<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 3, 1994
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission file number 1-11420
-------------
SAVANNAH FOODS & INDUSTRIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 58-1089367
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 339, Savannah, Georgia 31402
- - - ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (912) 234-1261
----------------
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
--- ---
As of July 3, 1994, there were 26,238,196 shares of common stock of Savannah
Foods & Industries, Inc. outstanding.
Page 1 of 11 pages
<PAGE> 2
SAVANNAH FOODS & INDUSTRIES, INC.
INDEX
Part I. FINANCIAL INFORMATION: Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets at
July 3, 1994 and October 3, 1993 3
Consolidated Statements of Operations
for the 13 weeks ended July 3, 1994 and
July 4, 1993, the 39 weeks ended
July 3, 1994 and the 40 weeks ended
July 4, 1993 4
Consolidated Statements of Cash Flows
for the 39 weeks ended July 3, 1994
and the 40 weeks ended July 4, 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of the Company's Financial Position
and Results of Operations 8
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Page 2 of 11 pages
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Savannah Foods & Industries, Inc.
Consolidated Balance Sheets
(In thousands except for shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
July 3, October 3,
1994 1993
---------- ----------
Assets
- - - ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,592 $ 7,481
Accounts receivable 63,976 87,030
Inventories (net of LIFO reserve of $9,228
in 1994 and $9,011 in 1993) (Note 2) 174,431 145,639
Other current assets 14,124 29,840
-------- --------
Total current assets 263,123 269,990
Property, plant and equipment (net of accumulated
depreciation of $177,238 in 1994 and
$159,111 in 1993) 244,333 249,047
Other assets 46,271 48,815
-------- --------
$553,727 $567,852
======== ========
Liabilities and Stockholders' Equity
- - - ------------------------------------
Current liabilities:
Short-term borrowings $ 15,000 $ 26,300
Current portion of long-term debt (Note 3) 1,719 2,421
Trade accounts payable 96,450 106,410
Income taxes accrued - -
Accrued expenses related to beet operations 13,817 -
Other liabilities and accrued expenses 19,195 19,629
-------- --------
Total current liabilities 146,181 154,760
-------- --------
Long-term debt (Note 3) 140,616 142,078
-------- --------
Deferred income taxes 3,361 3,951
-------- --------
Deferred employee benefits 75,335 72,349
-------- --------
Stockholders' equity:
Common stock $.25 par value; $.55 stated value;
64,000,000 shares authorized; 31,306,800 shares
issued 17,365 17,365
Capital in excess of stated value 12,190 12,190
Retained earnings 203,368 210,491
Minimum pension liability adjustment (9,453) (9,453)
-------- --------
223,470 230,593
Less - Treasury stock, at cost (5,068,604 shares) 31,275 31,275
- Note receivable from employee stock
ownership trust 3,961 4,604
-------- --------
Total stockholders' equity 188,234 194,714
-------- --------
Commitments and contingencies (Note 8) - -
-------- --------
$553,727 $567,852
======== ========
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
Page 3 of 11 pages
<PAGE> 4
Savannah Foods & Industries, Inc.
Consolidated Statements of Operations
(In thousands of dollars except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the 39 For the 40
For the 13 Weeks Ended Weeks Ended Weeks Ended
---------------------- ----------- -----------
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $272,891 $270,979 $800,082 $830,767
-------- -------- -------- --------
Operating expenses:
Cost of sales and
operating expenses 249,764 244,937 723,668 744,758
Selling, general and
administrative expenses 12,471 14,087 40,994 40,881
Depreciation and
amortization 7,459 6,638 22,293 18,959
-------- -------- -------- --------
269,694 265,662 786,955 804,598
-------- -------- -------- --------
Income from operations 3,197 5,317 13,127 26,169
-------- -------- -------- --------
Other income and expenses:
Interest and other
investment income 330 390 1,771 1,677
Interest expense (3,289) (3,461) (10,040) (9,791)
Other 141 60 381 1,699
-------- -------- -------- --------
(2,818) (3,011) (7,888) (6,415)
-------- -------- -------- --------
Income before income
taxes and change in
accounting principle 379 2,306 5,239 19,754
Provision for
income taxes (Note 4) (146) (816) (1,736) (5,994)
-------- -------- -------- --------
Income before change
in accounting principle 233 1,490 3,503 13,760
Cumulative effect of
change in accounting
principle (Note 5) - - - 600
-------- -------- -------- --------
Net income $ 233 $ 1,490 $ 3,503 $ 14,360
======== ======== ======== ========
Income per weighted
average share
outstanding (Note 6):
Income before change in
accounting principle $ .01 $ .06 $ .13 $ .53
Cumulative effect of
change in
accounting principle - - - .02
-------- -------- -------- --------
Net income $ .01 $ .06 $ .13 $ .55
======== ======== ======== ========
Dividends $ .135 $ .135 $ .405 $ .405
======== ======== ======== ========
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
Page 4 of 11 pages
<PAGE> 5
Savannah Foods & Industries, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the 39 For the 40
Weeks Ended Weeks Ended
----------- -----------
July 3, July 4,
1994 1993
----------- -----------
(In thousands of dollars)
<S> <C> <C>
Cash flows from operations:
Net income $ 3,503 $14,360
Adjustments to reconcile net income to net
cash provided by operations -
Depreciation and amortization 22,293 18,959
Cumulative effect of change in
accounting principle - (600)
Provision for deferred income taxes (4,881) (3,683)
Other - 330
Working capital changes affecting cash
provided by operations -
Accounts receivable 22,654 10,920
Inventories (28,792) (49,652)
Other current assets 20,597 (17,954)
Trade accounts payable (9,960) 10,762
Income taxes accrued - 1,955
Accrued expenses related to beet operations 13,817 10,334
Other liabilities and accrued expenses 609 (4,226)
------- -------
Cash provided by (used for) operations 39,840 (8,495)
------- -------
Cash flows from investing activities:
Additions to property, plant and
equipment (17,314) (34,382)
Decrease in investments of unexpended IDB
funds included in other assets 3,681 -
Acquisition of long-term investments - (5,491)
Other 967 85
------- -------
Cash used for investing activities (12,666) (39,788)
------- -------
Cash flows from financing activities:
Increase (decrease) in short-term borrowings (11,300) 40,166
Increase in long-term debt - 70,300
Payments on long-term debt (2,164) (51,300)
Dividends paid to stockholders (10,626) (14,047)
Treasury stock repurchases - (977)
Other 27 658
------- -------
Cash provided by (used for) financing activities (24,063) 44,800
------- -------
Cash flows for period 3,111 (3,483)
Cash and cash equivalents, beginning of
period 7,481 9,897
------- -------
Cash and cash equivalents, end of
period $10,592 $ 6,414
======= =======
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
Page 5 of 11 pages
<PAGE> 6
Savannah Foods & Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(1) The information furnished reflects all adjustments (consisting of
only normal recurring accruals) which are, in the opinion of Management,
necessary for a fair statement of the results for the interim periods. See
Note 5 for discussion of the effect of a change in accounting principle
reflected in the accompanying interim financial statements. These
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K.
(2) A summary of inventories by class is as follows:
July 3, October 3,
1994 1993
---------- ----------
(In thousands of dollars)
Raw materials and work-in-process.......... $ 81,706 $ 76,802
Packaging materials, parts and supplies.... 26,086 26,002
Finished goods............................. 66,639 42,835
Costs related to future
inventory purchases...................... - -
-------- --------
$174,431 $145,639
======== ========
(3) Long-term debt is summarized as follows:
July 3, October 3,
1994 1993
---------- ----------
(In thousands of dollars)
Senior notes - $50,000,000 Series A at
8.35% and $20,000,000 Series B at
7.15% with final maturity 2002........... $ 70,000 $ 70,000
Long-term debt supported by revolving
credit facilities with banks............. 20,000 20,000
Notes payable to bank from 1996 to 1998
related to ESOP trust with interest at
85% or 86% of LIBOR...................... 15,500 15,500
Variable rate industrial revenue bonds..... 28,000 28,000
Present value of non-compete agreements
related to the purchase of King
Packaging, payable monthly from 1993 to
1998, discounted at 5%................... 6,687 7,808
Other long-term debt....................... 2,148 3,191
-------- --------
142,335 144,499
Less - Current portion..................... (1,719) (2,421)
-------- --------
$140,616 $142,078
======== ========
The Company has entered into "Interest Rate Exchange Agreements," more commonly
called "interest rate swaps," which fixed the rate on $50,000,000 of the
Company's debt for a period of approximately three years at an average fixed
rate of 8.57%. The Company has also entered into an interest rate swap
agreement on a principal amount of $50,000,000 whereby the Company receives a
fixed rate and pays the counter-parties a floating rate based on 6-month
LIBOR. The remaining maturity on this swap is approximately 1 1/4 years. The
purpose of this transaction was to achieve a lower
Page 6 of 11 pages
<PAGE> 7
effective interest rate on the Company's senior notes. Cash interest payments
during the first nine months of fiscal 1994 and 1993 amounted to $11,255,000
and $8,285,000, respectively.
(4) Cash tax payments during the first nine months of fiscal 1994 and 1993
amounted to $6,582,000 and $12,255,000 respectively.
(5) Change in accounting principle:
The Company prospectively adopted Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes (FAS 109) effective
September 28, 1992, the first day of the fiscal year ended October 3, 1993.
The cumulative effect of this accounting change was a credit to net income
of $600,000.
(6) Earnings per share for fiscal 1994 are based on weighted average
outstanding shares of 26,238,196 for the 13 weeks and the 39 weeks ended
July 3, 1994. Earnings per share for fiscal 1993 are based on weighted
average outstanding shares of 26,238,196 for the 13 weeks ended July 4,
1993 and 26,247,469 for the 40 weeks then ended.
(7) Commitments and Contingencies:
The Company has contracted for the purchase of a substantial portion of its
future raw sugar requirements. Prices to be paid for raw sugar under these
contracts are based in some cases on market prices during the anticipated
delivery month. In other cases prices are fixed and, in these instances,
the Company generally obtains commitments from its customers to buy the
sugar prior to fixing the price, or enters into futures transactions to
hedge the commitment.
In May 1992, the United States Customs Service (Customs) issued a bill to
the Company for approximately $7,500,000 seeking reimbursement for certain
drawback claims filed by the Company with customs during the period 1984
through 1988. Customs has alleged that drawback claims prepared by the
Company for certain export shipments of sugar during these years are
technically and/or substantively deficient, and that the Company therefore
is not entitled to monies previously received under these drawback claims.
The Company disputes Customs' findings and is vigorously protesting the
decision of Customs. While it is not certain how long the protest
(administrative appeal) process will take, based upon the facts known to
the Company at this time, the ultimate resolution of this matter is not
expected to have a materially adverse effect on the Company's financial
position or results of operations.
In July of 1991, National Utility Service, Inc. (NUS) filed a complaint
against the Company in the United States District Court for the District of
New Jersey seeking compensation and damages arising from a contract between
the Company and NUS for energy cost saving recommendations. Discovery in
this case has been completed, and based upon the information obtained, the
Company has determined that NUS is seeking approximately $4,000,000
inclusive of prejudgment interest from the Company. The Company intends to
defend the action vigorously and strongly contends that no amounts are due
to NUS. The ultimate resolution of this matter is not expected to have a
material effect on the Company's financial position or results of
operations.
Page 7 of 11 pages
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S
FINANCIAL POSITION AND RESULTS OF OPERATIONS - JULY 3, 1994
FINANCIAL POSITION:
Stockholders' equity decreased during the first nine months of fiscal 1994
from $194,714,000 to $188,234,000. Equity decreased as a result of earnings of
$3,503,000 offset by dividends of $10,626,000 and increased by a $643,000
reduction of the note receivable from the employee stock ownership trust.
Long-term debt decreased since year-end by $1,462,000 due to principal
repayments. Cash and cash equivalents increased $3,111,000 for the first nine
months of this year compared to a decrease in cash and cash equivalents of
$3,483,000 for the related period last year. Cash was used primarily for
capital improvements, dividends and repayment of short-term debt. Changes in
working capital include an increase in inventory levels offset by decreases in
accounts receivable and other current assets.
The Company's investment in working capital at the end of the third quarter
of fiscal 1994 is 7% lower than at the end of the third quarter in the prior
fiscal year. This reduction is the result of an aggressive program aimed at
minimizing the Company's investment in working capital. Inventories are down
6% at the cane refineries and down 12% at Michigan Sugar compared to the same
period last year.
At the end of the third quarter, the Company had $145,000,000 in revolving
credit facilities of which $20,000,000 was outstanding as long- term debt and
$15,000,000 was outstanding for working capital requirements and included in
short-term borrowings. The remaining available balance of $110,000,000 is
intended to meet working capital requirements. These facilities are committed
until September, 1996, with an option to extend the agreement through
September, 1998.
Fixed asset additions during the first nine months of 1994 were
$17,314,000. Of this amount, the Company spent $10,675,000 at the cane
refineries and raw sugar mill including expenditures for improvements in
process equipment, storage facilities and information systems; $3,199,000 on
projects at the beet refineries and molasses desugarization facility; and
$3,440,000 at the Foodservice facilities. Total fixed asset additions in
fiscal 1994 are expected to approximate $20,000,000 with expenditures being
concentrated on cost saving or expansion projects which are expected to benefit
the Company through increased efficiency and expanded operational capabilities.
RESULTS OF OPERATIONS:
Net income for the nine months ended July 3, 1994 was $3,503,000, or $.13
per share, on sales of $800,082,000, compared to $14,360,000, or $.55 per
share, on sales of $830,767,000 for the comparable period of fiscal 1993.
Results of operations for the first nine months of fiscal 1993 reflect the
cumulative effect of change in accounting principle of $600,000 for the
adoption of Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes. Net income for the third quarter of fiscal 1994 was
$233,000, or $.01 per share, on sales of $272,891,000, compared to net income
of $1,490,000, or $.06 per share, on sales of $270,979,000 for the comparable
quarter in 1993.
Page 8 of 11 pages
<PAGE> 9
The U. S. Department of Agriculture (USDA) announced its intention not to
impose marketing allotments on July 1 in spite of written notice that a sugar
company would forfeit sugar to it under the current sugar program. The current
Farm Bill mandates that the sugar program operate at no cost, and provides for
marketing allotments as a method to achieve that goal. By not imposing
allotments and thereby incurring cost by acquiring forfeited sugar, the Company
believes that the USDA is in violation of the no-cost provision. The Company
and others in the industry are pursuing several avenues to ensure that the
rules of the Farm Bill are followed.
Sales dollars for the third fiscal quarter were up 1% from the same quarter
last year. Domestic sugar sales volume was up 1.2% to date compared to last
year. Profit margins for the quarter were down over 30% compared to the third
fiscal quarter of last year because a 1% increase in refined sugar prices was
more than offset by a 4% increase in raw sugar prices.
The cane refineries reported improved productivity, with a 1% increase in
production this quarter compared to the same quarter last year. This
productivity increase will help profitability when refining margins return to
normal.
As mentioned in the second quarter report, Michigan Sugar had an excellent
processing campaign in Michigan in fiscal 1994, but the Great Lakes facility in
Ohio had a short campaign due to a drought. Profits at Michigan Sugar are down
because of lower sugar prices, lower by-product prices and lower profits at
Great Lakes.
Dixie Crystals(R) Foodservice reported 42% lower operating income the first
nine months of this fiscal year compared to last year due to lower refined
sugar prices and higher sugar cost. However, manufacturing costs decreased as
a result of continued investment in cost reduction programs.
Raceland Sugars operating income for the current year is 4% higher than
last year on a 4% smaller crop. The increase in income is due to a 4% higher
net sales price for raw sugar and higher by-product sales prices in the current
year.
Selling, general and administrative expenses decreased 11% this quarter
compared to the same quarter last year, and were almost flat for the first nine
months of fiscal 1994 compared to the first nine months of fiscal 1993.
The primary problem in the industry is excess sugar produced from several
consecutive large or record sugar beet crops. Beet sugar continues to grow as
a percentage of the total sugar supply in the U.S. Historically, refined sugar
from cane represented over 70% of the sugar industry. At that time, refined
sugar prices moved in direct relationship with raw sugar prices because cane
refiners had similar economics. Since 1980, the substitution of High Fructose
Corn Syrup for sugar and other factors have caused 30% of the cane refining
industry to cease operation. At the same time, the beet side of the industry
has expanded such that beet refined sugar deliveries are almost 50% of total
sugar deliveries today.
Page 9 of 11 pages
<PAGE> 10
The result of this shift in the industry is that refined sugar prices now
move in relationship to the size of the sugar beet crop. When the beet crop is
large, refined sugar prices are lower, and, conversely, when the beet crop is
less, refined prices are higher. This year and last, refined sugar prices have
at times been close to the price of raw sugar.
To avoid sugar forfeitures and to comply with the no-cost provisions of the
current Farm Bill, the USDA imposed marketing allocations in July 1993. This
reduced the beet sugar supply and raised refined sugar prices. However,
because marketing allotments were not continued in the current crop year, the
unsold sugar from the 1993 crop increased the effective size of the current
crop, depressing sales prices this year.
The USDA announced on August 8, 1994 a quota level of 1,458,000 short tons
for the period from August 1, 1994 to September 30, 1995. This announcement is
expected to result in greater sugar imports before September 30, 1994, and
during fiscal year 1995, thereby lowering raw sugar prices.
The Company completed the agreements with its Mexican partners this
quarter. The agreements are to jointly market sugar in Mexico, as well as to
provide technical assistance. The Company and its partners are currently
installing packaging facilities in Guadalajara and Monterey which are expected
to be fully operational by October 1994. Little immediate impact is expected
on net income, but the joint ventures are expected to contribute to net income
in the future.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits, not applicable.
(b) Reports on Form 8-K, not applicable.
Page 10 of 11 pages
<PAGE> 11
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.
SAVANNAH FOODS & INDUSTRIES, INC.
BY: /S/ John M. Tatum
-------------------------------
JOHN M. TATUM
DATE: AUGUST 17, 1994 SECRETARY
BY: /S/ W. R. Steinhauer
-------------------------------
W. R. STEINHAUER
SENIOR VICE PRESIDENT -
DATE: AUGUST 17, 1994 FINANCE & ADMINISTRATION
Page 11 of 11 pages
