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 September 30, 1997
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)
(757) 399-3100
Registrant's telephone number, including area code
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 ___
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--1,177,549 shares as of November 4, 1997
INDEX
THE SMITHFIELD COMPANIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30, 1997
and March 31, 1997
Condensed consolidated statements of income--Three months
ended September 30, 1997 and 1996; Six months ended
September 30, 1997 and 1996
Condensed consolidated statements of cash flows--Six
months ended September 30, 1997 and 1996
Notes to condensed consolidated financial statements--
September 30, 1997
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 March 31
1997 1997
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,240,770 $ 6,660,759
Receivables, less allowances
of $63,000 and $61,000 1,622,842 1,551,383
Inventories 4,649,450 2,940,805
Prepaid expenses and other 129,746 71,382
Deferred income taxes 130,000 130,000
----------- -----------
TOTAL CURRENT ASSETS 11,772,808 11,354,329
PROPERTY, PLANT AND EQUIPMENT 6,334,730 6,651,308
less accumulated depreciation 3,076,516 3,137,314
----------- -----------
3,258,214 3,513,994
OTHER ASSETS 820,246 1,040,332
----------- -----------
$15,851,268 $15,908,655
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 943,901 $ 676,059
Other current liabilities 778,636 923,018
----------- -----------
TOTAL CURRENT LIABILITIES 1,722,537 1,599,077
SHAREHOLDERS' EQUITY
Common stock, no par or stated
value--authorized 5,000,000 shares;
issued and outstanding 1,178,049
shares and 1,217,549 shares 2,578,049 3,007,611
Retained earnings 11,550,682 11,301,967
----------- -----------
14,128,731 14,309,578
----------- -----------
$15,851,268 $15,908,655
=========== ===========
Note: The balance sheet at March 31, 1997 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 Six months ended
September 30 September 30
1997 1996 1997 1996
Net sales $4,770,991 $4,580,744 $9,257,822 $8,027,742
Cost of goods sold 3,359,726 3,212,945 6,311,712 5,322,150
---------- ---------- ---------- ----------
GROSS PROFIT 1,411,265 1,367,799 2,946,110 2,705,592
Other operating revenue 52,137 37,412 70,286 50,664
---------- ---------- ---------- ----------
1,463,402 1,405,211 3,016,396 2,756,256
Selling, general and
administrative expenses 1,235,805 1,224,233 2,571,692 2,417,188
---------- ---------- ---------- ----------
OPERATING INCOME 227,597 180,978 444,704 339,068
Interest income, net 52,430 65,140 114,996 153,302
---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 280,027 246,118 559,700 492,370
Income taxes 86,000 73,000 168,000 137,000
---------- ---------- ---------- ----------
NET INCOME $ 194,027 $ 173,118 $ 391,700 $ 355,370
========== ========== ========== ==========
EARNINGS PER SHARE $ .16 $ .14 $ .33 $ .27
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING 1,180,902 1,278,339 1,192,008 1,330,852
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended September 30
1997 1996
OPERATING ACTIVITIES
Net income $ 391,700 $ 355,370
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 232,783 215,342
Gain on disposal of property
and equipment (3,972)
Change in assets and liabilities:
Trade receivables (71,459) (516,157)
Inventories (1,641,225) (1,361,256)
Prepaid expenses and other (58,364) (80,033)
Accounts payable and other
current liabilities 217,770 (27,785)
Other Assets 2,100 14,568
---------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (930,667) (1,399,951)
INVESTING ACTIVITIES
Proceeds from the sale of New Orleans 205,332
Acquisition:
Intangible assets (22,235)
Inventories (127,752)
Equipment (50,050)
Purchase of property and equipment (154,987) (62,759)
Proceeds from sale of property and
equipment 232,917
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 83,225 (62,759)
FINANCING ACTIVITIES
Cash dividends paid (142,985) (133,856)
Repurchase of common stock (429,562) (1,555,846)
NET CASH USED IN ---------- ----------
FINANCING ACTIVITIES (572,547) (1,689,702)
---------- ----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (1,419,989) (3,152,412)
Cash and cash equivalents at
beginning of year 6,660,759 9,934,130
---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $5,240,770 $6,781,718
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
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 the fair presentation of the financial statements have been included.
Operating results for the three and six month periods ended September 30, 1997
are not necessarily indicative of the results that may be expected for the
year ending March 31, 1998. 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, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." This
standard is effective for financial statements issued for periods ending
after December 15, 1997. The Company does not expect that SFAS No. 128 will
have a material impact on the earnings per share computation.
In August 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards (SFAS) No. 131
"Disclosures about Segments of an Enterprise and Related Information." These
standards are effective for financial statements issued for periods beginning
after December 15, 1997. Adoption of SFAS No. 130 and 131 will not have a
material effect on the financial condition or results of operations of the
Company.
NOTE B--INVENTORIES
The components of inventory consist of the following:
September 30, 1997 March 31, 1997
Finished Goods $2,693,400 $1,393,147
Production Materials:
Meats 1,297,492 1,073,585
Other Ingredients 203,243 138,437
Packing Materials 455,315 335,636
---------- ----------
$4,649,450 $2,940,805
========== ==========
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-
(continued)
September 30, 1997
NOTE C--SALE OF THE ASSETS OF THE NEW ORLEANS UNIT
Because of the termination of its retail lease and the fact that the business
was no longer compatible with our strategy as a manufacturer and marketer of
specialty food products, the Company sold the operations of The New Orleans
School of Cooking on July 22, 1997. The sale of this business did not have a
material effect on income during the three months ended September 30, 1997.
NOTE D--ACQUISITION
On May 21, 1997 the Company purchased the Summer Garden brand of salad
dressings and Kitchen del Sol brand of specialty rices and grains from
Chanterelle Foods, Inc. These high quality product lines are marketed and
sold to the fancy food trade nationally. The purchaser price for the brand
names, equipment and inventories was approximately $200,000.
NOTE E--SHAREHOLDERS' EQUITY
During the six months ended September 30, 1997 the Company purchased and
retired 39,500 shares of its Common Stock at a cost of $429,562. Subsequent
to September 30, 1997 the Company purchased and retired an additional 500
shares of its Common Stock at a cost of $5,500.
NOTE F--SUBSEQUENT EVENT
On November 7, 1997 the Board of Directors approved a 100% stock dividend to
all shareholders of record on January 5, 1998 to be distributed on January
30, 1998.
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 Continuing Operations
Net sales for the three months ended September 30, 1997 increased 4.2% to
$4,770,991 compared to $4,580,744 for the three months ended September 30,
1996. Net sales for the six months ended September 30, 1997 increased 15.3%
to $9,257,822 compared to $8,027,742 for the six months ended September 30,
1996.
Gross profit for the three months ended September 30, 1997 decreased to 29.6%
compared to 29.9% for the three months ended September 30, 1996. Lower pork
prices helped offset lower gross profit margins due to the product mix as a
result of the acquisition of certain product lines from Doughtie's Foods,
Inc. on February 28, 1997. Year to date margins are lower because the first
quarter did not benefit from lower pork prices.
Selling, general and administrative expenses increased 0.9% and 6.4% during
the three and six months ended September 30, 1997 respectively, compared to
the prior year. The increase was primarily attributable to increased selling
expenses as a result of the increased sales.
The decrease in net interest income is the result of the use of cash in the
Doughtie's and Summer Garden acquisitions and the purchase and retirement of
39,500 shares of the Company's Common Stock.
Income tax rates are lower than statutory rates because of interest from
tax-exempt municipal bond funds.
Liquidity and Capital Resources
On September 30, 1997, the Company had approximately $5.2 million invested in
short-term highly liquid debt instruments compared to approximately $6.5
million at March 31, 1997. The decrease is primarily the result of increased
inventories which is typical during this time of year. Another significant
use of cash was the purchase of 39,500 shares of the Company's Common Stock.
Proceeds from the sale of The New Orleans School of Cooking was offset by the
acquisition of the Summer Garden and Kitchen del Sol specialty food brands.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
The Company believes its liquidity and capital resources to be excellent.
Current cash flows and available funds are sufficient to satisfy existing
cash requirements. At September 30, 1997, the Company's only debt consisted
of accounts payable and accrued expenses.
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.
As of September 30, 1997, the Company had all of its $10 million line of
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 is financing the increase in inventory through
its operating cash flow and the use of some of its short-term securities.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
a.) 27. Financial Data Schedule
b.) The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
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: November 10, 1997 /s/ Richard S. Fuller
______________________________
Richard S. Fuller
President and Chief Executive
Officer
DATE: November 10, 1997 /s/ Mark D. Bedard
______________________________
Mark D. Bedard
Treasurer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Consolidated Financial Statements of The Smithfield Companies,
Inc. for the six months ended September 30, 1997, and is qualified in its
entirety by reference to such Unaudited Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 5,240,770
<SECURITIES> 0
<RECEIVABLES> 1,685,842
<ALLOWANCES> 63,000
<INVENTORY> 4,649,450
<CURRENT-ASSETS> 11,772,808
<PP&E> 6,334,730
<DEPRECIATION> 3,076,516
<TOTAL-ASSETS> 15,851,268
<CURRENT-LIABILITIES> 1,722,537
<BONDS> 0
0
0
<COMMON> 2,258,049
<OTHER-SE> 11,550,682
<TOTAL-LIABILITY-AND-EQUITY> 15,851,268
<SALES> 9,257,822
<TOTAL-REVENUES> 9,328,108
<CGS> 6,311,712
<TOTAL-COSTS> 8,883,404
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 559,700
<INCOME-TAX> 168,000
<INCOME-CONTINUING> 391,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 391,700
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
