FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 2000
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--2,136,744 shares as of November 3, 2000
INDEX
THE SMITHFIELD COMPANIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30, 2000
and March 31, 2000
Condensed consolidated statements of income--Three months
ended September 30, 2000 and 1999; Six months ended
September 30, 2000 and 1999
Condensed consolidated statements of cash flows--Six
months ended September 30, 2000 and 1999
Notes to condensed consolidated financial statements--
September 30, 2000
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 March 31
2000 2000
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,319,982 $ 6,844,346
Certificate of deposit 1,065,792 1,038,529
Receivables, less allowances
of $86,000 and $79,000 1,353,060 1,157,744
Inventories 4,785,991 3,228,829
Prepaid expenses and other 163,784 59,225
Deferred income taxes 100,000 100,000
----------- -----------
TOTAL CURRENT ASSETS 11,788,609 12,428,673
PROPERTY, PLANT AND EQUIPMENT 9,633,791 9,494,855
less accumulated depreciation 4,252,058 3,977,784
----------- -----------
5,381,733 5,517,071
OTHER ASSETS 2,354,037 1,156,411
----------- -----------
$19,524,379 $19,102,155
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,129,166 $ 627,174
Other current liabilities 727,752 698,422
----------- -----------
TOTAL CURRENT LIABILITIES 1,856,918 1,325,596
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 2,136,744
shares and 2,214,744 shares 1,004,195 1,238,570
Retained earnings 13,819,267 13,737,989
Accumulated other comprehensive
income, net of income taxes 43,999
----------- -----------
14,867,461 14,976,559
----------- -----------
$19,524,379 $19,102,155
=========== ===========
Note: The balance sheet at March 31, 2000 has been derived
from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Six months ended
September 30 September 30
2000 1999 2000 1999
Net sales $4,081,153 $4,395,243 $8,319,551 $8,451,215
Cost of goods sold 2,757,597 2,990,264 5,607,370 5,606,469
---------- ---------- ---------- ----------
GROSS PROFIT 1,323,556 1,404,979 2,712,181 2,844,746
Other operating revenue 35,389 18,276 47,659 37,076
---------- ---------- ---------- ----------
1,358,945 1,423,255 2,759,840 2,881,822
Selling, general and
administrative expenses 1,275,080 1,289,874 2,612,724 2,522,945
---------- ---------- ---------- ----------
OPERATING INCOME 83,865 133,381 147,116 358,877
Other income 115,938 93,411 220,330 178,265
Interest expense (38,384) (31,697) (78,791) (63,937)
---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 161,419 195,095 288,655 473,205
Income taxes 37,000 50,000 57,000 128,000
---------- ---------- ---------- ----------
NET INCOME $ 124,419 $ 145,095 $ 231,655 $ 345,205
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .06 $ .06 $ .11 $ .15
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .06 $ .06 $ .11 $ .15
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING--BASIC 2,136,744 2,241,483 2,146,913 2,253,639
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING--DILUTED 2,159,056 2,262,559 2,171,812 2,274,601
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended September 30
2000 1999
OPERATING ACTIVITIES
Net income $ 231,655 $ 345,205
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 320,780 318,247
Gain on disposal of property and
sale of marketable securities (25,442) (5,701)
Change in assets and liabilities:
Trade receivables (195,316) (365,456)
Inventories (1,557,162) (1,453,057)
Prepaid expenses and other (104,559) (99,350)
Accounts payable and other
current liabilities 455,072 155,278
---------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (874,972) (1,104,834)
INVESTING ACTIVITIES
Purchase of certificate of deposit (27,263) (1,012,590)
Purchase of property and equipment (145,595) (637,357)
Purchase of marketable securities (1,169,121)
Proceeds from sale of property and
marketable securities 80,839 40,742
---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES (1,261,140) (1,609,205)
FINANCING ACTIVITIES
Bond issuance costs paid (3,500)
Cash dividends paid (150,377) (269,369)
Repurchase of common stock (234,375) (934,672)
---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES (388,252) (1,204,041)
---------- ----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (2,524,364) (3,918,080)
Cash and cash equivalents at
beginning of period 6,844,346 9,728,710
---------- ----------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $4,319,982 $5,810,630
========== ==========
See notes to condensed consolidated financial statements.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
and six month periods ended September 30, 2000 are not necessarily indicative
of the results that may be expected for the year ending March 31, 2001. 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, 2000.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This standard, as amended by SFAS No.
137, 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.
Securities & Exchange Commission Staff Accounting Bulletin 101 (SAB 101),
"Revenue Recognition in Financial Statements", as amended by SAB 101B, is
effective no later than fiscal quarter ended December 31, 2000. Adoption of
SAB 101 is not expected to have a material effect on the recognition,
presentation, and disclosure of revenue.
In March 2000, the Financial Accounting Standards Board, (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25 (FIN 44), providing
new accounting rules for stock-based compensation under APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). FIN 44 does not change
FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS 123).
The new rules are significant and could result in compensation expense in
several situations in which no expense is typically recorded under current
practice. FIN 44 is generally effective for transactions occurring after
July 1, 2000, however, the accounting must be applied prospectively to
certain transactions consummated after December 15, 1998. The Company does
not expect that FIN 44 will have a material effect on its financial condition
or results of operations.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-
Continued
September 30, 2000
NOTE B--INVENTORIES
The components of inventory consist of the following:
September 30, 2000 March 31, 2000
Finished Goods $2,690,708 $1,295,332
Production Materials:
Meats 1,242,583 1,245,700
Other Ingredients 220,821 197,833
Packing Materials 631,879 489,964
---------- ----------
$4,785,991 $3,228,829
========== ==========
NOTE C-MARKETABLE SECURITIES
Equity securities are summarized as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Available for Sale Cost Gains Losses Value
Common stock $1,722,158 $195,348 $107,693 $1,809,813
Proceeds from sales of investment securities available for sale were $38,499,
resulting in realized gains of $18,499.
During the second quarter the Company sold several call options related to
the above available for sale securities. All of these call options expire
during the third quarter of fiscal 2001. Call options in the amount of
$48,250 are included in other current liabilities on the condensed
consolidated balance sheets as of September 30, 2000.
NOTE D-SHAREHOLDERS' EQUITY
During the six months ended September 30, 2000 the Company purchased and
retired 36,000 shares of its common stock at a cost of $234,375.
THE SMITHFIELD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-
Continued
September 30, 2000
NOTE E-COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income". The
standard establishes guidelines for the reporting and display of
comprehensive income and its components in financial statements. Other
comprehensive income includes unrealized gains and losses on equity
securities classified as available for sale and are included as a component
of stockholders' equity. Information concerning the Company's other
comprehensive income for the six months ended September 30, 2000 and 1999 is
as follows:
2000 1999
Net income $231,655 $345,205
Other comprehensive income,
net of income taxes 43,999
---------- ----------
Comprehensive income $275,654 $345,205
========== ==========
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 Continuing Operations
Net sales for the three months ended September 30, 2000 were $4,081,153
compared to $4,395,243 for the three months ended September 30, 1999. Net
sales for the six months ended September 30, 2000 were $8,319,551 compared to
$8,451,215 for the six months ended September 30, 1999. The decrease in net
sales was due to softer demand for some of the Company's low margin cured
meat products during the second quarter. Much of this was a conscious effort
to increase production of further processed ham products, which carry higher
margins.
Gross profit margin for the three months ended September 30, 2000 remained
relatively stable at 32.4% compared to 32.0% for the three months ended
September 30, 1999. Gross profit for the six months ended September 30, 2000
decreased to 32.6% compared to 33.7% for the six months ended September 30,
1999. The lower margins were due to higher pork related raw material costs.
Selling, general and administrative (SG&A) expenses decreased 1.1% and
increased 3.6% during the three and six months ended September 30, 2000,
respectively, compared to the prior year. Selling expenses, stayed constant
in the current period, but increased as a percentage of net sales during the
three and six months ended September 30, 2000 compared to the prior year.
This increase was a conscious effort to increase our frozen food business due
to our increased plant capacity. General and administrative expenses actually
decreased marginally during the three and six months ended September 30, 2000
compared to the prior year.
Income tax rates are lower than statutory rates primarily because of interest
from tax-exempt municipal bond funds.
Liquidity and Capital Resources
At September 30, 2000 the Company had an Industrial Development Revenue Bond
in the amount of $2,800,000 outstanding. The Bond matures in the year 2014
and has principle payments of $500,000 due in 2004 and 2009.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
At September 30, 2000, the Company had approximately $4.3 million invested in
short-term highly liquid debt instruments and $1.1 million in a certificate
of deposit that matures in December 2000. During the three months ended
September 30, 2000 the Company used approximately $1.2 million of its
short-term debt instruments to purchase marketable securities. 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, 2001.
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.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
a.) 27. Financial Data Schedule
b.) The Company did not file any reports on Form 8-K during the three months
ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SMITHFIELD COMPANIES, INC.
(registrant)
DATE: November 10, 2000 /s/ Richard S. Fuller
______________________________
Richard S. Fuller
President and Chief Executive
Officer
DATE: November 10, 2000 /s/ Mark D. Bedard
______________________________
Mark D. Bedard
Treasurer and Chief Financial
Officer
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