05 $ 0.03 $ 0.05 $ 0.33 $(0.03)
Discontinued operations 0.09 1.20 - - 0.08 0.13 0.17 0.19
Earnings per share $ 0.12 $ 1.32 $ 0.36 $ 0.05 $ 0.11 $ 0.18 $ 0.50 $ 0.16
</TABLE>
18 The Smithfield Companies, Inc.
<PAGE>
[Photograph of Directors]
[CAPTION] Directors: (standing left to right) Edward Acree, Bernard C. Baldwin,
III, Frank H. Buhler (seated left to right) Richard S. Fuller, Peter D.
Pruden, III, James L. Cresimore
DIRECTORS
Edward Acree
President
Edward Acree & Associates
Bernard C. Baldwin, III
Partner
Edmunds & Williams
Frank H. Buhler
Chairman and CEO
Old Dominion Box Company
James L. Cresimore
Chairman
The Smithfield Companies, Inc.
Chairman
Allegiance Brokerage Company
Richard S. Fuller
President and
Chief Executive Officer
Peter D. Pruden, III
Executive Vice President and
Secretary
EXECUTIVE OFFICERS
Richard S. Fuller
President and
Chief Executive Officer
Peter D. Pruden, III
Executive Vice President and
Secretary
Mark D. Bedard
Chief Financial Officer and
Treasurer
MANAGEMENT
Lawrence J. Dauterive
General Manager
The New Orleans
School of Cooking
James S. Groves
Vice President of Retail Sales
The Smithfield Ham & Products Co.
Alton H. Gwaltney
Executive Vice President
The Smithfield Ham & Products Co.
R. A. Howell
Vice President and
General Manager
Pruden Packing Co.
R. Steven Jordan
Corporate Controller
F. Belton Joyner, III
Vice President and
General Manager
Williamsburg Foods
Larry R. Santure
Vice President and
General Manager
V. W. Joyner & Co.
1996 Annual Report 19
<PAGE>
Corporate Information
EXECUTIVE OFFICES
The Smithfield Building
311 County Street, Suite 203
Portsmouth, Virginia 23704
TRANSFER AGENT
Wachovia Bank of North Carolina, N.A.
NASDAQ SYMBOL
HAMS
COUNSEL
Edmunds & Williams
800 Main Street
Lynchburg, Virginia 24505
AUDITORS
Coopers & Lybrand L.L.P.
400 One Columbus Center
Virginia Beach, Virginia 23462
ANNUAL MEETING
The Annual Meeting of Stockholders will be held
on Tuesday, July 30, 1996 at 9:00 a.m. at
The Max, 426 Water Street, Portsmouth, VA
FORM 10-K REPORT
Copies of the Company's Annual Report on Form
10-K are available without charge, upon written
request to:
The Smithfield Companies, Inc.
The Smithfield Building
311 County Street, Suite 203
Portsmouth, VA 23704
MARKET FOR SMITHFIELD COMMON STOCK
The Company's common stock is traded in
the NASDAQ National Market Systems under the
symbol HAMS. The following table sets forth the
quarterly high and low market prices for each
quarter of fiscal 1996 and 1995.
FISCAL 1996 HIGH LOW
First Quarter 11 3/8 8 3/4
Second Quarter 11 1/2 10 3/4
Third Quarter 11 3/4 10 3/4
Fourth Quarter 12 11 1/4
FISCAL 1995 HIGH LOW
First Quarter 7 1/2 6 3/4
Second Quarter 7 1/2 6 3/4
Third Quarter 7 3/4 6 3/4
Fourth Quarter 9 1/2 7 1/4
DIVIDENDS 1996 1995
First Quarter $ 0.05 $ 0.04
Second Quarter $ 0.05 $ 0.04
Third Quarter $ 0.05 $ 0.05
Fourth Quarter $ 0.17 $ 0.05
$ 0.32 $ 0.18
On May 31, 1996 there were 180 holders of
record of the Company's Common Stock. In
addition over 500 beneficial shareholders are
estimated.
Mail Order Catalogs
Your Company publishes three unique full color consumer catalogs each fall. We
hope that you will consider one or all of these when planning your personal or
corporate giving as well as your own fine dining and entertaining needs. For
your catalog(s), call us TOLL FREE.
The Smithfield Collection/Fin'n Feather 1-800-628-2242
The Peanut Shop of Williamsburg 1-800-637-3268
The New Orleans School of Cooking 1-800-237-4841
You can also visit The Smithfield Collection on the Internet at:
HTTP://WWW.SEVA.NET/BUS/SMITHFIELD/
20 The Smithfield Companies, Inc.
<PAGE>
[product photographs]
[Smithfield Logo]
The Smithfield Building
311 County Street, Suite 203
Portsmouth, Virginia 23704
EXHIBIT 21.1
SUBSIDIARIES OF THE SMITHFIELD COMPANIES, INC.
STATE OF
NAME INCORPORATION
The Smithfield Ham and Products., Inc. . . . . . . . . . . Virginia
Bunker Hill Packing Corporation . . . . . . . . . . . . . Virginia
Pruden Packing Co., Inc. . . . . . . . . . . . . . . . . . Virginia
Williamsburg Foods, Inc. . . . . . . . . . . . . . . . . . Virginia
The Peanut Shop, Inc.. . . . . . . . . . . . . . . . . . . Virginia
Louisiana General Store, Inc.. . . . . . . . . . . . . . . Virginia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Financial Statements of The Smithfield Companies, Inc. for
the year ended March 31, 1996, and is qualified in its entirety by
reference to such Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,934,130
<SECURITIES> 0
<RECEIVABLES> 1,054,968
<ALLOWANCES> 64,000
<INVENTORY> 2,639,458
<CURRENT-ASSETS> 13,764,565
<PP&E> 6,023,350
<DEPRECIATION> 2,923,577
<TOTAL-ASSETS> 17,678,727
<CURRENT-LIABILITIES> 1,784,273
<BONDS> 0
0
0
<COMMON> 5,220,445
<OTHER-SE> 10,674,009
<TOTAL-LIABILITY-AND-EQUITY> 17,678,727
<SALES> 18,180,219
<TOTAL-REVENUES> 18,234,717
<CGS> 11,527,127
<TOTAL-COSTS> 17,277,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,203,526
<INCOME-TAX> 395,000
<INCOME-CONTINUING> 808,526
<DISCONTINUED> 1,843,233
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,651,759
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.85
</TABLE>
