FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1999
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--2,204,744 shares as of November 5, 1999
INDEX
THE SMITHFIELD COMPANIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30, 1999
and March 31, 1999
Condensed consolidated statements of income--Three months
ended September 30, 1999 and 1998; Six months ended
September 30, 1999 and 1998
Condensed consolidated statements of cash flows--Six
months ended September 30, 1999 and 1998
Notes to condensed consolidated financial statements--
September 30, 1999
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 March 31
1999 1999
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,810,630 $ 9,728,710
Certificate of deposit 1,012,590
Receivables, less allowances
of $86,000 and $79,000 1,425,915 1,060,459
Inventories 4,170,907 2,717,850
Prepaid expenses and other 135,567 36,217
Deferred income taxes 115,000 115,000
----------- -----------
TOTAL CURRENT ASSETS 12,670,609 13,658,855
PROPERTY, PLANT AND EQUIPMENT 9,289,308 8,819,855
less accumulated depreciation 3,721,379 3,577,974
----------- -----------
5,567,929 5,241,881
OTHER ASSETS 1,218,392 1,260,371
----------- -----------
$19,456,930 $20,160,488
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 894,707 $ 594,569
Other current liabilities 880,517 1,025,377
----------- -----------
TOTAL CURRENT LIABILITIES 1,775,224 1,619,946
LONG-TERM DEBT 2,800,000 2,800,000
SHAREHOLDERS' EQUITY
Common stock, no par or stated
value--authorized 5,000,000 shares;
issued and outstanding 2,214,744
shares and 2,343,411 shares 1,553,820 2,488,492
Retained earnings 13,327,886 13,252,050
----------- -----------
14,881,706 15,740,542
----------- -----------
$19,456,930 $20,160,488
=========== ===========
Note: The balance sheet at March 31, 1999 has been derived
from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Six months ended
September 30 September 30
1999 1998 1999 1998
Net sales $4,395,243 $6,122,059 $8,451,215 $9,908,573
Cost of goods sold 2,990,264 4,177,472 5,606,469 6,595,003
---------- ---------- ---------- ----------
GROSS PROFIT 1,404,979 1,944,587 2,844,746 3,313,570
Other operating revenue 18,276 19,978 37,076 41,955
---------- ---------- ---------- ----------
1,423,255 1,964,565 2,881,822 3,355,525
Selling, general and
administrative expenses 1,289,874 1,381,698 2,522,945 2,551,385
---------- ---------- ---------- ----------
OPERATING INCOME 133,381 582,867 358,877 804,140
Interest income 93,411 55,331 178,265 125,494
Interest expense (31,697) (63,937) (107)
---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 195,095 638,198 473,205 929,527
Income taxes 50,000 211,000 128,000 292,000
---------- ---------- ---------- ----------
NET INCOME $ 145,095 $ 427,198 $ 345,205 $ 637,527
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .06 $ .18 $ .15 $ .27
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .06 $ .18 $ .15 $ .27
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING--BASIC 2,241,483 2,343,411 2,253,639 2,343,412
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING--DILUTED 2,262,559 2,364,719 2,274,601 2,363,910
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended September 30
1999 1998
OPERATING ACTIVITIES
Net income $ 345,205 $ 637,527
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 318,247 211,020
Gain on disposal of property
and equipment (5,701) (4,358)
Change in assets and liabilities:
Trade receivables (365,456) (401,334)
Inventories (1,453,057) (864,679)
Prepaid expenses and other (99,350) (114,743)
Accounts payable and other
current liabilities 155,278 440,510
---------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (1,104,834) (96,057)
INVESTING ACTIVITIES
Purchase of certificate of deposit (1,012,590)
Purchase of property and equipment (637,357) (929,968)
Purchase of marketable securities (495,840)
Proceeds from sale of property and
equipment 40,742 20,500
---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES (1,609,205) (1,405,308)
FINANCING ACTIVITIES
Cash dividends paid (269,369) (140,604)
Repurchase of common stock (934,672) (102)
NET CASH USED IN ---------- ----------
FINANCING ACTIVITIES (1,204,041) (140,706)
---------- ----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (3,918,080) (1,642,071)
Cash and cash equivalents at
beginning of period 9,728,710 7,679,907
---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $5,810,630 $6,037,886
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
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 six month periods ended September 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending March 31, 2000. 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, 1999.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This standard is effective for
financial statements for all fiscal quarters for fiscal years beginning after
June 15, 2000. 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:
September 30, 1999 March 31, 1999
Finished Goods $2,335,204 $1,197,108
Production Materials:
Meats 991,049 931,928
Other Ingredients 232,441 207,138
Packing Materials 612,213 381,676
---------- ----------
$4,170,907 $2,717,850
========== ==========
NOTE C-SHAREHOLDERS' EQUITY
During the six months ended September 30, 1999 the Company purchased and
retired 126,317 shares of its common stock at a cost of $934,672. Subsequent
to September 30, 1999, the Company purchased and retired an additional 10,000
shares of its common stock at a cost of $77,500.
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 September 30, 1999 were $4,395,243
compared to $6,122,059 for the three months ended September 30, 1998. Net
sales for the six months ended September 30, 1999 were $8,451,215 compared to
$9,908,573 for the six months ended September 30, 1998. The decrease was
primarily due to a $1.1 million one-time seasonal sale to a national club
store chain made during the second quarter of 1998. In addition, lower
tonnage sales and lower selling prices related to the Company's cured ham
operation contributed to the sales reduction. The lower selling prices is a
direct result of lower pork related raw material costs.
Gross profit margin for the three months ended September 30, 1999 increased
to 32.0% compared to 31.8% for the three months ended September 30, 1998.
Greater than expected start-up expenses related to the Company's new frozen
food processing plant resulted in lower gross profit margins from its frozen
food operation. This decrease in margins was offset by the higher percentage
of wholesale business during the quarter ended September 30, 1998. Sales to
wholesale customers generally carry lower margins than retail sales.
Selling, general and administrative (SG&A) expenses decreased 6.6% and 1.1%
during the three and six months ended September 30, 1999, respectively,
compared to the prior year. Selling expenses, although slightly lower in the
current period, increased as a percentage of net sales to 15.2% for the three
months ended September 30, 1999 from 11.6% for the three months ended
September 30, 1998. This increase was a conscious effort to increase our
frozen food business due to our increased plant capacity. General and
administrative expenses actually decreased marginally during the three months
ended September 30, 1999 compared to the prior year.
Income tax rates are lower than statutory rates primarily because of interest
from tax-exempt municipal bond funds.
Liquidity and Capital Resources
At September 30, 1999 the Company had an Industrial Development Revenue Bond
in the amount of $2,800,000 outstanding. The Bond matures in the year 2014
and has principle payments of $500,000 due in 2004 and 2009.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
At September 30, 1999, the Company had approximately $5.8 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 July 31, 2000.
The Company believes its liquidity and capital resources to be excellent.
Current cash flows and available funds are sufficient to satisfy existing
cash requirements.
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.
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 "Year 2000" problem relates to computer systems that have time and
date-sensitive programs that were designed to recognize a date using "00" as
the year 1900 rather than the year 2000. If a computer system or software
application (referred to as "IT systems") used by the Company or a third
party dealing with the Company fails because of the inability of the system
or application to properly read the year "2000", the results could
conceivably have a material adverse effect on the Company. In addition, many
systems and equipment that are not typically thought of as "computer-related"
(referred to as "non-IT systems") contain imbedded hardware or software that
may have a time element which could cause system failures.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. The Company has utilized
internal personnel, contract programmers and third-party vendors to identify,
prioritize and access Year 2000 noncompliance concerns. The Company has
identified some non-compliant software and hardware which has been modified
or replaced. These modifications and replacements to both IT and non-IT
systems, with the exception of minor software updates which are sceduled to be
completed by the end of November. The total cost of these Year 2000
compliance activities is expected to be less than $100,000 and will not have
a material impact on the Company's financial position, results of operations
or cash flows.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Year 2000 Compliance (continued)
The Company relies on third party suppliers for raw materials, water,
utilities and other key services. Interruption of supplier operations due to
Year 2000 issues could affect Company operations. The Company is also
dependent upon its customers for sales and cash flow. Year 2000
interruptions in customer operations could effect sales and receivable levels
as well as cash flow reductions. The Company believes its customer base is
broad enough to minimize the affects of a simple occurrence. The Company has
evaluated the status of third party efforts and determined alternatives and
contingency plan requirements. The reduction of risk due to noncompliance
with Year 2000 issues include the identification of alternate suppliers and
the accumulations of inventory to assure production capability. These
activities are intended to provide a means of managing risk but cannot
eliminate the potential for disruption due to third party failure.
All statements made herein relating to our Year 2000 efforts are "Year 2000
Readiness Disclosures" made pursuant to the Year 2000 Information and
Readiness Disclosures Act, and to the extent applicable, are entitled to the
protection of such act.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
a.) 27. Financial Data Schedule
b.) The Company did not file any reports on Form 8-K during the three months
ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SMITHFIELD COMPANIES, INC.
(registrant)
DATE: November 10, 19998 /s/ Richard S. Fuller
______________________________
Richard S. Fuller
President and Chief Executive
Officer
DATE: November 10, 1999 /s/ Mark D. Bedard
______________________________
Mark D. Bedard
Treasurer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Consolidated Financial Statements of The Smithfield Companies,
Inc. for the six months ended September 30, 1999, and is qualified it its
entirety by reference to such Unaudited Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 5,810,630
<SECURITIES> 575,840
<RECEIVABLES> 1,511,915
<ALLOWANCES> 86,000
<INVENTORY> 4,170,907
<CURRENT-ASSETS> 12,670,609
<PP&E> 9,289,308
<DEPRECIATION> 3,721,379
<TOTAL-ASSETS> 19,456,930
<CURRENT-LIABILITIES> 1,775,224
<BONDS> 2,800,000
0
0
<COMMON> 1,553,820
<OTHER-SE> 13,327,886
<TOTAL-LIABILITY-AND-EQUITY> 19,456,930
<SALES> 8,451,215
<TOTAL-REVENUES> 8,488,291
<CGS> 5,606,469
<TOTAL-COSTS> 8,129,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,937
<INCOME-PRETAX> 473,205
<INCOME-TAX> 128,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345,205
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
