FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended December 31, 1997
Commission file number 0-17084
THE SMITHFIELD COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1167160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
311 County Street, Portsmouth, VA 23704
(Address of principal executive offices) (Zip Code)
(757) 399-3100
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, no par or stated value--2,351,428 shares as of February 6, 1998
INDEX
THE SMITHFIELD COMPANIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Condensed consolidated balance sheets--December 31, 1997
and March 31, 1997
Condensed consolidated statements of income--Three months
ended December 31, 1997 and 1996; Nine months ended
December 31, 1997 and 1996
Condensed consolidated statements of cash flows--Nine
months ended December 31, 1997 and 1996
Notes to condensed consolidated financial statements--
December 31, 1997
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 March 31
1997 1997
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,685,915 $ 6,660,759
Trade receivables, less allowances
of $73,000 and $61,000 2,394,417 1,551,383
Inventories 2,300,666 2,940,805
Prepaid expenses and other 62,281 71,382
Deferred income taxes 130,000 130,000
----------- -----------
TOTAL CURRENT ASSETS 12,573,279 11,354,329
PROPERTY AND EQUIPMENT 6,448,511 6,651,308
less accumulated depreciation 3,167,410 3,137,314
----------- -----------
3,281,101 3,513,994
OTHER ASSETS 805,573 1,040,332
---------- -----------
$16,659,953 $15,908,655
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 949,816 $ 676,059
Other current liabilities 1,072,769 923,018
----------- -----------
TOTAL CURRENT LIABILITIES 2,022,585 1,599,077
STOCKHOLDERS' EQUITY
Common stock, no par or stated
value--authorized 5,000,000 shares;
issued and outstanding 2,353,406
shares and 2,435,098 shares 2,563,243 3,007,611
Retained earnings 12,074,125 11,301,967
----------- -----------
14,637,368 14,309,578
----------- -----------
$16,659,953 $15,908,655
=========== ===========
Note: The balance sheet at March 31, 1997 has been derived
from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended
December 31 December 31
1997 1996 1997 1996
Net sales $7,924,109 $7,880,430 $17,181,931 $15,908,172
Cost of goods sold 5,299,907 5,281,419 11,611,619 10,603,569
---------- ---------- ---------- -----------
GROSS PROFIT 2,624,202 2,599,011 5,570,312 5,304,603
Other operating revenue 17,948 31,872 88,234 82,536
---------- ---------- ---------- -----------
2,642,150 2,630,883 5,658,546 5,387,139
Selling, general and
administrative expenses 1,776,304 1,955,337 4,347,996 4,372,525
---------- ---------- ---------- -----------
OPERATING INCOME 865,846 675,546 1,310,550 1,014,614
Interest income, net 58,250 63,558 173,246 216,860
---------- ---------- ---------- -----------
INCOME BEFORE
INCOME TAXES 924,096 739,104 1,483,796 1,231,474
Income taxes 330,000 269,000 498,000 406,000
---------- ---------- ---------- -----------
NET INCOME $ 594,096 $ 470,104 $ 985,796 $ 825,474
========== ========== ========== ===========
BASIC EARNINGS PER SHARE $ .25 $ .19 $ .42 $ .32
========== ========== ========== ===========
DILUTED EARNINGS PER SHARE $ .25 $ .18 $ .41 $ .31
========== ========== ========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING--BASIC 2,354,792 2,514,732 2,374,240 2,612,536
========== ========== ========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING--DILUTED 2,368,422 2,544,594 2,387,806 2,642,486
========== ========== ========== ===========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended December 31
1997 1996
OPERATING ACTIVITIES
Net income $ 985,796 $ 825,796
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 337,450 318,898
Gain on disposal of property
and equipment (3,972) (5,240)
Change in assets and liabilities:
Trade receivables (843,034) (1,739,839)
Inventories 707,559 692,541
Prepaid expenses and other 9,101 (33,641)
Accounts payable and other
current liabilities 517,818 674,491
---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,710,718 732,684
INVESTING ACTIVITIES
Proceeds from the sale of New Orleans 205,332
Acquisition:
Intangible assets (22,235)
Inventories (127,752)
Equipment (50,050)
Purchase of property and equipment (268,768) (274,226)
Proceeds from sale of property and
equipment 235,917 34,568
---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES (27,556) (239,658)
FINANCING ACTIVITIES
Cash dividends paid (213,638) (210,005)
Repurchase of common stock (444,368) (2,212,834)
---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES (658,006) (2,422,839)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,025,156 (1,929,813)
Cash and cash equivalents at
beginning of year 6,660,759 9,934,130
---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $7,685,915 $8,004,317
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
and nine month periods ended December 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending March 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended March 31, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." This
standard is effective for financial statements issued for periods ending
after December 15, 1997. The Company adopted this statement for the quarter
ended December 31, 1997. 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 Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards (SFAS) No. 131
"Disclosures about Segments of an Enterprise and Related Information." These
standards are effective for financial statements issued for periods beginning
after December 15, 1997. Adoption of SFAS No. 130 and 131 will not have a
material effect on the financial condition or results of operations of the
Company.
NOTE B--INVENTORIES
The components of inventory consist of the following:
December 31, 1997 March 31, 1997
Finished Goods $1,492,991 $1,393,147
Production Materials:
Meats 310,182 1,073,585
Other Ingredients 170,327 138,437
Packing Materials 327,166 335,636
---------- ----------
$2,300,666 $2,940,805
========== ==========
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--
Continued
December 31, 1997
NOTE C--SALE OF THE ASSETS OF THE NEW ORLEANS UNIT
Because of the termination of its retail lease and the fact that the business
was no longer compatible with our strategy as a manufacturer and marketer of
specialty food products, the Company sold the operations of The New Orleans
School of Cooking on July 22, 1997. The sale of this business did not have a
material effect on income during the nine months ended December 31, 1997.
NOTE D--ACQUISITION
On May 21, 1997 the Company purchased the Summer Garden brand of salad
dressings and Kitchen del Sol brand of specialty rices and grains from
Chanterelle Foods, Inc. These high quality product lines are marketed and
sold to the fancy food trade nationally. The purchase price for the brand
names, equipment and inventories was approximately $200,000.
NOTE E--SHAREHOLDERS' EQUITY
On November 7, 1997 the Board of Directors approved a 100% stock dividend to
all shareholders of record on January 5, 1998. This dividend was distributed
on January 30, 1998. Outstanding shares and earnings per share, for all
reported periods, have been retroactively adjusted to account for this
distribution.
During the nine months ended December 31, 1997 the Company purchased and
retired 81,692 shares of its Common Stock at a cost of $444,368. Subsequent
to December 31, 1997 the Company purchased and retired an additional 1,978
shares of its Common Stock at a cost of $11,374.
THE SMITHFIELD COMPANIES, INC.
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, foodservice 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 December 31, 1997 increased marginally
to $7,924,109 compared to $7,880,430 for the three months ended December 31,
1996. Net sales for the nine months ended December 31, 1997 increased 8.0%
to $17,181,931 compared to $15,908,172 for the nine months ended December 31,
1996.
Gross profit margins for the three months ended December 31, 1997 increased
slightly compared to the prior year. Higher margins for pork related
products were offset by the loss of sales from The New Orleans School of
Cooking which carried higher than average margins. Year to date margins are
lower because the first quarter did not benefit from lower pork prices.
Selling, general and administrative expenses decreased 9.2% and 0.6% during
the three and nine months ended December 31, 1997, respectively, compared to
the prior year. This is primarily due to a reduction in general and
administrative expenses attributable to the sale of The New Orleans School of
Cooking in July 1997.
The decrease in net interest income is the result of the use of cash in the
acquisition of certain product lines from Doughtie's Foods, Inc. on February
28, 1997 and the purchase and retirement of 81,692 shares of the Company's
Common Stock.
Income tax rates are lower than statutory rates because of interest from
tax-exempt municipal bond funds.
THE SMITHFIELD COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources
On December 31, 1997, the Company had approximately $7.5 million invested in
short-term highly liquid debt instruments compared to approximately $6.5
million at March 31, 1997. The increase is primarily the result of net
income during the period. Proceeds from the sale of The New Orleans School
of Cooking was offset by the acquisition of the Summer Garden and Kitchen del
Sol specialty food brands.
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 December 31, 1997, the Company's only debt consisted
of accounts payable and accrued expenses.
The Company will continue its strategy of looking for growth through
acquisitions in higher margin segments of the food industry. Having a
significant amount of cash on hand as well as available funds on its line of
credit, the Company believes it is in an excellent position to invest in
assets which will increase shareholder value over time.
As of December 31, 1997, the Company had all of its $10 million line of
credit loan available.
The Company traditionally increases inventory during the first six months of
its fiscal year to meet the increased demand for its products during the
Christmas season. The Company finances the increase in inventory through its
operating cash flow and the use of some of its short-term investments.
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 December 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SMITHFIELD COMPANIES, INC.
(registrant)
DATE: February 13, 1998 /s/ Richard S. Fuller
______________________________
Richard S. Fuller
President and Chief Executive
Officer
DATE: February 13, 1998 /s/ Mark D. Bedard
______________________________
Mark D. Bedard
Treasurer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Consolidated Financial Statements of The Smithfield Companies,
Inc. for the nine months ended December 31, 1997, and is qualified in its
entirety by reference to such Unaudited Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 7,685,915
<SECURITIES> 0
<RECEIVABLES> 2,467,417
<ALLOWANCES> 73,000
<INVENTORY> 2,300,666
<CURRENT-ASSETS> 12,573,279
<PP&E> 6,448,511
<DEPRECIATION> 3,167,410
<TOTAL-ASSETS> 16,659,953
<CURRENT-LIABILITIES> 2,022,585
<BONDS> 0
0
0
<COMMON> 2,563,243
<OTHER-SE> 12,074,125
<TOTAL-LIABILITY-AND-EQUITY> 16,659,953
<SALES> 17,181,931
<TOTAL-REVENUES> 17,270,165
<CGS> 11,611,619
<TOTAL-COSTS> 15,959,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,483,796
<INCOME-TAX> 498,000
<INCOME-CONTINUING> 985,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 985,796
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
