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: June 30, 1998
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
Not applicable
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, no par or stated value--2,343,411 shares as of August 4, 1998
INDEX
THE SMITHFIELD COMPANIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 1998
and March 31, 1998
Condensed consolidated statements of income--Three months
ended June 30, 1998 and 1997
Condensed consolidated statements of cash flows--Three months
ended June 30, 1998 and 1997
Notes to condensed consolidated financial statements--
June 30, 1998
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
June 30 March 31
1998 1998
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,820,296 $ 7,679,907
Receivables, less allowances
of $66,000 and $71,000 1,242,796 1,258,593
Inventories 4,162,880 2,900,668
Prepaid expenses and other 65,067 50,460
Deferred income taxes 100,000 100,000
----------- -----------
TOTAL CURRENT ASSETS 12,391,039 11,989,628
PROPERTY, PLANT AND EQUIPMENT 6,543,880 6,456,964
less allowances for depreciation 3,323,172 3,231,045
----------- -----------
3,220,708 3,225,919
OTHER ASSETS 601,894 615,060
----------- -----------
$16,213,641 $15,830,607
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 756,623 $ 532,720
Other current liabilities 718,323 699,117
----------- -----------
TOTAL CURRENT LIABILITIES 1,474,946 1,231,837
SHAREHOLDERS' EQUITY
Common stock, no par or stated
value--authorized 5,000,000 shares;
issued and outstanding 2,343,411
shares and 2,343,428 shares 2,503,767 2,503,869
Retained earnings 12,234,928 12,094,901
----------- -----------
14,738,695 14,598,770
----------- -----------
$16,213,641 $15,830,607
=========== ===========
Note: The balance sheet at March 31, 1998 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 June 30
1998 1997
Net sales $3,786,514 $4,486,831
Cost of goods sold 2,417,531 2,981,986
---------- ----------
GROSS PROFIT 1,368,983 1,534,845
Other operating revenue 21,977 18,149
---------- ----------
1,390,960 1,552,994
Selling, general and
administrative expenses 1,169,687 1,335,887
---------- ----------
OPERATING INCOME 221,273 217,107
Interest income, net 70,056 62,566
---------- ----------
INCOME BEFORE
INCOME TAXES 291,329 279,673
Income taxes 81,000 82,000
---------- ----------
NET INCOME $ 210,329 $ 197,673
========== ==========
BASIC EARNINGS PER SHARE $ .09 $ .08
========== ==========
DILUTED EARNINGS PER SHARE $ .09 $ .08
========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING--BASIC 2,343,412 2,406,472
========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING--DILUTED 2,361,264 2,420,590
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended June 30
1998 1997
OPERATING ACTIVITIES
Net income $ 210,329 $ 197,673
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 105,293 121,117
Changes in assets and liabilities:
Trade receivables 15,797 49,447
Inventories (1,262,212) (972,620)
Prepaid expenses and other (14,607) (16,388)
Accounts payable and other
current liabilities 243,109 25,287
---------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (702,291) (595,484)
INVESTING ACTIVITIES
Acquisition:
Intangible assets (22,235)
Inventories (127,752)
Equipment (50,050)
Purchase of property and equipment (86,916) (95,067)
Proceeds from sale of property and
equipment 216,917
---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES (86,916) (78,187)
FINANCING ACTIVITIES
Cash dividends paid (70,302) (72,302)
Repurchase of common stock (102) (348,000)
---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES (70,404) (420,302)
---------- ----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (859,611) (1,093,973)
Cash and cash equivalents at
beginning of period 7,679,907 6,660,759
---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $6,820,296 $5,566,786
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended June 30, 1998 is not necessarily indicative of the results
that may be expected for the year ending March 31, 1999. 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, 1998.
In August 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." In February 1998, the FASB issued SFAS
No. 132 "Employers Disclosures about Pensions and Other Postretirement
Benefits." The Company adopted these statements for the quarter ended June
30, 1998. These statements did not have a material effect on the financial
condition or results of operations of the Company.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This standard is effective for
financial statements issued for years beginning after June 15, 1999. The
Company does not expect that SFAS no. 133 will have a material effect on its
financial condition or results of operations.
NOTE B--INVENTORIES
The components of inventory consist of the following:
June 30, 1998 March 31, 1998
Finished Goods $2,460,469 $1,265,440
Production Materials:
Meats 1,058,869 1,101,861
Other Ingredients 177,513 161,597
Packing Materials 466,029 371,770
---------- ----------
$4,162,880 $2,900,668
========== ==========
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-
(continued)
June 30, 1998
NOTE C--ACQUISITION
On April 22, 1998 the Company purchased the E. M. Todd Co. brand. Founded in
1779, Todd is America's oldest meatpacker and the original producer of the
Smithfield Ham. The purchase price for the brand, equipment and inventories
was nominal.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company produces and markets a wide range of branded food products
primarily to the retail grocery, food service and gourmet food industries.
The Company also markets its products through direct mail and its own retail
outlets. The Company's business is somewhat seasonal with its direct mail
and gourmet food operations having disproportionate sales during the
Christmas season. This traditionally makes the Company's third quarter sales
and income the highest of the fiscal year.
Results of Operations
Net sales for the three months ended June 30, 1998 were $3,786,514 compared
to $4,486,831 for the three months ended June 30, 1997. Various factors
contributed to the lower sales volume during the quarter. The largest reason
for the decline is due to the sale of The New Orleans School of Cooking on
July 22, 1997. In addition, lower dollar sales due to lower pork related
selling prices and soft demand for some of the Company's frozen product lines
further compounded the sales decline. Gross profit for the three months ended
June 30, 1998 increased to 36.2% compared to 34.2% for the three months ended
June 30, 1997. The higher margins were due to lower costs for pork related
products.
Selling, general and administrative expenses (SG&A) decreased 12.4% during
the three months ended June 30, 1998 to $1,169,687 from $1,335,887 for the
three months ended June 30, 1997. Eliminating the expenses associated with
The New Orleans School of Cooking in 1997, SG&A expenses would have increased
less than 4%.
Income tax rates are lower than statutory rates because of interest income
from tax-exempt municipal bond funds. 1998 income taxes were lower than 1997
because of greater tax-exempt interest income.
Liquidity and Capital Resources
At June 30, 1998, the Company had approximately $6.7 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 plus .50% which expires on March 19, 1999.
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 June 30, 1998 and March 31, 1998, the Company's only
debt consisted of accounts payable and accrued expenses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
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 or
obtain special use financing to fund the 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 an excellent position to invest in assets
which will increase shareholder value over time.
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.
Year 2000 Compliance
The Company is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's
programs that recognize a date using "00" as the year 1900 rather than the
year 2000 could result in errors or system failures. Based upon its
preliminary assessment, the Company believes that costs of addressing this
issue will not have a material adverse impact on the Company's financial
position. Year 2000 considerations may, however, impact vendors or financial
institutions with which the Company has relationships, indirectly affecting
the Company.
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 June 30, 1998.
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: August 11, 1998 /s/ Richard S. Fuller
______________________________
Richard S. Fuller
President and Chief Executive
Officer
DATE: August 11, 1998 /s/ Mark D. Bedard
______________________________
Mark D. Bedard
Treasurer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Unaudited Consolidated Financial Statements of The Smithfield Companies,
Inc. for the three months ended June 30, 1998, and is qualified in its
entirety by reference to such Unaudited Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 6,820,296
<SECURITIES> 0
<RECEIVABLES> 1,308,796
<ALLOWANCES> 66,000
<INVENTORY> 4,162,880
<CURRENT-ASSETS> 12,391,039
<PP&E> 6,543,880
<DEPRECIATION> 3,323,172
<TOTAL-ASSETS> 16,213,641
<CURRENT-LIABILITIES> 1,474,946
<BONDS> 0
0
0
<COMMON> 2,503,767
<OTHER-SE> 12,234,928
<TOTAL-LIABILITY-AND-EQUITY> 16,213,641
<SALES> 3,786,514
<TOTAL-REVENUES> 3,808,491
<CGS> 2,417,531
<TOTAL-COSTS> 3,587,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 291,329
<INCOME-TAX> 81,000
<INCOME-CONTINUING> 210,329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,329
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
