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, 1999 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 11, 1999: $7,941,072
The number of shares outstanding of each of the Registrant's classes of
Common Stock, as of June 11, 1999 was 2,244,744 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended March 31, 1999
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 integrated into the
Company's plant in Smithfield, Virginia. The frozen line accounted for 89%
of the unit's sales during the current year and includes pork, chicken and
beef barbecues and frozen chili. The frozen line is marketed under the
"James River", "Smitty Pig", "Virginia's Choice" and "Doughtie" brands
primarily in the Mid-Atlantic States. The significant increase in the frozen
line during the past two years is due to the acquisition of the Doughtie's
product lines. Management believes the frozen products have significant
growth potential.
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. 6% 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 5% 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. On April 22, 1998, V. W. Joyner acquired The
E. M. Todd Company. Founded in Smithfield, Virginia prior to 1779, Todd is
America's oldest meat packer and the original curer of the Smithfield Ham.
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 43% 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 78% 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 42% 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
two sales personnel are responsible for generating 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, 1999, the Company had approximately 89 full-time employees
and 73 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. The current union
contract expired during 1998 and was extended until February 28, 2000. 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 attached to the current plant in Smithfield.
Construction was completed in April 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 currently under lease. The Company also owns equipment
and vehicles used in its operations. 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 I 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 page 20 of the annual
shareholders report for the year ended March 31, 1999 is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 4 of the annual shareholders
report for the year ended March 31, 1999 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 5 through 7 of the annual
shareholders report for the year ended March 31, 1999 is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of PricewaterhouseCoopers LLP, independent accountants,
and the Consolidated Financial Statements included on pages 8
through 18 of the annual shareholders report for the year ended
March 31, 1999 are incorporated herein by reference.
Quarterly Results of Operations on page 18 of the annual
shareholders report for the year ended March 31, 1999 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, 1999, 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, 1999 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, 1999 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, 1999 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, 1999 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, executed June 4, l999. Filed June 25, 1999,
as Exhibit A to the Registrant's proxy statement, and is
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.
21.1 Subsidiaries of the Registrant. Filed herewith.
(b) Reports filed on Form 8-K for the quarter ended March 31, 1999--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, 1999
James L. Cresimore
S/ Richard S. Fuller President and Chief June 25, 1999
Richard S. Fuller Executive Officer
(Principal Executive
Officer)
S/ Peter D. Pruden, III Executive Vice June 25, 1999
Peter D. Pruden, III President, Secretary
and Director
S/ Mark D. Bedard Treasurer and Chief June 25, 1999
Mark D. Bedard Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
S/ Bernard C. Baldwin,III Director June 25, 1999
Bernard C. Baldwin, III
S/ Frank H. Buhler Director June 25, 1999
Frank H. Buhler
S/ R. Scott Morgan Director June 25, 1999
R. Scott Morgan
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, 1999
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, 1999, are incorporated by reference
in Item 8:
Consolidated balance sheets--March 31, 1999 and 1998
Consolidated statements of income--Years ended
March 31, 1999, 1998 and 1997
Consolidated statements of cash flows--Years ended
March 31, 1999, 1998 and 1997
Notes to consolidated financial statements--March 31, 1999
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, 1999:
Deducted from
asset accounts:
Allowance for
doubtful accounts $71,000 $24,000 $16,000 $79,000
======= ======= ======= =======
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
======= ======= ======= =======
(1) Uncollectible accounts written off, net of recoveries.
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors
The Smithfield Companies, Inc.
Our audits of the consolidated financial statements referred to in our report
dated May 27, 1999, appearing in the March 31, 1999 Annual Report of
Shareholders of The Smithfield Companies, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K), also included an audit of the financial statement schedule listed
in item 14 (a)(1)&(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Virginia Beach, Virginia
May 27, 1999
1999 ANNUAL REPORT
THE
SMITHFIELD
COMPANIES
[BACKGROUND PHOTO]
Above: an original E.M. Todd invoice, dated 1779, for the sale of hams to a
customer in St. Eustatius, West Indies.
<PAGE>
- --------------------------------------------------------------------------------
On the Cover
- --------------------------------------------------------------------------------
The E. M. Todd Company, America's oldest meat packer, was acquired in 1998 by
The Smithfield Companies. One of its earliest invoices, dated 1779, is shown on
the cover.
[PHOTO]
Capt. Mallory Todd
SOMETIME DURING the early days of the American Revolutionary War, a
Bermudan sea captain named Mallory Todd (1742-1817) left Bermuda and settled in
Isle of Wight County in Virginia at Smithfield. The Todd Family were freeholders
of Southampton Parish, Bermuda and apparently good solid citizens. In 1767 Todd
was married to Angelina Mallory, daughter of Captain John Mallory, a mariner of
Isle of Wight County who is believed to have also come from Bermuda and probably
was a relative.
TODD BEGAN RAISING HOGS, and it was not long before the Captain learned
from the locals how to cure and flavor the pork. As he began selling
commercially, he established what is believed to be the oldest firm to be
founded in Virginia and one of the oldest in this young nation. The invoice
shown on the cover, dated April 30, 1779, indicates that Captain Todd shipped
hams from Smithfield to the island of St. Eustatius in the West Indies in
exchange for one two pound cannon (valued at thirteen pounds six shillings) and
one hat (valued at five shillings four pence).
[PHOTO]
THE ORIGINAL TODD KITCHEN
Their profitable trade enabled the Todds to build a handsome home in
Smithfield known as "The Hill" that still stands on Wharf Hill. Adjacent to the
Todd home was constructed a meat processing facility. At the foot of Wharf Hill,
square riggers and schooners took cargo for Continental, British and West Indies
ports. Tobacco, cured hams, bacon barrel stoves, hoop poles, and corn were among
Smithfield's early exports.
[PHOTO]
AMERICA'S FIRST PACKING HOUSE
IN THE NINETEENTH CENTURY, the business stayed in the Todd family, trading
under the name J.R. Todd, and ultimately was owned by Captain Todd's grandson,
E.M. Todd, from which the company's current name derives. In 1907, when E.M.
Todd wrote his will, P.D. Gwaltney, Jr. was firmly established in the ham
business, and V.W. Joyner was doing a thriving retail business in his store on
Commerce Street, curing hams in the backyard of his home. Todd's will included
the following: "BY AN AGREEMENT DATED FEBRUARY 8, 1907, by and between myself,
E.M. Todd, trading under the firm name and style of E.M. Todd Company of
Smithfield, Virginia, and W.S. Forbes, trading under the firm name of W.S.
Forbes & Company, of the City of Richmond, Virginia, which agreement in
writing...I have bargained, sold, assigned and granted unto the said W.S. Forbes
<PAGE>
& Company the sole and exclusive right and privilege to use, preserve, cut, cure
and pack and sell hams under my well-known and established brand of `J.R. Todd'.
The said W.S. Forbes Company to pack and sell each year under the aforesaid
brand not less than twenty-thousand (20,000) hams, and to pay me as a royalty
therefore one cent per lb. for all hams packed and sold under said brand..."
The agreement further granted W.S. Forbes & Company an option to buy the E.M.
Todd Company for $50,000 which it eventually did--thus explaining why Todd moved
to Richmond. At that time, the Commonwealth of Virginia had not enacted the laws
that exist today limiting the use of the term "genuine Smithfield" to hams dry
cured only in the town of Smithfield, Virginia.
THE ARMISTEAD CHURCHILL YOUNG FAMILY of Richmond soon after emerged as the
owners of E.M. Todd Company, Incorporated. The Youngs did much to promote Todd's
Smithfield style Virginia hams and bacon nationwide. These quality products
could be found in some of the nation's finest restaurants, hotels and retail
establishments from the Royal Hawaiian Hotel to New York's Pierre Hotel. For
three generations, the Young family operated E.M. Todd & Co., Inc.
[PHOTO]
TRADEMARK(R)
Finally, in 1998, almost 220 years from the first recorded sale of hams
from Smithfield and after a 90 year absence, the Todd ham and bacon business
returns to its roots in Smithfield by way of its acquisition by The Smithfield
Companies, Inc.
THE SMITHFIELD COMPANIES, INC. is a diversified producer of specialty food
products. The Company markets its products primarily to the retail grocery, food
service and gourmet food industries as well as through its own retail outlets
and consumer catalogs. Its five operating units are The Smithfield Ham and
Products Co., V.W. Joyner & Co., Pruden Packing Co., The E.M. Todd Company and
Williamsburg Foods.
~ Contents ~
Letter to Shareholders 2
Selected Financial Data 4
Management's Discussion and Analysis 5
Consolidated Financial Statements 8
Report of Independent Accountants 18
Quarterly Results of Operation 18
Directors, Executive Officers
and Management 19
Corporate Information 20
<PAGE>
To Our Fellow Shareholders
[PICTURE]
The past fiscal year was a remarkable one for The Smithfield Companies, by
virtually any measure. All of our operating units performed well and many of the
goals we set as the year began were achieved. Most importantly we continued to
successfully execute our strategic plan of growing branded leadership positions
in multiple specialty food distribution channels.
On April 22, 1998, a historic event occurred for your Company with the
acquisition of The E. M. Todd Company. Founded in Smithfield, Virginia prior to
1779, Todd is not only America's oldest meat packer but the original curer of
the now renowned Smithfield Ham. Today, Todd markets its hams and bacon under
the Hermitage and E. M. Todd brands. Although this acquisition is not
financially material to our company, the history associated with the Todd name
and Smithfield Ham are significant.
Many of our core brands and product lines are over a hundred years old.
Their longevity is a testament to your Company's continuing commitment to
tradition, quality and consumer value. As we enter the new millenium, we will
carry forth the best of the past while investing for the future. In April 1999,
construction was completed and we began production in our new 19,000 square
foot frozen food processing plant in Smithfield which will support our
barbecue, chili and stew product lines. This $2.8 million facility replaces an
old and inefficient plant which could not meet current production requirements.
The new state of the art facility accommodates growth by tripling our
production capability and gives Smithfield the capacity to develop and produce
new products.
FINANCIAL PERFORMANCE AND CONDITION
It was a fine year as our numbers attest. Net sales for the year ended
March 31, 1999 grew 4% to $21.2 million compared to $20.4 million a year
earlier. Net income from operations reached a record $1,462,000, a 36% increase
over $1,077,000 earned in fiscal 1998. Earnings per share increased 38% from
$.45 to $.62 per share.
The Company's financial position remains strong and capable of supporting
our internal and external growth strategies. Total assets at year end were
$20.2 million of which $9.7 million was cash and cash equivalents. Although
Smithfield has substantial liquid assets to fund capital expenditures, the
Company obtained an Industrial Development Revenue Bond to finance our new
processing facility in order to take advantage of a low interest rate
environment and retain cash.
In fiscal 1999, Smithfield generated $1.9 million in cash from operating
profits and non-cash expenses. We spent $2.4 million of capital to increase
plant capacity and production efficiencies in our new and existing facilities
which will lead to higher profitability.
ENHANCED SHAREHOLDER RETURN
The Smithfield Companies' stock again proved to be a good investment this
past fiscal year, providing shareholders with a total return (price
appreciation plus dividends) of 22.0% compared to a 12.7% decline for the S & P
foods group.
During the year your Board of Directors increased the quarterly dividend
to $.035 from $.03 per share while this past fiscal year marked the seventh
consecutive year that regular quarterly dividends paid have increased.
Additionally, because of your Company's strong cash flow and solid balance
sheet an extra dividend of $.05 per share was declared by the Directors payable
on June 30, 1999. Both Board actions demonstrate confidence in the performance
outlook for our business, near- and long-term.
- --------------------------------------------------------------------------------
2 The Smithfield Companies, Inc.
<PAGE>
Your Company has continued to acquire our stock in the open market and as
of this writing we have repurchased approximately 1.1 million shares since July
1990. Additional shares may be purchased in the future if your Board believes
our shares are undervalued in the marketplace.
DIRECTORS
We at The Smithfield Companies were very saddened by the death in August
1998 of an original member of the Company's Board of Directors, Edward Acree.
Ed contributed greatly to the Company's success and was always a faithful
promoter and supporter of the Company, its employees and its products. He will
not only be missed as a business associate, but also as a very good friend.
In January 1999, R. Scott Morgan, President of TowneBank was elected to
the Board of Directors. Scott serves on several other corporate boards and
brings outstanding leadership qualities to Smithfield. We expect to benefit
from his broad business expertise and we look forward to his input in the
coming years.
In closing, I would like to pay tribute to the people of The Smithfield
Companies -- some 150 strong -- for a job exceptionally well done. It is their
drive, skills and dedication that made it happen and what happened has set the
stage for the new millenium. And finally, I would like to thank our
shareholders for your continued interest and support. I look forward to
visiting with those who will be at our annual meeting on July 30, 1999.
/s/ ILLEGIBLE SIGNATURE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JUNE 11, 1999
[4 GRAPHS]
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Income from continuing
operations (in thousands) $ 1,462 $ 1,077 $ 911 $ 809 $ 542
Net sales (in thousands) $21,195 $20,425 $19,481 $18,180 $17,854
Book Value Per Share $ 6.72 $ 6.23 $ 5.88 $ 5.61 $ 4.86
Regular Dividends $ 0.13 $ 0.12 $ 0.11 $ 0.10 $ 0.09
- --------------------------------------------------------------------------------
1999 Annual Report 3
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 21,195 $ 20,425 $ 19,481 $ 18,180 $17,854
Cost of goods sold 13,773 13,893 12,999 11,527 11,335
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 7,422 6,532 6,482 6,653 6,519
Other operating revenue 80 100 87 54 59
Selling, general and administrative expenses 5,600 5,293 5,519 5,750 5,524
- -----------------------------------------------------------------------------------------------------------------------
Operating income 1,902 1,339 1,050 957 1,054
Interest income (expense), net 255 243 281 247 (151)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 2,157 1,582 1,331 1,204 903
Income taxes 695 505 420 395 361
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,462 1,077 911 809 542
Income from discontinued operations -- -- -- 1,843 851
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 1,462 $ 1,077 $ 911 $ 2,652 $ 1,393
=======================================================================================================================
Diluted earnings per share:
Continuing operations $ 0.62 $ 0.45 $ 0.35 $ 0.28 $ 0.18
Discontinued operations -- -- -- 0.64 0.29
- -----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.62 $ 0.45 $ 0.35 $ 0.92 $ 0.47
=======================================================================================================================
Dividends per share of common stock $ 0.13 $ 0.12 $ 0.11 $ 0.16 $ 0.09
=======================================================================================================================
Balance Sheet Data (at year end):
Working Capital $ 12,038 $ 10,758 $ 9,755 $ 11,980 $ 6,687
Total Assets 20,160 15,831 15,909 17,679 17,443
Long-term Debt 2,800 -- -- -- 1,000
Stockholders' Equity 15,741 14,599 14,310 15,894 14,233
</TABLE>
- --------------------------------------------------------------------------------
4 The Smithfield Companies, Inc.
<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 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
--------------------------------------- ----------------------
1999 VS 1998 VS
1999 1998 1997 1998 1997
----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 3.8% 4.8%
Cost of goods sold 65.0 68.0 66.7 ( 0.9) 6.9
----- ----- -----
Gross profit 35.0 32.0 33.3 13.6 0.8
Other operating revenue 0.4 0.5 0.4 (19.8) 14.3
Selling, general and administrative expenses 26.4 25.9 28.3 5.8 ( 4.1)
----- ----- -----
Income from operations 9.0 6.6 5.4 42.1 27.4
Interest expense ( 0.0) ( 0.0) ( 0.0) 218.8 (16.5)
Other income 1.2 1.2 1.5 7.3 (13.3)
----- ----- -----
Income before income taxes 10.2 7.8 6.9 36.3 18.9
Income taxes 3.3 2.5 2.2 37.6 20.2
----- ----- -----
Net income 6.9% 5.3% 4.7% 35.7 18.2
===== ===== =====
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Net sales in 1999 were $21.2 million compared to $20.4 million in 1998.
The improvement in sales is due to increases in unit sales across most of the
Company's product lines coupled with a significant seasonal sale to a national
club store chain. Unit sales increases were partially offset by lower selling
prices due to lower pork related raw material costs. Cost of sales decreased as
a percentage of net sales to 65.0% for the year ended March 31, 1999 from 68.0%
for the year ended March 31, 1998. The higher gross profit margins were
primarily due to lower costs for pork related products.
Selling expenses increased as a percentage of net sales to 14.2% for the
year ended March 31, 1999 from 13.3% for the year ended March 31, 1998. The
Company increased some marketing and promotional expenses during the year as a
result of higher margins to help increase sales distribution. These additional
selling expenses helped increase tonnage during the year.
General and administrative expenses remained relatively constant during
the two years ended March 31, 1999.
Net interest income increased 4.7% during the year ended March 31, 1999
compared to the prior year. Higher average balances in interest bearing
instruments were somewhat offset by lower interest rates in 1999 compared to
1998.
Income tax expense as a percentage of income before income taxes was
slightly higher in 1999. Tax-exempt interest income as a percentage of income
before income taxes was lower in 1999 compared to 1998 thereby increasing the
overall average tax rate. Income tax rates are lower than statutory rates
because of income from tax-exempt municipal bond funds.
- --------------------------------------------------------------------------------
1999 Annual Report 5
<PAGE>
Net income increased to $1,461,710 or $.62 per share in 1999 compared to
$1,077,115 or $.45 per share in 1998. The difference in weighted average shares
outstanding between 1999 and 1998 is due to the repurchase of 2,367 shares in
fiscal 1999. The difference in basic and diluted weighted average shares is due
to exercisable stock options.
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 sale of the operations of
The New Orleans School of Cooking 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. Higher margins for pork related products
were partially offset by the loss of sales from New Orleans which carried
higher than average margins.
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.
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
significant amount of repurchased stock during the past two years.
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
1998 and 397,222 shares in 1997. The difference in basic and diluted weighted
average shares is due to exercisable stock options.
Liquidity and Capital Resources
During the year ended March 31, 1999 the Company obtained an Industrial
Development Revenue Bond (the Bond) in the amount of $2,800,000 to finance the
construction of a 19,000 square foot frozen food processing plant and the
purchase of related equipment to support the Company's barbecue, stew and chili
product lines. Although the Company had available cash on hand to finance the
construction, it obtained the Bond to take advantage of a low interest
environment. The Bond matures in the year 2014 and has principle payments of
$500,000 due in 2004 and 2009.
At March 31, 1999, the Company had approximately $8.8 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 rate plus .50%, which expires on July 31, 2000.
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, 1999 the Company had approximately $500,000 remaining to
complete its construction in progress which was completed during April 1999.
The Company intends to use its cash and cash equivalents to finance the
remaining construction.
- --------------------------------------------------------------------------------
6 The Smithfield Companies, Inc.
<PAGE>
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 that
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" 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 currently being done and are expected to be
completed in mid 1999. 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.
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 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.
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.
- --------------------------------------------------------------------------------
1999 Annual Report 7
<PAGE>
CONSOLIDATED BALANCE SHEETS
THE SMITHFIELD COMPANIES, INC.
<TABLE>
<CAPTION>
MARCH 31
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,728,710 $ 7,679,907
Trade receivables, less allowance for doubtful
accounts of $79,000 in 1999 and $71,000 in 1998 1,060,459 1,258,593
Inventories 2,717,850 2,900,668
Prepaid expenses 36,217 50,460
Deferred income taxes 115,000 100,000
- ------------------------------------------------------- ----------- -----------
TOTAL CURRENT ASSETS 13,658,236 11,989,628
PROPERTY AND EQUIPMENT
Land 346,342 346,342
Buildings 3,516,539 3,497,719
Machinery and equipment 1,886,245 1,820,973
Delivery equipment 269,201 264,885
Office furniture and equipment 600,440 506,618
Construction in progress 2,201,088 20,427
- ------------------------------------------------------- ----------- -----------
8,819,855 6,456,964
Less accumulated depreciation 3,577,974 3,231,045
- ------------------------------------------------------- ----------- -----------
5,241,881 3,225,919
OTHER ASSETS
Marketable securities 575,840
Trademarks, net of accumulated amortization 141,486 160,400
Other intangibles, primarily customer lists, net of
accumulated amortization 310,909 344,660
Bond issuance costs, net of accumulated amortization 102,136
Deferred income taxes 130,000 110,000
- ------------------------------------------------------- ----------- -----------
1,260,371 615,060
----------- -----------
$20,160,488 $15,830,607
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 594,569 $ 532,720
Accrued compensation 326,662 225,076
Accrued expenses 425,851 337,643
Income taxes payable 272,864 136,398
- ------------------------------------------------------- ----------- -----------
TOTAL CURRENT LIABILITIES 1,619,946 1,231,837
LONG-TERM DEBT 2,800,000
STOCKHOLDERS' EQUITY
Preferred stock, $100 par value-authorized
250,000 shares; none issued
Common stock, no par value, authorized 5,000,000
shares; outstanding 2,341,061 shares and 2,343,428
shares 2,488,492 2,503,869
Retained earnings 13,252,050 12,094,901
- ------------------------------------------------------- ----------- -----------
15,740,542 14,598,770
----------- -----------
$20,160,488 $15,830,607
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
8 The Smithfield Companies, Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THE SMITHFIELD COMPANIES, INC.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $21,195,201 $20,425,385 $19,481,357
Cost of goods sold 13,772,895 13,893,306 12,999,407
- ------------------------------------ ----------- ----------- -----------
Gross profit 7,422,306 6,532,079 6,481,950
Other operating revenue 79,839 99,524 87,101
- ------------------------------------ ----------- ----------- -----------
7,502,145 6,631,603 6,569,051
Operating expenses:
Selling 3,018,289 2,720,254 2,376,012
General and administrative 2,581,966 2,572,636 3,142,793
- ------------------------------------ ----------- ----------- -----------
5,600,255 5,292,890 5,518,805
----------- ----------- -----------
Operating income 1,901,890 1,338,713 1,050,246
Nonoperating income (expense):
Other income, primarily interest 264,378 246,400 284,362
Interest expense (9,558) (2,998) (3,592)
- ------------------------------------ ----------- ----------- -----------
254,820 243,402 280,770
----------- ----------- -----------
Income before income taxes 2,156,710 1,582,115 1,331,016
Federal and state income taxes 695,000 505,000 420,000
- ------------------------------------ ----------- ----------- -----------
Net income $1,461,710 $1,077,115 $ 911,016
==================================== =========== =========== ===========
Basic earnings per share $ 0.62 $ 0.45 $ 0.35
==================================== =========== =========== ===========
Diluted earnings per share $ 0.62 $ 0.45 $ 0.35
==================================== =========== =========== ===========
Weighted average shares -- Basic 2,342,589 2,368,004 2,568,784
==================================== =========== =========== ===========
Weighted average shares -- Diluted 2,362,260 2,381,539 2,583,373
==================================== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
1999 Annual Report 9
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE SMITHFIELD COMPANIES, INC.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
-------------------------------------------------
1999 1998 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,461,710 $1,077,115 $ 911,016
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 441,406 444,225 427,860
(Gain) Loss on disposal of property and equipment (14,825) (3,918) 18,768
Provision for deferred income taxes (35,000) 90,000 (50,000)
Changes in assets and liabilities:
Trade receivables 198,134 292,790 (560,415)
Inventories 182,818 107,557 (87,922)
Prepaid expenses 14,243 20,922 (6,373)
Accounts payable and accrued compensation
and expenses 251,643 (166,068) (186,283)
Income taxes payable 136,466 (106,862) 1,087
- ------------------------------------------------------- ------------ ---------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,636,595 1,755,761 467,738
INVESTING ACTIVITIES
Proceeds from the sale of New Orleans 205,332
Acquisition:
Intangible assets (22,235) (311,254)
Inventories (127,752) (213,425)
Equipment (50,050) (323,000)
Purchase of marketable securities (575,840)
Purchase of property and equipment (2,437,770) (307,249) (488,923)
Proceeds from sale of long-term assets 50,500 353,264 91,385
- ------------------------------------------------------- ------------ ---------- ------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (2,963,110) 51,310 (1,245,217)
FINANCING ACTIVITIES
Proceeds from long-term debt 2,800,000
Bond issuance costs paid (104,744)
Cash dividends paid (304,561) (284,181) (283,058)
Repurchase of common stock (15,377) (503,742) (2,212,834)
- ------------------------------------------------------- ------------ ---------- ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,375,318 (787,923) (2,495,892)
- ------------------------------------------------------- ------------ ---------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,048,803 1,019,148 (3,273,371)
Cash and cash equivalents at beginning of year 7,679,907 6,660,759 9,934,130
- ------------------------------------------------------- ------------ ---------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,728,710 $7,679,907 $ 6,660,759
======================================================= ============ ========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
10 The Smithfield Companies, Inc.
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1999
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.
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 is limited as the
Company has a large number of diverse customers, thus spreading the trade
credit risk. No single customer accounts for more than 10% of net sales.
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 E.
NEW ACCOUNTING STANDARDS: The Company has adopted SFAS No. 130 "Reporting
Comprehensive Income", SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No. 132 "Employers Disclosures
about Pensions and Other Postretirement Benefits." The implementation of these
statements did not have a material effect on the financial condition or results
of operations of the Company. In October 1998, the Financial Accounting
Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities." This standard is effective for fiscal years beginning
after June 15, 1999. The Company does not expect that SFAS No. 133 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.
MARKETABLE SECURITIES AND COMPREHENSIVE INCOME: Investments in marketable
securities are reported at fair market value based on quoted market prices,
with unrealized gains or losses, net of tax, recorded as a separate component
of shareholders' equity, if material.
BOND ISSUANCE COSTS: Bond issuance costs have been capitalized and are
being amortized over the life of the bonds. Accumulated amortization of bond
issuance costs is $2,608 at March 31, 1999.
- --------------------------------------------------------------------------------
1999 Annual Report 11
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1999
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 $448,000
and $396,000 at March 31, 1999 and 1998, 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, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Finished goods $1,197,108 $1,265,440
Production materials:
Meats 931,928 1,101,861
Other ingredients 207,138 161,597
Packing materials 381,676 371,770
- ---------------------- ---------- ----------
$2,717,850 $2,900,668
========== ==========
</TABLE>
NOTE C - Long-Term Debt
On March 4, 1999, the Company obtained, through its subsidiary The
Smithfield Ham and Products Company, Incorporated, an Industrial Development
Revenue Bond (IRB) in the amount of $2,800,000 from The Industrial Development
Authority of the County of Isle of Wight. The interest rate on the bonds is
variable and is adjusted weekly in accordance with the Bond Indenture by the
Remarketing Agent. In no event shall the interest rate exceed 10%. At March 31,
1999 the variable interest rate on the bonds was 3.10%. The only collateral for
the bonds is an irrevocable letter of credit from a bank. The letter of credit
expires on February 15, 2001 and is subject to renewal. The Company's long-term
debt is carried at cost, which approximates fair market value.
Principal payments on the bonds are as follows: $500,000 in 2004, $500,000
in 2009 and $1,800,000 in 2014. Interest is payable monthly. The Smithfield
Companies, Inc. has guaranteed all principle and interest payments due under
the bonds. At March 31, 1999, $619,074 of the bond proceeds is included in
"Cash and cash equivalents" and is restricted to cover construction and
equipment expenditures in accordance with the loan agreement.
Under terms of the IRB, the Company, among other things, agrees to
maintain a current ratio of 3:1 and a debt service coverage ratio, as defined,
of 1.5:1. Interest expense in the amount of $6,632 was accrued on the bonds at
March 31, 1999.
NOTE D - Line of Credit
The Company has an uncollateralized 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 July 31, 2000. The Company did not have any
outstanding balance on this facility during the year ended March 31, 1999.
- --------------------------------------------------------------------------------
12 The Smithfield Companies, Inc.
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1999
NOTE E - 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.
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.
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, which terminated in June 1998,
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. The termination of the Stock
Option Plan does not effect the validity of options outstanding on the date of
termination. The options are exercisable two years from the date of grant. At
March 31, 1999, the weighted average remaining contractual life of the options
is 7.0 years. The Company had 40,000, 34,000 and 38,000 shares which were
exercisable at March 31, 1999, 1998 and 1997, respectively. At March 31, 1999,
the weighted average exercise price of those shares is $3.71.
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.
- --------------------------------------------------------------------------------
1999 Annual Report 13
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1999
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> <C> <C>
Options outstanding at April 1, 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
Repurchased (10,000) $ 5.63 $ 5.63
- --------------------------------------- ------- ------- -------
Options outstanding at March 31, 1999 117,500 $3.38- 5.88 $ 4.93
======================================= ======= =============== =======
</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 for the year ended March 31, 1997.
No stock options were issued during the year ended March 31, 1999.
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.
- --------------------------------------------------------------------------------
14 The Smithfield Companies, Inc.
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1999
An analysis of changes in Common Stock and Retained Earnings follows:
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
--------------- --------------
<S> <C> <C>
Balance at April 1 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 $12,094,901
Net Income 1,461,710
Dividends ($.13 per share) (304,561)
Repurchase of 2,367 shares of Common Stock (15,377)
- ----------------------------------------------- ------------
Balance at March 31, 1999 $ 2,488,492 $13,252,050
=============================================== ============ ===========
</TABLE>
NOTE F - Sale of Assets
Because of the termination of its retail lease and the fact that the
business was no longer compatible with the Company's 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 year ended March 31, 1998.
NOTE G - 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 $45,240, $42,373 and $12,380 for the years ended March 31, 1999, 1998
and 1997, respectively. Discretionary profit sharing contributions to the plan
was $95,000 for the year ended March 31, 1997. No discretionary contributions
were made for the years ended March 31, 1999 and 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 $50,000, $43,000
and $40,000 into the Plan for the years ended March 31, 1999, 1998 and 1997,
respectively.
- --------------------------------------------------------------------------------
1999 Annual Report 15
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1999
NOTE H - Income Taxes
Significant components of the Company's deferred tax assets as of March
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities $ 75,000 $ 64,000
Inventories 13,000 14,000
Accounts receivable allowance 25,000 22,000
Book over tax depreciation 123,000 102,000
Book over tax amortization 9,000 8,000
- -------------------------------- -------- --------
Total deferred tax assets $245,000 $210,000
================================ ======== ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal $ 633,000 $359,000 $ 407,000
State 97,000 56,000 63,000
- ------------------- --------- -------- ---------
730,000 415,000 470,000
--------- -------- ---------
Deferred:
Federal (29,000) 76,000 (43,000)
State (6,000) 14,000 (7,000)
- ------------------- --------- -------- ---------
(35,000) 90,000 (50,000)
--------- -------- ---------
$ 695,000 $505,000 $ 420,000
========= ======== =========
</TABLE>
The provision for income taxes varies from that computed using federal
statutory rates of 34%, as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal taxes at statutory rate $ 733,000 $ 538,000 $ 454,000
State taxes net of federal benefit 60,000 42,000 42,000
Trademark and goodwill amortization 5,000 6,000 7,000
Tax-exempt interest (92,000) (88,000) (95,000)
Other (11,000) 7,000 12,000
- ------------------------------------- --------- --------- ---------
$ 695,000 $ 505,000 $ 420,000
========= ========= =========
</TABLE>
The Company made income tax payments of $593,534 in 1999, $521,862 in 1998
and $468,913 in 1997.
NOTE I - 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
$500,000.
- --------------------------------------------------------------------------------
16 The Smithfield Companies, Inc.
<PAGE>
Notes to Consolidated Financial Statements
THE SMITHFIELD COMPANIES, INC. -- MARCH 31, 1999
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, 1999 aggregate minimum rental commitments under
non-cancelable operating leases having remaining terms of more than one year
were $375,000 and are payable as follows: 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:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
---------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Minimum rentals $150,715 $152,968 $222,018
Contingent rentals 26,048 25,096 59,403
- -------------------- -------- -------- --------
TOTAL $176,763 $178,064 $281,421
==================== ======== ======== ========
</TABLE>
RELATED PARTY TRANSACTIONS
A member of the Board of Directors is an attorney with the Company's law
firm. The Company paid $7,397, $29,996 and $20,601 to the law firm in 1999,
1998 and 1997, respectively. Another member of the Board of Directors is
chairman of a company which supplied packaging materials to the Company in the
amount of $14,488, $6,759 and $7,674 in 1999, 1998 and 1997, respectively.
During the year ended March 31, 1999 the Company invested $80,000 to acquire
8,000 shares of common stock in TowneBank (the Bank), a newly created community
bank. The Company's President and CEO is on the Board of Directors of the Bank
and a member of the Company's Board of Directors is President and Senior Loan
Officer of the Bank.
NOTE J - Subsequent Events
In April 1999 the Company purchased a Certificate of Deposit from
TowneBank in the amount of $1,000,000. The certificate matures in April 2000
and bears interest at 5.15%.
Subsequent to March 31, 1999, the Company purchased and retired 96,317
shares of its Common Stock at a cost of $707,800.
- --------------------------------------------------------------------------------
1999 Annual Report 17
<PAGE>
Report of Independent Accountants
Shareholders and Board of Directors
THE SMITHFIELD COMPANIES, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and cash flows present fairly, in all
material respects, the financial position of The Smithfield Companies, Inc. and
Subsidiaries (the "Company") at March 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1999 in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Virginia Beach, Virginia
May 27, 1999
Quarterly Results Of Operations
The following table presents quarterly results of operations for the years
ended March 31, 1999 and 1998.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998
----------------------------------------------- -----------------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 3,787 $ 6,122 $ 7,992 $ 3,295 $ 4,487 $ 4,771 $ 7,924 $ 3,244
Cost of Goods Sold 2,418 4,177 4,974 2,204 2,952 3,360 5,300 2,282
- ----------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Gross Profit 1,369 1,945 3,018 1,091 1,535 1,411 2,624 962
Other operating revenue 22 20 13 25 18 52 18 11
- ----------------------------- ------- ------- ------- ------- ------- ------- ------- -------
1,391 1,965 3,031 1,116 1,553 1,463 2,642 973
Selling, general and
administrative expenses 1,170 1,382 1,971 1,078 1,336 1,235 1,776 945
- ----------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Operating Income 221 583 1,060 38 217 228 866 28
Interest, net 70 55 67 62 63 52 58 70
- ----------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 291 638 1,127 100 280 280 924 98
Income taxes 81 211 387 16 82 86 330 7
- ----------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income $ 210 $ 427 $ 740 $ 84 $ 198 $ 194 $ 594 $ 91
============================= ======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share: $ 0.09 $ 0.18 $ 0.32 $ 0.04 $ 0.08 $ 0.08 $ 0.25 $ 0.04
============================= ======= ======= ======= ======= ======= ======= ======= =======
Diluted earnings per share: $ 0.09 $ 0.18 $ 0.31 $ 0.04 $ 0.08 $ 0.08 $ 0.25 $ 0.04
============================= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
18 The Smithfield Companies, Inc.
<PAGE>
[PICTURE]
DIRECTORS: (STANDING LEFT TO RIGHT) PETER D. PRUDEN, III, R. SCOTT MORGAN,
BERNARD C. BALDWIN, III,
FRANK H. BUHLER, (SEATED LEFT TO RIGHT) JAMES L. CRESIMORE, RICHARD S. FULLER
DIRECTORS
Bernard C. Baldwin, III
PARTNER
EDMUNDS & WILLIAMS
Frank H. Buhler
CHAIRMAN
OLD DOMINION BOX COMPANY
James L. Cresimore
CHAIRMAN
THE SMITHFIELD COMPANIES, INC.
CHAIRMAN
ALLEGIANCE BROKERAGE COMPANY
Richard S. Fuller
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
R. Scott Morgan
PRESIDENT AND SENIOR
LOAN OFFICER
TOWNEBANK
Peter D. Pruden, III
EXECUTIVE VICE PRESIDENT
AND SECRETARY
EXECUTIVE OFFICERS
Richard S. Fuller
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Peter D. Pruden, III
EXECUTIVE VICE PRESIDENT
AND SECRETARY
Mark D. Bedard
CHIEF FINANCIAL OFFICER
AND TREASURER
MANAGEMENT
Alton H. Gwaltney
EXECUTIVE VICE PRESIDENT
THE SMITHFIELD HAM &
PRODUCTS CO.
John S. Mitchell
VICE PRESIDENT AND
GENERAL MANAGER
WILLIAMSBURG FOODS
Larry R. Santure
VICE PRESIDENT AND
GENERAL MANAGER
V. W. JOYNER & CO.
James S. Groves
VICE PRESIDENT OF RETAIL SALES
THE SMITHFIELD HAM &
PRODUCTS CO.
Robert J. Koch, Jr.
VICE PRESIDENT OF
FOODSERVICE SALES
THE SMITHFIELD HAM &
PRODUCTS CO.
R. Steven Jordan
CORPORATE CONTROLLER
Kevin A. Jones
GENERAL MANAGER
PRUDEN PACKING CO.
- --------------------------------------------------------------------------------
1999 Annual Report 19
<PAGE>
Corporate Information
EXECUTIVE OFFICES
The Smithfield Building
311 County Street, Suite 203
Portsmouth, Virginia 23704
TRANSFER AGENT
Registrar and Transfer Company
NASDAQ SYMBOL
HAMS
COUNSEL
Edmunds & Williams
800 Main Street
Lynchburg, Virginia 24505
AUDITORS
PricewaterhouseCoopers LLP
400 One Columbus Center
Virginia Beach, Virginia 23462
ANNUAL MEETING
The Annual Meeting of Stockholders
will be held on Friday, July 30,
1999 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 and dividends paid for each quarter of fiscal 1999 and 1998.
<TABLE>
<CAPTION>
FISCAL 1999 HIGH LOW
- ---------------- ------- ------
<S> <C> <C>
First Quarter 7 1/2 6
Second Quarter 8 6 3/4
Third Quarter 8 6 1/4
Fourth Quarter 8 5/8 7 3/8
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
- ---------------- ------- -------
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS 1999 1998
- ---------------- ----------- -----------
<S> <C> <C>
First Quarter $ 0.030 $ 0.030
Second Quarter $ 0.030 $ 0.030
Third Quarter $ 0.035 $ 0.030
Fourth Quarter $ 0.035 $ 0.030
- ---------------- ------- -------
$ 0.130 $ 0.120
======= =======
</TABLE>
On June 8, 1999 there were 150 holders of record of the Company's Common
Stock. In addition over 200 beneficial shareholders are estimated.
Mail Order Catalogs
Your Company publishes two unique full color specialty foods consumer
catalogs each fall featuring many of the Company's products. 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
- --------------------------------------------------------------------------------
20 The Smithfield Companies, Inc.
<PAGE>
[LOGO]
THE
SMITHFIELD
COMPANIES
<TABLE>
<S> <C>
The Smithfield Building o 311 County Street, Suite 203 o Portsmouth, Virginia 23704
</TABLE>
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 . . . . . . . . . . . Virginia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of The Smithfield Companies, Inc. for
the year ended March 31, 1999, and is qualified in its entirety by
reference to such Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,728,710
<SECURITIES> 575,840
<RECEIVABLES> 1,139,459
<ALLOWANCES> 79,000
<INVENTORY> 2,717,850
<CURRENT-ASSETS> 13,658,236
<PP&E> 8,819,855
<DEPRECIATION> 3,577,974
<TOTAL-ASSETS> 20,160,488
<CURRENT-LIABILITIES> 1,619,946
<BONDS> 2,800,000
0
0
<COMMON> 2,488,492
<OTHER-SE> 13,252,050
<TOTAL-LIABILITY-AND-EQUITY> 20,160,488
<SALES> 21,195,201
<TOTAL-REVENUES> 21,275,040
<CGS> 13,772,895
<TOTAL-COSTS> 19,373,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,558
<INCOME-PRETAX> 2,156,710
<INCOME-TAX> 695,000
<INCOME-CONTINUING> 1,461,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,461,710
<EPS-BASIC> .62
<EPS-DILUTED> .62
</TABLE>
