FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended December 31, 1999
Commission file number 0-17084
THE SMITHFIELD COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1167160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
311 County Street, Portsmouth, VA 23704
(Address of principal executive offices) (Zip Code)
(757) 399-3100
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, no par or stated value--2,182,744 shares as of February 4, 2000
INDEX
THE SMITHFIELD COMPANIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Condensed consolidated balance sheets--December 31, 1999
and March 31, 1999
Condensed consolidated statements of income--Three months
ended December 31, 1999 and 1998; Nine months ended
December 31, 1999 and 1998
Condensed consolidated statements of cash flows--Nine
months ended December 31, 1999 and 1998
Notes to condensed consolidated financial statements--
December 31, 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
December 31 March 31
1999 1999
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,191,529 $ 9,728,710
Certificate of deposit 1,025,479
Receivables, less allowances
of $81,000 and $79,000 2,916,846 1,060,459
Inventories 1,995,692 2,717,850
Prepaid expenses 58,867 36,217
Deferred income taxes 115,000 115,000
----------- -----------
TOTAL CURRENT ASSETS 13,303,413 13,658,236
PROPERTY AND EQUIPMENT 9,420,511 8,819,855
less accumulated depreciation 3,859,388 3,577,974
----------- -----------
5,561,123 5,241,881
OTHER ASSETS 1,197,400 1,260,371
----------- -----------
$20,061,936 $20,160,488
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 972,469 $ 594,569
Other current liabilities 1,117,667 1,025,377
----------- -----------
TOTAL CURRENT LIABILITIES 2,090,136 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 2,182,744
shares and 2,343,061 shares 1,308,570 2,488,492
Retained earnings 13,863,230 13,252,050
----------- -----------
15,171,800 15,740,542
----------- -----------
$20,061,936 $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 Nine months ended
December 31 December 31
1999 1998 1999 1998
Net sales $8,474,368 $7,992,002 $16,925,583 $17,900,575
Cost of goods sold 5,568,625 4,974,031 11,175,094 11,569,034
---------- ---------- ----------- -----------
GROSS PROFIT 2,905,743 3,017,971 5,750,489 6,331,541
Other operating revenue 17,719 13,160 54,795 55,115
---------- ---------- ----------- -----------
2,923,462 3,031,131 5,805,284 6,386,656
Selling, general and
administrative expenses 2,054,146 1,971,169 4,577,091 4,522,554
---------- ---------- ----------- -----------
OPERATING INCOME 869,316 1,059,962 1,228,193 1,864,102
Interest income 88,787 67,082 267,052 192,576
Interest expense (35,593) (68) (99,530) (175)
---------- ---------- ----------- -----------
INCOME BEFORE
INCOME TAXES 922,510 1,126,976 1,395,715 2,056,503
Income taxes 310,000 387,000 438,000 679,000
---------- ---------- ----------- -----------
NET INCOME $ 612,510 $ 739,976 $ 957,715 $ 1,377,503
========== ========== =========== ===========
BASIC EARNINGS PER SHARE $ .28 $ .32 $ .43 $ .59
========== ========== =========== ===========
DILUTED EARNINGS PER SHARE $ .27 $ .31 $ .42 $ .58
========== ========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING--BASIC 2,204,548 2,342,447 2,237,216 2,343,089
========== ========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING--DILUTED 2,245,705 2,363,234 2,279,336 2,363,684
========== ========== =========== ===========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended December 31
1999 1998
OPERATING ACTIVITIES
Net income $ 957,715 $1,377,503
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 482,326 325,928
Gain on disposal of property
and equipment (5,701) (4,358)
Change in assets and liabilities:
Trade receivables (1,856,387) (1,379,457)
Inventories 722,158 781,185
Prepaid expenses (22,650) (915)
Accounts payable and other
current liabilities 470,190 1,240,426
---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 747,651 2,340,312
INVESTING ACTIVITIES
Purchase of certificate of deposit (1,025,479)
Purchase of property and equipment (773,638) (1,968,227)
Purchase of marketable securities (575,840)
Proceeds from sale of property and
equipment 40,742 20,500
---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES (1,758,375) (2,523,567)
FINANCING ACTIVITIES
Cash dividends paid (346,535) (222,624)
Repurchase of common stock (1,179,922) (15,377)
---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES (1,526,457) (238,001)
---------- ----------
NET DECREASE IN
CASH AND CASH EQUIVALENTS (2,537,181) (421,256)
Cash and cash equivalents at
beginning of period 9,728,710 7,679,907
---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $7,191,529 $7,258,651
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1999
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
and nine month periods ended December 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending March 31, 2000. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended March 31, 1999.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This standard is effective for
financial statements for all fiscal quarters for fiscal years beginning after
June 15, 2000. The Company does not expect that SFAS No. 133 will have a
material effect on its financial condition or results of operations.
NOTE B--INVENTORIES
The components of inventory consist of the following:
December 31, 1999 March 31, 1999
Finished Goods $1,040,459 $1,197,108
Production Materials:
Meats 304,948 931,928
Other Ingredients 195,298 207,138
Packing Materials 454,987 381,676
---------- ----------
$1,995,692 $2,717,850
========== ==========
NOTE C--SHAREHOLDERS' EQUITY
During the nine months ended December 31, 1999 the Company purchased and
retired 158,317 shares of its Common Stock at a cost of $1,179,922.
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 December 31, 1999 increased to
$8,474,368 compared to $7,992,002 for the three months ended December 31,
1998. Net sales for the nine months ended December 31, 1999 were $16,925,583
compared to $17,900,575 for the nine months ended December 31, 1998. The
decrease in net sales for the nine months ended December 31, 1999 is
primarily due to a $1.1 million one-time seasonal sale to a national club
store chain made during the second quarter of 1998.
Gross profit margins for the three and nine months ended December 31, 1999
decreased compared to the prior year. The lower margins were primarily the
result of additional production costs related to the Company's new frozen
food processing plant.
Selling, general and administrative expenses increased 4.2% and 1.2% during
the three and nine months ended December 31, 1999, respectively, compared to
the prior year. Selling expenses increased as a percentage of net sales to
14.9% for the nine months ended December 31, 1999 from 13.6% for the nine
months ended December 31, 1998. This increase was a conscious effort to
increase our frozen food business due to our increased plant capacity.
General and administrative expenses actually decreased marginally during the
current year compared to the prior year.
Income tax rates are lower than statutory rates primarily because of interest
from tax-exempt municipal bond funds.
Liquidity and Capital Resources
At December 31, 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 December 31, 1999, the Company had approximately $6.8 million invested in
short-term highly liquid debt instruments. In addition, the Company has an
unused $10 million line of credit loan with a bank bearing interest at the
LIBOR market plus .50% which expires on July 31, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
The Company believes its liquidity and capital resources to be excellent.
Current cash flows and available funds are sufficient to satisfy existing
cash requirements.
The Company will continue its strategy of looking for growth through
acquisitions in higher margin segments of the food industry. Having a
significant amount of cash on hand as well as available funds on its line of
credit, the Company believes it is in an excellent position to invest in
assets, which will increase shareholder value over time.
The Company traditionally increases inventory during the first six months of
its fiscal year to meet the increased demand for its products during the
Christmas season. The Company is financing the increase in inventory through
its operating cash flow and the use of some of its short-term securities.
Year 2000 Compliance
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. The Company has utilized
internal personnel, contract programmers and third-party vendors to identify,
prioritize and access Year 2000 noncompliance concerns. To date, the Company
has not incurred any material Year 2000 problems or concerns.
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. The Company has not
incurred any Year 2000 interruptions in customer operations. The Company
believes its customer base is broad enough to minimize the affects of a
simple occurrence. The Company has evaluated the status of third party efforts
and determined alternatives and contingency plan requirements should they
become necessary. The reduction of risk due to noncompliance with Year 2000
issues includes the identification of alternate suppliers 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 December 31, 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: February 14, 2000 /s/ Richard S. Fuller
______________________________
Richard S. Fuller
President and Chief Executive
Officer
DATE: February 14, 2000 /s/ Mark D. Bedard
______________________________
Mark D. Bedard
Treasurer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Consolidated Financial Statements of The Smithfield Companies,
Inc. for the nine months ended December 31, 1999, and is qualified in its
entirety by reference to such Unaudited Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 7,191,529
<SECURITIES> 575,840
<RECEIVABLES> 2,997,846
<ALLOWANCES> 81,000
<INVENTORY> 1,995,692
<CURRENT-ASSETS> 13,303,413
<PP&E> 9,420,511
<DEPRECIATION> 3,859,388
<TOTAL-ASSETS> 20,061,936
<CURRENT-LIABILITIES> 2,090,136
<BONDS> 2,800,000
0
0
<COMMON> 1,308,570
<OTHER-SE> 13,863,230
<TOTAL-LIABILITY-AND-EQUITY> 20,061,936
<SALES> 16,925,583
<TOTAL-REVENUES> 16,980,378
<CGS> 11,175,094
<TOTAL-COSTS> 15,752,185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,530
<INCOME-PRETAX> 1,395,715
<INCOME-TAX> 438,000
<INCOME-CONTINUING> 957,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 957,715
<EPS-BASIC> .43
<EPS-DILUTED> .42
</TABLE>
