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, 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
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--2,244,744 shares as of August 6, 1999
INDEX
THE SMITHFIELD COMPANIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 1999
and March 31, 1999
Condensed consolidated statements of income--Three months
ended June 30, 1999 and 1998
Condensed consolidated statements of cash flows--Three months
ended June 30, 1999 and 1998
Notes to condensed consolidated financial statements--
June 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
June 30 March 31
1999 1999
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,068,429 $ 9,728,710
Certificate of deposit 1,000,000
Trade receivables, less allowances
of $83,000 and $79,000 1,202,651 1,060,459
Inventories 3,452,457 2,717,850
Prepaid expenses and other 105,393 36,217
Deferred income taxes 115,000 115,000
----------- -----------
TOTAL CURRENT ASSETS 12,943,930 13,658,236
PROPERTY, PLANT AND EQUIPMENT 9,198,436 8,819,855
less allowances for depreciation 3,693,840 3,577,974
----------- -----------
5,504,596 5,241,881
OTHER ASSETS 1,239,380 1,260,371
----------- -----------
$19,687,906 $20,160,488
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 859,203 $ 594,569
Other current liabilities 986,656 1,025,377
----------- -----------
TOTAL CURRENT LIABILITIES 1,845,859 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 2,244,744
shares and 2,343,411 shares 1,780,690 2,488,492
Retained earnings 13,261,357 13,252,050
----------- -----------
15,042,047 15,740,542
----------- -----------
$19,687,906 $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 June 30
1999 1998
Net sales $4,055,972 $3,786,514
Cost of goods sold 2,616,205 2,417,531
---------- ----------
GROSS PROFIT 1,439,767 1,368,983
Other operating revenue 18,800 21,977
---------- ----------
1,458,567 1,390,960
Selling, general and
administrative expenses 1,233,071 1,169,687
---------- ----------
OPERATING INCOME 225,496 221,273
Interest income 84,854 70,163
Interest expense (32,240) (107)
---------- ----------
INCOME BEFORE
INCOME TAXES 278,110 291,329
Income taxes 78,000 81,000
---------- ----------
NET INCOME $ 200,110 $ 210,329
========== ==========
BASIC EARNINGS PER SHARE $ .09 $ .09
========== ==========
DILUTED EARNINGS PER SHARE $ .09 $ .09
========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING--BASIC 2,265,928 2,343,412
========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING--DILUTED 2,286,772 2,361,264
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended June 30
1999 1998
OPERATING ACTIVITIES
Net income $ 200,110 $ 210,329
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 159,454 105,293
Gain on disposal of property
and equipment (5,701)
Change in assets and liabilities:
Trade receivables (142,192) 15,797
Inventories (734,607) (1,262,212)
Prepaid expenses and other (69,176) (14,607)
Accounts payable and other
current liabilities 225,913 243,109
---------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (366,199) (702,291)
INVESTING ACTIVITIES
Purchase of certificate of deposit (1,000,000)
Purchase of property and equipment (412,477) (86,916)
Proceeds from sale of property and
equipment 17,000
---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES (1,395,477) (86,916)
FINANCING ACTIVITIES
Cash dividends paid (190,803) (70,302)
Repurchase of common stock (707,802) (102)
---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES (898,605) (70,404)
---------- ----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (2,660,281) (859,611)
Cash and cash equivalents at
beginning of period 9,728,710 7,679,907
---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $7,068,429 $6,820,296
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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
month period ended June 30, 1999 is 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 issued 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:
June 30, 1999 March 31, 1999
Finished Goods $1,700,677 $1,197,108
Production Materials:
Meats 1,067,939 931,928
Other Ingredients 194,470 207,138
Packing Materials 489,371 381,676
---------- ----------
$3,452,457 $2,717,850
========== ==========
NOTE C-SHAREHOLDERS' EQUITY
During the three months ended June 30, 1999 the company purchased and retired
96,317 shares of its Common Stock at a cost of $707,802.
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, 1999 were $4,055,972 compared
to $3,786,514 for the three months ended June 30, 1998. This increase in
sales was primarily the result of strong demand for our processed pork
products. Gross profit for the three months ended June 30, 1999 decreased to
35.5% compared to 36.2% for the three months ended June 30, 1998. The lower
margins were due to start up inefficiencies related to our new Smithfield
processing facility.
Selling, general and administrative expenses (SG&A) increased 5.4% during the
three months ended June 30, 1999 to $1,233,071 from $1,169,687 for the three
months ended June 30, 1998. Selling expenses increased less than 3% and the
increase in general and administrative expenses was primarily due to the cost
associated with year 2000 compliance.
Net interest income decreased to $52,614 for the three months ended June 30,
1999 compared to $70,056 for the three months ended June 30, 1998. Invested
balances during the current year were lower than the prior year primarily due
to the repurchase of common stock during April 1999.
Income tax rates are lower than statutory rates because of interest income
from tax-exempt municipal bond funds.
Liquidity and Capital Resources
At June 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.
At June 30, 1999, the Company had approximately $6.1 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
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 "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 ("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" ("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, and
intends to continue to utilize internal personnel, contract programmers and
third-party vendors to identify, prioritize and access Year 2000
noncompliance concerns. The Company believes it has identified its
non-compliant software and hardware which will be modified or replaced.
These modifications and replacements to both IT and non-IT systems are now in
the final stages and will be completed shortly. 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 affect 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 has 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 June 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: August 12, 1999 /s/ Richard S. Fuller
______________________________
Richard S. Fuller
President and Chief Executive
Officer
DATE: August 12, 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 three months ended June 30, 1999, 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-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 7,068,429
<SECURITIES> 575,840
<RECEIVABLES> 1,285,651
<ALLOWANCES> 83,000
<INVENTORY> 3,452,457
<CURRENT-ASSETS> 12,943,930
<PP&E> 9,198,436
<DEPRECIATION> 3,693,840
<TOTAL-ASSETS> 19,687,906
<CURRENT-LIABILITIES> 1,845,859
<BONDS> 2,800,000
0
0
<COMMON> 1,780,690
<OTHER-SE> 13,261,357
<TOTAL-LIABILITY-AND-EQUITY> 19,687,906
<SALES> 4,055,972
<TOTAL-REVENUES> 4,074,772
<CGS> 2,616,205
<TOTAL-COSTS> 3,849,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,240
<INCOME-PRETAX> 278,110
<INCOME-TAX> 78,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,110
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
