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, 1998 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:(757) 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
5, 1998: $7,402,192
The number of shares outstanding of each of the Registrant's classes of
Common Stock, as of June 5, 1998 was 2,343,411 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended March 31, 1998
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 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 barbecues and chilies
for the food service and retail grocery industries. Smithfield Ham began
producing frozen barbecues in 1985 primarily for the food service industry.
On February 28, 1997, Smithfield Ham acquired the frozen barbecue and chili
product lines of Doughtie's Foods, Inc. The operations have been in
Smithfield Ham produces and markets barbecue sauces in plastic and glass
containers and portion control packets for both the food service and retail
grocery industries. It also markets deviled meat spreads, canned barbecues,
country hams and genuine "Smithfield" hams under the "Amber" brand. 10% 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 4% of the unit's sales relates to barbecue 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 76% 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 47% 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 stores, 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 specialty 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 late
1986. The manufacturing facility is located near Williamsburg in James City
County, Virginia.
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, Florida and the District of Columbia.
At Smithfield Ham, an executive supervises four 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 four 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 four 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.
Raw Materials
One of the Company's primary raw materials consists of fresh and frozen pork
products purchased domestically or imported. Another significant raw
material is raw peanuts purchased primarily from Virginia and North Carolina.
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 its 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. 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, 1998, the Company had approximately 87 full-time employees
and 64 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 Union. The collective
bargaining agreement expires on May 7, 2002. 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 third 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. In May 1998, construction began on a new 19,000 square foot
frozen food processing plant in Smithfield. Construction is expected to be
completed in January 1999. Pruden occupies a 32,127 square foot facility on
three acres in Suffolk, Virginia. Williamsburg occupies a 20,000 square foot
facility on 1.5 acres in James City County, Virginia. The Company also owns an
office building with approximately 13,000 square feet of leasable space. The
Company occupies approximately 3,000 square feet and the remaining portion is
available for lease. 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 Note H to the Company's consolidated financial
statements and is incorporated herein by reference.
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
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDERS MATTERS
Common Stock Market Prices and Dividends on the inside back cover
of the annual shareholders report for the year ended March 31, 1998
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 3 of the annual shareholders
report for the year ended March 31, 1998 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 4 through 6 of the annual
shareholders report for the year ended March 31, 1998 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 7 through
17 of the annual shareholders report for the year ended
March 31, 1998 are incorporated herein by reference.
Quarterly Results of Operations on page 18 of the annual
shareholders report for the year ended March 31, 1998 is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information contained on pages 3 and 4 in the Company's proxy
statement dated June 25, 1998, with respect to directors of the
Company, is incorporated herein by reference in response to this
item. The information contained on page 18 of the annual
shareholders report for the year ended March 31, 1998 with respect
to executive officers, is incorporated herein by reference in
response to this item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 5 and 6 in the Company's proxy
statement dated June 25, 1998 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 on pages 2 and 3 in the Company's proxy
statement dated June 25, 1998 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 on pages 4 and 5 in the Company's proxy
statement dated June 25, 1998 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, 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, 1998--
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 25, 1998
James L. Cresimore
S/ Richard S. Fuller President and Chief June 25, 1998
Richard S. Fuller Executive Officer
(Principal Executive
Officer)
S/ Peter D. Pruden, III Executive Vice June 25, 1998
Peter D. Pruden, III President, Secretary
and Director
S/ Mark D. Bedard Treasurer and Chief June 25, 1998
Mark D. Bedard Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
S/ Bernard C. Baldwin,III Director June 25, 1998
Bernard C. Baldwin, III
S/ Edward Acree Director June 25, 1998
Edward Acree
S/ Frank H. Buhler Director June 25, 1998
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, 1998
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, 1998, are incorporated by reference
in Item 8:
Consolidated balance sheets--March 31, 1998 and 1997
Consolidated statements of income--Years ended
March 31, 1998, 1997 and 1996
Consolidated statements of cash flows--Years ended March 31,
1998, 1997 and 1996
Notes to consolidated financial statements--March 31, 1998
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.
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, 1998:
Deducted from
asset accounts:
Allowance for
doubtful accounts $61,000 $34,000 $24,000 $71,000
======= ======= ======= =======
Year ended March 31, 1997:
Deducted from
asset accounts:
Allowance for
doubtful accounts $64,000 $35,400 $38,400 $61,000
======= ======= ======= =======
Year ended March 31, 1996:
Deducted from
asset accounts:
Allowance for
doubtful accounts $64,000 $27,300 $27,300 $64,000
======= ======= ======= =======
(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 1998 Annual Report to Shareholders of The
Smithfield Companies, Inc. and subsidiaries. In connection with our audits
of such financial statements, we have also audited the related financial
statement schedule listed in item 14 (a)(1) & (2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents 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 22, 1998
To Our Fellow Shareholders
[PHOTO]
The Smithfield Companies once again had an exceptionally good year. The
Company continued to build momentum -- firmly establishing itself as a leading
marketer of specialty foods through multiple distribution channels. Most
importantly, we adhered to our commitment to a well-conceived strategy of
enhancing the investment of shareholders by managing, building and acquiring
product lines and brands that enjoy value-added margins in growth categories
that will deliver a consistent and predictable return.
The acquisition of certain product lines from Doughtie's Foods, Inc. in
late fiscal 1997 complements our strategic plan and I am pleased to report that
we were successful in integrating the products into our frozen specialty
business in Smithfield. Your Company enjoyed the earnings benefit from the
transaction for much of the just completed year.
An additionally important event occurred on May 21, 1997 when we acquired
the Summer Garden brand of salad dressings and Kitchen del Sol brand of
specialty rices and grains. We are marketing these high quality product lines
to the fancy food trade nationally through our Williamsburg Foods gourmet food
business.
Financial Performance and Condition
Net sales for the year ended March 31, 1998 grew 5% to a record $20.4
million compared to $19.5 million a year earlier. Income from continuing
operations also reached a record $1,077,000, an 18% increase over $911,000
earned in fiscal 1997. Earnings per share for the year ended March 31, 1998
increased 29% from $.35 to $.45 per share.
In fiscal 1998, Smithfield generated in excess of $2 million in cash from
operating profits, divestiture of a business and real estate, and non-cash
expenses. We spent $507,000 of capital improving the efficiency and profits of
our existing operations and on acquisitions of strategically complementary
brands and product lines.
Total assets at year end were $15.83 million of which $7.68 million was
cash and cash equivalents. Current assets exceeded current liabilities by a
ratio of 9.7 to 1. Shareholder equity was $14.60 million, while book value of
our stock was a record $6.23 per share.
Smithfield's financial position and cash flow remains very strong. These
resources will continue to fund capital expenditures, dividends and new
business opportunities.
Enhanced Shareholder Return
Over the past year, we've taken a number of steps to increase returns to
shareholders, including a 9% increase in regular quarterly dividends paid which
marked the sixth consecutive year that regular quarterly dividends paid have
increased.
Your Board of Directors believes The Smithfield Companies' stock is a
good investment. During fiscal 1998 the Company acquired 91,670 shares of our
stock in the open market. We have repurchased approximately 1,000,000 shares
since July 1990 at an average cost of $4.56 per share. Smithfield may purchase
additional shares in the future if the Board believes our stock is undervalued
in the market place.
On January 30, 1998 the Company distributed a 100% stock dividend to
shareholders in an effort to enhance interest and investment in your Company.
During the year the value of Smithfield Companies' shares increased 21%, from
$5.38 to $6.50 on an adjusted per share basis. Earnings per share, for all
reported periods, have been adjusted to account for this dividend.
- --------------------------------------------------------------------------------
1998 Annual Report
1
<PAGE>
We remain committed to taking steps that will contribute to a meaningful
increase in shareholder return over time.
Looking Forward
The Smithfield Companies is committed to increase capacity as needed and
to improve production efficiencies through carefully planned capital
expenditures, which leads to better product quality and improved operating
margins.
We expect to begin construction during June, 1998 on a state of the art
19,000 square foot frozen food processing plant in Smithfield to support our
barbecue, stews and chili product lines. The existing plant is inefficient and
unable to accommodate current production needs. The new facility will not only
accommodate growth by tripling our current production capabilities but will
allow development of new products through the addition of production lines and
equipment. Construction is expected to be completed by January 1999 at a cost
of $2.4 million.
This Company has a history of achievement, and I am convinced our future
is bright. We enter fiscal 1999 with a positive outlook and great momentum.
Enhancing shareholder value through the continuous improvement in our
performance remains the commitment of everyone at Smithfield.
As always, I would like to thank all who have continued to contribute to
our success: our employees for their diligent work, our independent directors
for their guidance and advice, our customers for purchasing our quality
products, and our shareholders for their support.
/s/ Richard S. Fuller
- ---------------------
Richard S. Fuller
President and Chief Executive Officer
June 5, 1998
Income from Continuing Operations
IN MILLIONS
YEAR MILLIONS
98 $ 1.077
97 0.911
96 0.809
95 0.542
94 0.294
Net Sales
IN MILLIONS
YEAR MILLIONS
98 $20.425
97 19.481
96 18.180
95 17.854
94 17.738
Book Value Per Share
YEAR MILLIONS
1998 $6.23
1997 5.88
1996 5.61
1995 4.86
1994 4.46
Regular Dividends
PER SHARE
YEAR MILLIONS
98 0.12
97 0.11
96 0.1
95 0.09
94 0.08
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The Smithfield Companies, Inc.
2
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For The Year Ended March 31
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- ----------
<S> <C>
Income Statement Data:
Net sales $ 20,425 $ 19,481 $ 18,180 $17,854 $17,738
Cost of goods sold 13,893 12,999 11,527 11,335 11,814
- ---------------------------------------------- -------- -------- -------- ------- -------
Gross profit 6,532 6,482 6,653 6,519 5,924
Other operating revenue 100 87 54 59 21
Selling, general and administrative expenses 5,293 5,519 5,750 5,524 5,321
- ---------------------------------------------- -------- -------- -------- ------- -------
Operating income 1,339 1,050 957 1,054 624
Interest income (expense), net 243 281 247 (151) (137)
- ---------------------------------------------- -------- -------- -------- ------- -------
Income from continuing operations
before income taxes 1,582 1,331 1,204 903 487
Income taxes 505 420 395 361 193
- ---------------------------------------------- -------- -------- -------- ------- -------
Income from continuing operations 1,077 911 809 542 294
Income from discontinued operations -- -- 1,843 851 645
- ---------------------------------------------- -------- -------- -------- ------- -------
Net income $ 1,077 $ 911 $ 2,652 $ 1,393 $ 939
- ---------------------------------------------- -------- -------- -------- ------- -------
Diluted earnings per share:
Continuing operations $ 0.45 $ 0.35 $ 0.28 $ 0.18 $ 0.10
Discontinued operations -- -- 0.64 0.29 0.21
- ---------------------------------------------- -------- -------- -------- ------- -------
Diluted earnings per share $ 0.45 $ 0.35 $ 0.92 $ 0.47 $ 0.31
- ---------------------------------------------- -------- -------- -------- ------- -------
Dividends per share of common stock $ 0.12 $ 0.11 $ 0.16 $ 0.09 $ 0.08
- ---------------------------------------------- -------- -------- -------- ------- -------
Balance Sheet Data (at year end):
Working Capital $ 10,758 $ 9,755 $ 11,980 $ 6,687 $ 7,004
Total Assets 15,831 15,909 17,679 17,443 17,667
Long-term debt -- -- -- 1,000 2,425
Stockholders' equity 14,599 14,310 15,894 14,233 13,262
</TABLE>
- --------------------------------------------------------------------------------
1998 Annual Report
3
<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
--------------------------------------- ----------------------
1998 vs 1997 vs
1998 1997 1996 1997 1996
----------- ----------- ----------- --------- ----------
<S> <C>
Net sales 100.0% 100.0% 100.0% 4.8% 7.2%
Cost of goods sold 68.0 66.7 63.4 6.9 12.8
----- ----- -----
Gross profit 32.0 33.3 36.6 0.8 ( 2.6)
Other operating revenue 0.5 0.4 0.3 14.3 62.8
Selling, general and administrative expenses 25.9 28.3 31.6 ( 4.1) ( 4.0)
----- ----- -----
Income from operations 6.6 5.4 5.3 27.4 10.0
Interest expense ( 0.0) ( 0.0) ( 0.2) (16.5) (90.7)
Other income 1.2 1.5 1.5 (13.3) 0.4
----- ----- -----
Income from continuing operations before income
taxes 7.8 6.9 6.6 18.9 10.6
Income taxes 2.5 2.2 2.2 20.2 6.3
----- ----- -----
Income from continuing operations 5.3% 4.7% 4.4% 18.2 12.7
----- ----- -----
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Net sales in 1998 were $20.4 million compared to $19.5 million in 1997.
The increase in sales was primarily due to the acquisition of the frozen
barbecue and chili product lines from Doughtie's Foods, Inc. on February 28,
1997. The sales increase was partially offset by the impact of the sale of the
operations of The New Orleans School of Cooking (New Orleans) on July 22, 1997.
Cost of sales increased as a percentage of net sales to 68.0% for the year
ended March 31, 1998 from 66.7% for the year ended March 31, 1997. Margins
suffered due to the loss of sales from New Orleans which carried higher than
average margins. The lower margins were partially offset by lower costs for
pork related products.
Selling expenses increased as a percentage of net sales to 13.3% for the
year ended March 31, 1998 from 12.2% for the year ended March 31, 1997. Selling
expenses associated with the increased wholesale sales derived from the
Doughtie's product lines are greater than selling expenses in prior years
associated with retail sales from New Orleans. Selling expenses associated with
similar product lines were relatively constant during 1998 and 1997.
General and administrative expenses (G&A expenses) decreased by $570,000
during the year ended March 31, 1998 compared to the prior year. Eliminating
the G&A expenses associated with The New Orleans School of Cooking, 1998 G&A
expenses would have increased $185,252 or 8.5%. This increase is due to higher
administrative expenses associated with the Doughtie's acquisition as well as
normal cost increases.
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
4
<PAGE>
Net interest income decreased to $243,402 for the year ended March 31,
1998 from $280,770 for the year ended March 31, 1997. Invested balances during
fiscal 1998 were lower than fiscal 1997 primarily due to the acquisition of the
frozen barbecue and chili product lines from Doughtie's Foods, Inc. and the
continued repurchase of Company stock.
Income tax expense as a percentage of income before income taxes was
consistent for the years ended March 31, 1998 and 1997. Income tax rates are
lower than statutory rates because of interest income from tax-exempt municipal
bond funds.
Net income increased to $1,077,115 or $.45 per share in 1998 compared to
$911,016 or $.35 per share in 1997. The difference in weighted average shares
outstanding between 1998 and 1997 is due to the repurchase of 91,670 shares in
fiscal 1998. The difference in basic and diluted earnings per share is due to
exercisable stock options.
Fiscal 1997 Compared to Fiscal 1996
Net sales in 1997 were $19.5 million compared to $18.2 million in 1996.
The increase in sales was primarily in the Company's wholesale operations to
the retail food trade. Cost of sales increased as a percentage of net sales to
66.7% for the year ended March 31, 1997 from 63.4% for the year ended March 31,
1996. The lower margins were due to higher raw material costs, primarily as a
result of increased pork prices.
Selling expenses decreased as a percentage of net sales to 12.2% for the
year ended March 31, 1997 from 13.8% for the year ended March 31, 1996. 1996
selling expenses were higher due to marketing and promotional expenses needed
to maintain market share due to competitive pressures. 1997 selling expenses
are comparable to 1995 selling expenses.
General and administrative expenses decreased as a percentage of net sales
to 16.1% for the year ended March 31, 1997 from 17.9% for the year ended March
31, 1996. The decrease was primarily due to the Company's continuing effort to
cut costs in all of its operating units.
Net interest income increased to $280,770 for the year ended March 31,
1997 from $246,983 for the year ended March 31, 1996 as a result of investing
proceeds from the sale of Bunker Hill in August 1995. Invested balances at
March 31, 1997 are lower than the prior year due to the significant amount of
repurchased stock during fiscal 1997 and the acquisition of the frozen barbecue
and chili product lines from Doughtie's Foods, Inc. on February 28, 1997.
Income tax expense as a percentage of income before income taxes was
consistent for the years ended March 31, 1997 and 1996.
Income from continuing operations increased to $911,016 or $.35 per share
in 1997 compared to $808,526 or $.28 per share in 1996. The difference in
weighted average shares outstanding between 1997 and 1996 is due to the
repurchase of 397,222 shares in fiscal 1997. The difference in basic and
diluted earnings per share is due to exercisable stock options.
Liquidity and Capital Resources
At March 31, 1998, the Company had approximately $7.5 million invested in
short-term highly liquid debt instruments. In addition, the Company has an
unused $10 million line of credit loan with a bank bearing interest at the
LIBOR market rate plus .50% which expires on March 10, 1999.
On July 22, 1997 the Company sold the operations of The New Orleans School
of Cooking. The sale of this operation did not have a material impact on the
overall operations of the Company. Net sales, total assets and operating income
were all less than 10% of their respective consolidated amounts. The proceeds
from the sale were $205,000, which approximated book value at the time of the
sale.
The Company believes its liquidity and capital resources to be excellent.
Current cash flow and available funds are sufficient to satisfy existing cash
requirements. At March 31, 1998 and 1997, the Company's only debt consisted of
accounts payable and accrued expenses.
- --------------------------------------------------------------------------------
1998 Annual Report
5
<PAGE>
During May 1998 the Company began construction on a 19,000 square foot
frozen food processing plant in Smithfield to support barbecue, stews and chili
product lines. Construction is expected to be completed by January 1999 at a
total cost of approximately $2.4 million of which $1.8 million was committed
under contract. The Company intends to use its short-term investments to
finance this construction.
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.
Management believes the Company's capital resources are sufficient to meet
all of its working capital requirements into the foreseeable future.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have time sensitive software may recognize a date using the "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations. The Company is currently
assessing the impact to its operations of addressing the Year 2000 issues.
Based upon its preliminary assessment, the Company believes that its internal
systems and those supplied to it by third parties are or will be Year 2000
compliant by the Year 2000 without any material additional expense. Year 2000
considerations may, however, impact vendors or financial institutions with
which the Company has relationships, indirectly affecting the Company.
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.
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
6
<PAGE>
CONSOLIDATED BALANCE SHEETS
THE SMITHFIELD COMPANIES, INC.
March 31
--------------------------
1998 1997
------------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 7,679,907 $ 6,660,759
Trade receivables, less allowance for doubtful
accounts of $71,000 in 1998 and $61,000 in 1997 1,258,593 1,551,383
Inventories 2,900,668 2,940,805
Prepaid expenses 50,460 71,382
Deferred income taxes 100,000 130,000
- -------------------------------------------------- ----------- -----------
Total Current Assets 11,989,628 11,354,329
Property and Equipment
Land 346,342 396,342
Buildings 3,497,719 3,653,657
Machinery and equipment 1,820,973 1,702,574
Delivery equipment 264,885 169,800
Office furniture and equipment 506,618 728,935
Construction in progress 20,427 --
- -------------------------------------------------- ----------- -----------
6,456,964 6,651,308
Less accumulated depreciation 3,231,045 3,137,314
- -------------------------------------------------- ----------- -----------
3,225,919 3,513,994
Other Assets
Trademarks, net of accumulated amortization 160,400 233,011
Other intangibles, primarily customer lists,
net of accumulated amortization 344,660 516,974
Deferred income taxes 110,000 170,000
Other -- 120,347
- -------------------------------------------------- ----------- -----------
615,060 1,040,332
----------- -----------
$15,830,607 $15,908,655
================================================== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 532,720 $ 676,059
Accrued compensation 225,076 219,328
Accrued expenses 337,643 460,430
Income taxes payable 136,398 243,260
- -------------------------------------------------- ----------- -----------
Total Current Liabilities 1,231,837 1,599,077
Stockholders' Equity
Preferred stock, $100 par value-authorized
250,000 shares; none issued
Common stock, no par value, authorized
5,000,000 shares; outstanding 2,343,428 shares
and 2,435,098 shares 2,503,869 3,007,611
Retained earnings 12,094,901 11,301,967
- -------------------------------------------------- ----------- -----------
14,598,770 14,309,578
----------- -----------
$15,830,607 $15,908,655
================================================== =========== ===========
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
1998 Annual Report
7
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THE SMITHFIELD COMPANIES, INC.
<TABLE>
<CAPTION>
For The Year Ended March 31
------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C>
Net sales $20,425,385 $19,481,357 $18,180,219
Cost of goods sold 13,893,306 12,999,407 11,527,127
- -------------------------------------------- ----------- ----------- -----------
Gross profit 6,532,079 6,481,950 6,653,092
Other operating revenue 99,524 87,101 53,498
- -------------------------------------------- ----------- ----------- -----------
6,631,603 6,569,051 6,706,590
Operating expenses:
Selling 2,720,254 2,376,012 2,501,208
General and administrative 2,572,636 3,142,793 3,248,839
- -------------------------------------------- ----------- ----------- -----------
5,292,890 5,518,805 5,750,047
----------- ----------- -----------
Operating income 1,338,713 1,050,246 956,543
Nonoperating income (expense):
Other income, primarily interest 246,400 284,362 285,580
Interest expense (2,998) (3,592) (38,597)
- -------------------------------------------- ----------- ----------- -----------
243,402 280,770 246,983
----------- ----------- -----------
Income from continuing operations
before income taxes 1,582,115 1,331,016 1,203,526
Federal and state income taxes 505,000 420,000 395,000
- -------------------------------------------- ----------- ----------- -----------
Income from continuing operations 1,077,115 911,016 808,526
Discontinued operations:
Income from operations of Bunker Hill less
income taxes of $95,000 -- -- 144,078
Gain on sale of Bunker Hill less
income taxes of $1,040,000 -- -- 1,699,155
- -------------------------------------------- ----------- ----------- -----------
Income from discontinued operations -- -- 1,843,233
- -------------------------------------------- ----------- ----------- -----------
Net income $1,077,115 $ 911,016 $2,651,759
============================================ =========== =========== ===========
Basic earnings per share:
Continuing operations $ 0.45 $ 0.35 $ 0.28
Discontinued operations -- -- 0.64
- -------------------------------------------- ----------- ----------- -----------
Basic earnings per share $ 0.45 $ 0.35 $ 0.93
============================================ =========== =========== ===========
Diluted earnings per share:
Continuing operations $ 0.45 $ 0.35 $ 0.28
Discontinued operations -- -- 0.64
- -------------------------------------------- ----------- ----------- -----------
Diluted earnings per share $ 0.45 $ 0.35 $ 0.92
============================================ =========== =========== ===========
Weighted average shares -- Basic 2,368,004 2,568,784 2,865,448
============================================ =========== =========== ============
Weighted average shares -- Diluted 2,381,539 2,583,373 2,893,354
============================================ =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE SMITHFIELD COMPANIES, INC.
<TABLE>
<CAPTION>
For The Year Ended March 31
-------------------------------------------------
1998 1997 1996
------------- --------------- ---------------
<S> <C>
OPERATING ACTIVITIES
Net income $1,077,115 $ 911,016 $ 2,651,759
Income from discontinued operations (1,843,233)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 444,225 427,860 466,229
(Gain) loss on disposal of property and equipment (3,918) 18,768 34,085
Deferred income taxes 90,000 (50,000) (100,000)
Changes in assets and liabilities:
Trade receivables 292,790 (560,415) (334,447)
Inventories 107,557 (87,922) 139,745
Prepaid expenses 20,922 (6,373) (23,618)
Accounts payable and accrued
compensation and expenses (166,068) (186,283) 247,048
Income taxes payable (106,862) 1,087 (97,412)
- ---------------------------------------------------------- ---------- ------------ ------------
Net cash provided by continuing operations 1,755,761 467,738 1,140,156
Operating income from discontinued operations -- -- 621,849
- ---------------------------------------------------------- ---------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,755,761 467,738 1,762,005
========================================================== ========== ============ ============
INVESTING ACTIVITIES
Proceeds from the sale of Bunker Hill 11,969,760
Proceeds from the sale of New Orleans 205,332
Expenses and income taxes related to the sale of
Bunker Hill (1,815,285)
Acquisition:
Intangible assets (22,235) (311,254) (43,068)
Inventories (127,752) (213,425)
Equipment (50,050) (323,000)
Purchase of property and equipment (307,249) (488,923) (182,106)
Proceeds from sale of long-term assets 353,264 91,385 14,600
- ---------------------------------------------------------- ---------- ------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 51,310 (1,245,217) 9,943,901
FINANCING ACTIVITIES
Proceeds from revolving line of credit 2,000,000
Principal payments on revolving line of credit and
long-term debt (3,100,000)
Cash dividends paid (284,181) (283,058) (457,666)
Repurchase of common stock (503,742) (2,212,834) (532,211)
- ---------------------------------------------------------- ---------- ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (787,923) (2,495,892) (2,089,877)
- ---------------------------------------------------------- ---------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,019,148 (3,273,371) 9,616,029
Cash and cash equivalents at beginning of year 6,660,759 9,934,130 318,101
- ---------------------------------------------------------- ---------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $7,679,907 $ 6,660,759 $ 9,934,130
========================================================== ========== ============ ============
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
1998 Annual Report
9
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1998
NOTE A - Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of The Smithfield Companies, Inc. and its wholly owned
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.
Revenue Recognition: Revenue is recognized at the time of title transfer,
which ordinarily occurs at the time of shipment. Revenue from retail stores is
recognized in the period which the products are sold.
Advertising Costs: Advertising costs are expensed in the period incurred.
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 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.
Stock-Based Compensation: Stock-based compensation is determined using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25. Required disclosures determined under the fair value method of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, are presented in Note D.
New Accounting Standards: The Company has adopted SFAS No. 128, "Earnings
Per Share." All earnings per share amounts have been restated to comply with
this statement. The difference in basic and diluted earnings per share is due
to exercisable stock options. In August 1997, the Financial Accounting
Standards Board issued SFAS No. 130 "Reporting Comprehensive Income" and 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. In February 1998, the Financial Accounting Standards Board issued
SFAS No. 132 "Employers Disclosures about Pensions and Other Postretirement
Benefits." This standard is effective for fiscal years beginning after December
15, 1997. The Company does not expect that SFAS No. 132 will have a material
effect on the financial statements.
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.
Gains and losses from dispositions or retirements of property and equipment are
recognized currently.
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
10
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1998
Amortization of Intangibles: Intangibles include goodwill, trademarks,
brand names and customer lists. Goodwill is being amortized over twenty years
using the straight-line method. Trademarks, brand names and customer lists are
being amortized over their estimated useful lives of four to twenty years using
the straight-line method. Accumulated amortization of intangibles is $436,000
and $503,000 at March 31, 1998 and 1997, 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 computed based upon the
weighted average number of common shares outstanding and common equivalent
shares in the form of stock options.
NOTE B - Inventories
Inventories at March 31, 1998 and 1997 consisted of the following:
1998 1997
------------- -------------
Finished goods $1,265,440 $1,393,147
Production materials:
Meats 1,101,861 1,073,585
Other ingredients 161,597 138,437
Packing materials 371,770 335,636
- ---------------------- ---------- ----------
$2,900,668 $2,940,805
========== ==========
NOTE C - Line of Credit
The Company has a line of credit agreement with a bank. The agreement
provides the Company with a $10 million line of credit loan that can be used
for all general corporate uses including acquisitions of companies in the food
business. The loan bears interest at the LIBOR market rate plus .50% and is
subject to renewal on March 10, 1999. The line of credit is unsecured.
The Company did not have any outstanding balance on this facility at March
31, 1998 and March 31, 1997, respectively. The Company paid $2,998 in 1998,
$3,592 in 1997 and $45,225 in 1996 in interest on all indebtedness.
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.
- --------------------------------------------------------------------------------
1998 Annual Report
11
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1998
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.
On November 7, 1997, the Board of Directors declared a 100% stock dividend
to all shareholders of record on January 5, 1998. This dividend was distributed
on January 30, 1998. All average share and earnings per share data prior to
1998 were restated to retroactively reflect the stock dividend.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
employee stock options. In electing to account for its stock options under APB
25, the Company is required by SFAS No. 123, "Accounting for Stock-Based
Compensation" to provide pro forma information regarding net income and
earnings per share.
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 400,000 shares of Common Stock
may be granted under this Plan. The options are exercisable two years from the
date of grant. At March 31, 1998, the weighted average remaining contractual
life of the options is 8.1 years. The Company had 34,000, 38,000 and 107,000
shares which were exercisable at March 31, 1998, 1997 and 1996, respectively.
At March 31, 1998, the weighted average exercise price of those shares is
$3.40.
During January 1997, the Company offered cash compensation to holders of
stock options with an expiration date of no later than May 16, 1999. The
Company offered the difference between $5.75 and the option price for the
shares. 75,000 shares were surrendered in connection with this offering at a
cost of $101,250. This expense is included in general and administrative
expenses during the year ended March 31, 1997.
The following is a summary of transactions for the Stock Option Plan:
<TABLE>
<CAPTION>
Number of Per Share Weighted Average
Shares Range Exercise Price
----------- -------------- -----------------
<S> <C>
Options outstanding at April 1, 1995 167,000 $ 2.50- 4.75 $ 3.94
Retired (54,000) $ 2.50- 4.38 $ 3.69
- --------------------------------------- ------- -------------- -------
Options outstanding at March 31, 1996 113,000 $ 3.38- 4.75 $ 4.06
Granted 10,000 $ 5.38- 5.50 $ 5.45
Repurchased (75,000) $ 4.38- 4.75 $ 4.40
- --------------------------------------- ------- -------------- -------
Options outstanding at March 31, 1997 48,000 $ 3.38- 5.50 $ 3.83
Granted 87,500 $ 5.50- 5.88 $ 5.57
Retired (8,000) $ 3.38- 5.50 $ 4.41
- --------------------------------------- ------- -------------- -------
Options outstanding at March 31, 1998 127,500 $ 3.38- 5.88 $ 4.99
======================================= ======= ============= =======
</TABLE>
The fair value of each stock option granted in fiscal 1998 and 1997 is
estimated using the Black-Scholes option model with the following weighted
average assumptions for both years: dividend yield of 2%, expected volatility
of 4%, weighted average risk-free interest rate of 5.65% and expected lives of
eight years. The weighted average fair value of options granted is $3.77 and
$3.52 in fiscal 1998 and 1997, respectively. Had compensation cost for the
Company's stock options been determined based on the fair value at the grant
dates for awards consistent with the method of SFAS No. 123, the Company's pro
forma net income would have decreased by $68,000, or $.03 per share for the
year ended March 31, 1998 and $7,000 or $.00 per share for the year ended March
31, 1997. No stock options were issued during the year ended March 31, 1996.
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
12
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1998
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.
An analysis of changes in Common Stock and Retained Earnings follow:
<TABLE>
<CAPTION>
Common
Stock Retained Earnings
--------------- ------------------
<S> <C>
Balance at April 1, 1995 $ 5,752,656 $ 8,479,916
Net Income 2,651,759
Dividends ($.16 per share) (457,666)
Repurchase of 98,204 shares of Common Stock (532,211)
- ----------------------------------------------- ------------ -----------
Balance at March 31, 1996 5,220,445 10,674,009
Net Income 911,016
Dividends ($.11 per share) (283,058)
Repurchase of 397,222 shares of Common Stock (2,212,834)
- ----------------------------------------------- ------------ -----------
Balance at March 31, 1997 $ 3,007,611 $11,301,967
Net Income 1,077,115
Dividends ($.12 per share) (284,181)
Repurchase of 91,670 shares of Common Stock (503,742)
- ----------------------------------------------- ------------ -----------
Balance at March 31, 1998 $ 2,503,869 $12,094,901
=============================================== ============ ===========
</TABLE>
NOTE E - Sale of Assets
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
operations during the year ended March 31, 1998.
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. 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 reported for the period prior to the sale have been classified to
present the Company's former Bunker Hill division as a discontinued operation.
Included in discontinued operations were net sales of $6,079,751 for the year
ended March 31, 1996.
- --------------------------------------------------------------------------------
1998 Annual Report
13
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1998
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. Effective
January 1, 1997 the Company added a 401(k) feature to its profit sharing plan.
The Company makes contributions to the plan based on 50% of the participants'
contributions, which can range from 1% to 6% of their total compensation
subject to certain limitations. Company matching contributions to the 401(k)
plan were $42,373 and $12,380 for the years ended March 31, 1998 and 1997,
respectively. Discretionary profit sharing contributions to the plan were
$95,000 and $90,000 for the years ended March 31, 1997 and 1996, respectively.
No discretionary contribution was made for the year ended March 31, 1998.
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 $43,000, $40,000
and $110,000 into the Plan for the years ended March 31, 1998, 1997 and 1996,
respectively.
NOTE G - Income Taxes
Significant components of the Company's deferred tax assets as of March
31, 1998 and 1997 are as follows:
1998 1997
----------- -----------
Deferred tax assets:
Accrued liabilities $ 64,000 $ 97,000
Inventory cost 14,000 14,000
Accounts receivable allowance 22,000 20,000
Book over tax depreciation 102,000 162,000
Book over tax amortization 8,000 7,000
- -------------------------------- -------- --------
Total deferred tax assets $210,000 $300,000
================================ ======== ========
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
14
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1998
The provision for income taxes consists of the following:
1998 1997 1996
----------- ----------- -------------
Continuing operations:
Currently payable:
Federal $359,000 $ 407,000 $ 405,000
State 56,000 63,000 60,000
- ------------------------- -------- --------- ----------
415,000 470,000 465,000
-------- --------- ----------
Deferred:
Federal 76,000 (43,000) (60,000)
State 14,000 (7,000) (10,000)
- ------------------------- -------- --------- ----------
90,000 (50,000) (70,000)
-------- --------- ----------
505,000 420,000 395,000
Discontinued operations:
Currently payable:
Federal 1,009,000
State 156,000
- ------------------------- -------- --------- ----------
-- -- 1,165,000
-------- --------- ----------
Deferred:
Federal (26,000)
State (4,000)
- ------------------------- ----------
-- -- (30,000)
-------- --------- ----------
505,000 420,000 1,135,000
-------- --------- ----------
$505,000 $ 420,000 $1,530,000
========================= ======== ========= ==========
The provision for income taxes varies from that computed using federal
statutory rates of 34%, as follows:
For the Year Ended March 31
1998 1997 1996
----------- ----------- -------------
Federal taxes at statutory rate $ 538,000 $ 454,000 $1,422,000
State taxes net of federal benefit 42,000 42,000 134,000
Trademark and goodwill amortization 6,000 7,000 7,000
Tax-exempt interest (88,000) (95,000) (73,000)
Other 7,000 12,000 40,000
- ------------------------------------ --------- --------- ----------
$ 505,000 $ 420,000 $1,530,000
==================================== ========= ========= ==========
The Company made income tax payments of $521,862 in 1998, $468,913 in 1997
and $1,727,412 in 1996.
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.
The estimated cost to complete construction in progress is approximately
$2,400,000 of which $1,800,000 was committed to under contract as of March 31,
1998.
- --------------------------------------------------------------------------------
1998 Annual Report
15
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1998
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.
At March 31, 1998 aggregate minimum rental commitments under
non-cancelable operating leases having remaining terms of more than one year
were $537,000 and are payable as follows: 1999, $162,000; 2000, $131,000; 2001,
$127,000; 2002, $68,000; 2003, $49,000.
Contingent rentals relate to retail sales space based on gross sales. Rent
expense is summarized as follows:
For the Year Ended March 31
---------------------------------------
1998 1997 1996
Minimum rentals $152,968 $222,018 $254,343
Contingent rentals 25,096 59,403 74,258
- -------------------- -------- -------- --------
TOTAL $178,064 $281,421 $328,601
==================== ======== ======== ========
Related Party Transactions
A member of the Board of Directors is an attorney with the Company's law
firm. The Company paid $29,996 and $20,601 to the law firm in 1998 and 1997,
respectively, and $61,333 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 annual fees of $12,000 in 1998, 1997 and
1996. 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 in 1996 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 $6,759, $7,674 and $7,289 in 1998, 1997 and 1996
respectively.
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
16
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
The Smithfield Companies, Inc.
We have audited the accompanying consolidated balance sheets of The
Smithfield Companies, Inc. as of March 31, 1998 and 1997, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended March 31, 1998. 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 audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Smithfield
Companies, Inc. at March 31, 1998 and 1997 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Virginia Beach, Virginia
May 22, 1998
- --------------------------------------------------------------------------------
1998 Annual Report
17
<PAGE>
Quarterly Results Of Operations
The following table presents quarterly results of operations for the years
ended March 31, 1998 and 1997.
(In thousands, except per share data)
Fiscal 1998
---------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
Net Sales $ 4,487 $ 4,771 $ 7,924 $ 3,244
Cost of Goods Sold 2,952 3,360 5,300 2,282
- ----------------------------- ------- ------- ------- -------
Gross Profit 1,535 1,411 2,624 962
Other operating revenue 18 52 18 11
- ----------------------------- ------- ------- ------- -------
1,553 1,463 2,642 973
Selling, general and
administrative expenses 1,336 1,235 1,776 945
- ----------------------------- ------- ------- ------- -------
Operating Income 217 228 866 28
Interest, net 63 52 58 70
Income before income taxes 280 280 924 98
- ----------------------------- ------- ------- ------- -------
Income taxes 82 86 330 7
Net Income $ 198 $ 194 $ 594 $ 91
============================= ======= ======= ======= =======
Basic earnings per share: $ 0.08 $ 0.08 $ 0.25 $ 0.04
============================= ======= ======= ======= =======
Diluted earnings per share: $ 0.08 $ 0.08 $ 0.25 $ 0.04
============================= ======= ======= ====== =======
Fiscal 1997
---------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
Net Sales $ 3,447 $ 4,581 $ 7,880 $ 3,573
Cost of Goods Sold 2,109 3,213 5,281 2,396
- ----------------------------- ------- ------- ------- -------
Gross Profit 1,338 1,368 2,599 1,177
Other operating revenue 13 37 32 5
- ----------------------------- ------- ------- ------- -------
1,351 1,405 2,631 1,182
Selling, general and
administrative expenses 1,193 1,224 1,955 1,146
- ----------------------------- ------- ------- ------- -------
Operating Income 158 181 676 36
Interest, net 88 65 63 64
Income before income taxes 246 246 739 100
- ----------------------------- ------- ------- ------- -------
Income taxes 64 73 269 14
Net Income $ 182 $ 173 $ 470 $ 86
============================= ======= ======= ======= =======
Basic earnings per share: $ 0.07 $ 0.07 $ 0.19 $ 0.04
============================= ======= ======= ======= =======
Diluted earnings per share: $ 0.07 $ 0.07 $ 0.18 $ 0.03
============================= ======= ====== ====== =======
<TABLE>
<CAPTION>
<S> <C>
Directors Executive Officers Larry R. Santure
Edward Acree Richard S. Fuller Vice President and
President President and General Manager
Edward Acree & Associates Chief Executive Officer V. W. Joyner & Co.
Bernard C. Baldwin, III Peter D. Pruden, III James S. Groves
Partner Executive Vice President Vice President of Retail Sales
Edmunds & Williams and Secretary The Smithfield Ham
& Products Co.
Frank H. Buhler Chairman Mark D. Bedard
Old Dominion Box Company Chief Financial Officer Robert J. Koch, Jr.
and Treasurer Vice President of
James L. Cresimore Foodservice Sales
Chairman Management The Smithfield Ham
The Smithfield Companies, Inc. Alton H. Gwaltney & Products Co.
Chairman Executive Vice President
Allegiance Brokerage Company The Smithfield Ham R. Steven Jordan
& Products Co. Corporate Controller
Richard S. Fuller
President and John S. Mitchell Kevin A. Jones
Chief Executive Officer Vice President and General Manager
General Manager Pruden Packing Co.
Peter D. Pruden, III Williamsburg Foods
Executive Vice President
and Secretary
</TABLE>
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
18
<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 Thursday, July 30,
1998 at 9:00 a.m. at The Wachovia
Bank Building, 200 High Street,
Suite 305, 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 Small Cap Market under
the symbol HAMS. The following table sets forth the quarterly high and low
market prices for each quarter of fiscal 1998 and 1997.
Fiscal 1998 High Low
- ---------------- ------- -------
First Quarter 5 5/8 5 5/16
Second Quarter 5 7/8 5 1/4
Third Quarter 5 7/8 5 1/2
Fourth Quarter 6 3/4 5 3/8
Fiscal 1997 High Low
- ---------------- ------- --------
First Quarter 5 7/8 5 23/64
Second Quarter 5 7/8 5 1/2
Third Quarter 5 3/4 5 3/8
Fourth Quarter 5 5/8 5 3/8
Dividends 1998 1997
- ---------------- ----------- -----------
First Quarter $ 0.030 $ 0.025
Second Quarter $ 0.030 $ 0.025
Third Quarter $ 0.030 $ 0.030
Fourth Quarter $ 0.030 $ 0.030
- ---------------- ------- -------
$ 0.120 $ 0.110
================ ======= =======
On May 29, 1998 there were 152 holders of record of the Company's Common
Stock. In addition over 200 beneficial shareholders are estimated.
- --------------------------------------------------------------------------------
1998 Annual Report
19
<PAGE>
Mail Order Catalogs
Your Company publishes two unique full color consumer catalogs each
fall. We hope that you will consider 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
You can also visit the Company's catalogs on the Internet at:
www.smithfield-companies.com
- --------------------------------------------------------------------------------
The Smithfield Companies, Inc.
20
EXHIBIT 21
SUBSIDIARIES OF THE SMITHFIELD COMPANIES, INC.
STATE OF
NAME INCORPORATION
The Smithfield Ham and Products., Inc. . . . . . . . . . . Virginia
Pruden Packing Co., Inc. . . . . . . . . . . . . . . . . . Virginia
Williamsburg Foods, Inc.. . . . . . . . . . . . . . . . . . Virginia
The Peanut Shop, Inc. . . . . . . . . . . . . . . . . . . . Virginia
The E. M. Todd Company, Incorporated
(formally Louisiana General Store, Inc.). . . . . . . . . . Virginia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Financial Statments of The Smithfield Companies, Inc. for
the year ended March 31, 1998, and is qualified in its entirety by
reference to such Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,679,907
<SECURITIES> 0
<RECEIVABLES> 1,329,593
<ALLOWANCES> 71,000
<INVENTORY> 2,900,668
<CURRENT-ASSETS> 11,989,628
<PP&E> 6,456,964
<DEPRECIATION> 3,231,045
<TOTAL-ASSETS> 15,830,607
<CURRENT-LIABILITIES> 1,231,837
<BONDS> 0
0
0
<COMMON> 2,503,869
<OTHER-SE> 12,094,901
<TOTAL-LIABILITY-AND-EQUITY> 15,830,607
<SALES> 20,425,385
<TOTAL-REVENUES> 20,524,909
<CGS> 13,893,306
<TOTAL-COSTS> 19,186,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2998
<INCOME-PRETAX> 1,582,115
<INCOME-TAX> 505,000
<INCOME-CONTINUING> 1,077,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,077,115
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
