<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 December 29, 1996
-------------------------
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 December 29, 1996 there were 28,738,196 shares of common stock of
Savannah Foods & Industries, Inc. outstanding for shareholder voting purposes.
This amount includes 2,500,000 shares held by the Registrant's Benefit Trust,
which are not considered outstanding for earnings per share calculations.
The exhibit index is located on page 12 of this filing.
Page 1
<PAGE> 2
SAVANNAH FOODS & INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION: Page
----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets at
December 29, 1996 and September 29, 1996 3
Consolidated Statements of Operations
for the 13 weeks ended December 29, 1996
and December 31, 1995 4
Consolidated Statements of Cash Flows
for the 13 weeks ended December 29, 1996
and December 31, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. OTHER INFORMATION:
Item 5. Other Information - Statement on
Business Risks and Forward Looking
Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 10-1 Short-term Incentive Compensation
Program 14
Exhibit 27-1 Financial Data Schedule 15
</TABLE>
Page 2
<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>
December 29, September 29
1996 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,068 $ 15,300
Accounts receivable 67,263 76,109
Inventories (net of LIFO reserve of $7,597 in fiscal
1997 and $8,018 in fiscal 1996) (Note 2) 186,095 83,929
Other current assets 5,666 5,214
------------ -----------
Total current assets 268,092 180,552
Property, plant and equipment (net of accumulated
depreciation of $222,652 in fiscal 1997 and
$220,183 in fiscal 1996) 181,864 186,546
Other assets 30,739 31,163
------------ -----------
$ 480,695 $ 398,261
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 28,000 $ 7,500
Current portion of long-term debt 2,189 2,170
Trade accounts payable 91,084 52,701
Accrued expenses related to beet operations 19,240 0
Other liabilities and accrued expenses 20,688 23,575
------------ -----------
Total current liabilities 161,201 85,946
------------ -----------
Long-term debt 59,111 59,754
------------ -----------
Deferred employee benefits 78,180 78,834
------------ -----------
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 31,764 31,764
Retained earnings 202,016 193,524
Treasury stock, at cost (2,568,604 shares (15,849) (15,849)
Minimum pension liability adjustment (14,038) (14,038)
Stock held by benefit trust, at market (2,500,000 shares) (35,000) (35,000)
Other (4,055) (4,039)
------------ -----------
Total stockholders' equity 182,203 173,727
------------ -----------
Commitments and contingencies (Note 3)
------------ -----------
$ 480,695 $ 398,261
============ ===========
</TABLE>
(The accompanying notes are an integral part of the consolidated financial
statements.)
Page 3
<PAGE> 4
Savannah Foods & Industries, Inc.
Consolidated Statements of Operations
(In thousands except for shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended
------------------------------
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Net sales $ 303,121 $ 304,409
------------ ------------
Operating expenses:
Cost of sales and operating expenses 265,469 274,958
Selling, general and
administrative expenses 15,000 13,785
Depreciation and amortization 6,244 7,116
------------ ------------
286,713 295,859
------------ ------------
Income from operations 16,408 8,550
------------ ------------
Other income and (expenses):
Interest and other investment income 180 236
Interest expense (1,960) (3,359)
Other income (expense) (108) 23
------------ ------------
(1,888) (3,100)
------------ ------------
Income before income taxes 14,520 5,450
Provision for income taxes (5,372) (1,907)
------------ ------------
Net income $ 9,148 $ 3,543
============ ============
Per share:
Net income $ 0.35 $ 0.14
============ ============
Dividends $ 0.025 $ 0.025
============ ============
Weighted average shares outstanding 26,238,196 26,238,196
============ ============
</TABLE>
(The accompanying notes are an integral part of the consolidated financial
statements.)
Page 4
<PAGE> 5
Savannah Foods & Industries, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended
--------------------------
December 29, December 31,
1996 1995
------------ ------------
(In thousands of dollars)
<S> <C> <C>
Cash flows from operations:
Net income $ 9,148 $ 3,543
Adjustments to reconcile net income to
net cash provided by operations -
Depreciation and amortization 6,244 7,116
Net loss (gain) on disposal of assets 216 (1,536)
Decreases (increases) in working capital -
Accounts receivable 8,846 5,387
Inventories (102,166) (110,634)
Other current assets (452) 3,488
Trade accounts payable 38,383 40,574
Accrued expenses related to beet operations 19,240 23,850
Other liabilities and accrued expenses (2,887) 545
Other (644) 879
--------- ----------
Cash used for operations (24,072) (26,788)
--------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,296) (2,014)
Proceeds from sale of property, plant and
equipment 110 2,417
Use of escrowed industrial revenue bond funds
for additions to property, plant and equipment 0 2,862
Other 15 (247)
--------- ----------
Cash (used for) provided by investing activities (1,171) 3,018
--------- ----------
Cash flows from financing activities:
Increase in short-term borrowings 20,500 22,770
Payments of long-term debt (624) (603)
Dividends paid (656) (1,312)
Other (209) (117)
--------- ----------
Cash provided by financing activities 19,011 20,738
--------- ----------
Cash flows for period (6,232) (3,032)
Cash and cash equivalents, beginning of period 15,300 11,574
--------- ----------
Cash and cash eqivalents, end of period $ 9,068 $ 8,542
========= ==========
</TABLE>
(The accompanying notes are an integral part of the consolidated financial
statements.)
Page 5
<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.
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. Certain prior year
amounts have been reclassified to conform to the current year
presentation.
(2) A summary of inventories by class is as follows:
<TABLE>
<CAPTION>
December 29, September 29,
1996 1996
------------ -------------
(In thousands of dollars)
<S> <C> <C>
Raw materials and work-in-process $ 72,510 $ 17,693
Packaging materials, parts and supplies 18,385 20,713
Finished goods 95,200 36,049
Payments related to future inventory
purchases - 9,474
-------- --------
$186,095 $ 83,929
======== ========
</TABLE>
(3) 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.
The Company uses interest rate swap agreements to manage its interest
rate exposure. The Company is exposed to loss in the event of
non-performance by the other party to these swaps. However, the Company
does not anticipate non-performance by the counter-parties to the
transactions.
As of December 29, 1996, approximately $2,500,000 of a claim by the
United States Customs Service (Customs) remains unresolved. Customs
has alleged that drawback claims prepared by the Company for certain
export shipments of sugar during the years 1984 to 1988 are technically
and/or substantively deficient and that the
Page 6
<PAGE> 7
Company, therefore, is not entitled to amounts previously
received under these drawback claims. The Company disputes Customs'
findings and has been vigorously protesting this matter with Customs.
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.
Page 7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
The Company's net income for the quarter ended December 29, 1996 was
$9,148,000, or $.35 per share, compared to net income of $3,543,000, or $.14 per
share, for the quarter ended December 31, 1995.
Income from operations improved significantly from the prior year due to
increased operating profits in the cane sugar division. Volumes and margins for
cane refiners continue to be favorably impacted by reduced national beet sugar
production. At approximately 4 million tons, production from the 1996 beet crop
is about level with that from the 1995 beet crop, which was down about 600,000
tons, or 13%, from the 1994 beet crop's record production. Over the same two
years, domestic consumption of sugar increased by about 560,000 tons. With less
beet sugar on the market and increased consumption, cane sugar volume has
expanded to meet the overall demand for refined sugar. Refined sugar selling
prices have risen as a result of the tightened supply. Also, average raw sugar
spot prices have fallen compared to the first quarter of fiscal 1996. Reduced
raw sugar costs and increases in selling prices resulted in higher cane sugar
margins for the first quarter of fiscal 1997.
Operating profits in the Company's beet sugar division were down
slightly from the first quarter of fiscal 1996 as significantly lower volumes
offset the effects of higher selling prices. Although the quality of the 1996
sugarbeet crop is better than that of the 1995 crop, resulting in more sugar
produced per ton of beets sliced, the total acreage planted was less and
resulted in fewer beets to process and lower refined sugar production. As a
consequence of reduced acreage in Ohio, the Company suspended operations at its
Fremont, Ohio sugarbeet processing and molasses desugarization facility for
fiscal 1997. In the fourth quarter of fiscal 1996, the Company recorded an
asset write-down of $10 million to reflect the reduction in value of this
facility.
The Company is investing $4,000,000 in fiscal 1997 in beet receiving
stations in Michigan to enhance the ability of farmers to deliver sugarbeets to
the Company. This investment, along with the improvement in sugar prices and
corresponding returns to the Company's growers, is expected to result in an
increase in the beet division's sugarbeet supply for the coming crop year.
Page 8
<PAGE> 9
The Company's consolidated net sales for the first quarter of fiscal
1997 are slightly lower than net sales for the first quarter of fiscal 1996.
Higher net sales in the cane sugar division were offset by lower net sales in
the beet sugar division and the loss of $13,000,000 in sales of the Company's
raw sugar mill, which was sold in fiscal 1996.
Selling, general and administrative expenses are up $1,215,000, or 9%,
for the quarter primarily due to higher advertising expenditures designed to
maintain the strong brand recognition of Dixie Crystals(R) and to expand sales
of new products.
Depreciation and amortization expense is down $872,000, or 12%, for the
quarter. Depreciation decreased due to asset sales and write-downs in fiscal
1996.
Interest expense is down $1,399,000, or 42%, for the quarter compared to
the prior year due to lower average outstanding debt. Average short-term debt
was down about $8,000,000, and average long-term debt was down about $51,000,000
compared to the first quarter of last year.
The profit outlook for the remainder of fiscal 1997 is good. The
Company should continue to realize the benefits of both higher volumes and
improved margins in the cane sugar division.
Liquidity and Capital Resources
For the first quarter of fiscal 1997, net income, before noncash charges
and credits, generated $15,608,000 of cash, an increase of $6,485,000 over the
first quarter of fiscal 1996. Most of this increase was attributable to higher
net income in fiscal 1997. This cash, along with cash from short-term
borrowings and other sources, was used primarily to fund a seasonal increase in
the Company's investment in inventory (inventory, net of trade accounts payable
and accrued expenses related to beet operations). The investment in inventory
increased $44,543,000 from September 29, 1996 primarily as a result of the
sugarbeet processing campaign in the Company's beet sugar division. This
division typically processes sugarbeets from October to February and builds
inventory levels as a result.
The Company maintains a $120,000,000 Revolving Credit Facility, of which
$93,750,000 is available to provide liquidity for temporary working capital
needs. The Company also has the ability to fund seasonal increases in beet
sugar inventory through borrowings from the Commodity Credit Corporation. These
sources of short-term funds,
Page 9
<PAGE> 10
along with cash generated by the Company's operations, provide ample liquidity
to meet the Company's operating cash requirements.
Since September 29, 1996, long-term debt, including the current portion,
decreased $624,000 due to normal scheduled payments. Stockholders' equity
increased primarily by earnings of $9,148,000 and decreased by dividends of
$656,000. Changes in debt and equity resulted in a decrease in the ratio of
long-term debt to total capital from 26% at September 29, 1996 to 24% at
December 29, 1996.
Fixed asset additions during the quarter ended December 29, 1996 were
$1,296,000 compared to depreciation for the same period of $5,652,000. The
Company anticipates that fixed asset additions will approximate $17,000,000 in
fiscal 1997. Major projects include the development of new sugarbeet receiving
stations in Michigan and replacement and upgrade of packaging and production
equipment. The investment in sugarbeet receiving stations is planned to assist
in maintaining and expanding sugarbeet acreage. The other expenditures are
expected to benefit the Company through new packaging, increased efficiency,
improved quality control and expanded operational capabilities.
Page 10
<PAGE> 11
PART II. OTHER INFORMATION
Item 5. Other Information - Statement on Business Risks and
Forward Looking Information
Savannah Foods & Industries, Inc. periodically makes statements which
could be considered forward looking. Accordingly, we believe it is appropriate
to outline several key factors which impact the Company's future performance.
All phases of the Company's business are very competitive with the
primary competitors being other sugar cane refiners and beet sugar processors.
Because sugar is a commodity, competition is based primarily upon price, but is
also based upon product quality and customer service. The Company is
diversified into all marketing and production (i.e. cane and beet) phases of the
refined sugar industry, but the majority of its capacity, approximately 85%, is
cane sugar, with the remaining 15% being beet sugar. Thus, its operating
results are influenced primarily by factors which affect the cane sugar
industry.
Cane sugar refiners operate on large volumes and small margins.
Consequently, a small percentage change in sales prices or in the cost of raw
materials or manufacturing costs can result in a large percentage change in
income from operations.
In today's market, the primary driver of refined sugar sales prices is
the amount of beet sugar produced. A large amount of beet sugar generally means
lower prices as beet producers sell their larger production by undercutting the
prices of cane sugar refiners. The amount of beet sugar produced not only
affects selling prices, but also affects the per unit manufacturing costs of the
sugar industry. Many of the costs in the manufacturing process, whether beet or
cane, are fixed and must be divided among the actual production. As volume
increases or decreases, per unit manufacturing costs decrease or increase,
respectively. Thus, forecasting the amount of beet sugar which will be produced
is an essential element in predicting the Company's profitability.
In addition to sales prices and per unit manufacturing costs, the other
primary factor in determining operating income is the cost of raw sugar, which
is the largest single cost of producing refined cane sugar. Raw sugar is a
commodity, and while the Company purchases it using many different pricing
methods, the price is always based in some manner on the market price of raw
sugar as determined by the commodities market. Thus, its price is subject to
the numerous variables that affect the price of any agricultural commodity. In
Page 11
<PAGE> 12
general, however, the price of raw sugar is supported at an artificially high
level through the sugar program portion of the U.S. Government's Farm Bill.
This sugar program results in raw sugar costs for cane refiners that often
approximate or exceed the cost of refined sugar produced by sugarbeet processors
and raw sugar cane processors who also refine sugar.
Forward looking information affecting the Company and the sugar industry
should be considered within this context.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10-1* Short-term Incentive Compensation Program
27-1 Financial Data Schedule (for SEC use only)
</TABLE>
* Indicates exhibits which are management contracts or
compensatory agreements.
(b) Reports on Form 8-K:
During the quarter covered by this Form 10-Q, the Registrant filed Form
8-K's related to the dismissal of Price Waterhouse LLP as independent
accountants and the engagement of Arthur Andersen LLP as independent
accountants. The Form 8-K's were dated October 17, 1996, November 18,
1996 and December 16, 1996.
Page 12
<PAGE> 13
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: February 6, 1997 Secretary
By: /s/ Gregory H. Smith
-----------------------
Gregory H. Smith
Senior Vice President
Chief Financial Officer
Date: February 6, 1997 and Treasurer
Page 13
<PAGE> 1
EXHIBIT 10-1
SAVANNAH FOODS & INDUSTRIES, INC.
SHORT-TERM INCENTIVE COMPENSATION PROGRAM
SUMMARY
At its October 17, 1996 meeting, the Board of Directors adopted a
short-term incentive compensation program (the "Program"). The Program, which
is effective as of September 30, 1996, is a purely discretionary bonus program
and, as such, the Board of Directors retains the right to modify or revoke any
or all aspects of the Program at any time. The Program replaces a previous
incentive compensation program which had been in effect since 1989. The purpose
of the Program is to increase shareholder value by motivating employees to
produce high quality products and services, and to control costs, thereby
maximizing the profitability of the Company and promoting the efficient
utilization of its assets. All full-time employees of the Company who are not
members of a collective bargaining unit are eligible to participate in the
Program.
Each eligible employee will receive a bonus if the Program's objectives
are achieved. Each eligible employee has been assigned a target award bonus
percentage which varies according to job grade, from 5% of eligible compensation
for most employees to 50% for the Chief Executive Officer.
The Board of Directors annually approves the components used to
determine the bonuses under this Program. For fiscal 1997, the Program has two
components, each of which is equally weighted to determine the actual bonus.
The two components are 1) the Company's return on equity compared to established
goals, and 2) the return on assets, as defined in the Program, of its
consolidated subsidiaries compared to discretionary objectives approved by the
Board of Directors. However, no bonus will be paid unless the Company's return
on equity is at least 13% after deducting the bonus.
The following table sets forth the guidelines for the bonuses based on
the two components being used for fiscal 1997 (actual results between the
minimum and maximum of the range are extrapolated to determine the bonus award
percentage):
<TABLE>
<CAPTION>
Bonus Award as a
Percent of the
Return on Equity - 50% Target Award
---------------------- ------------
<S> <C>
Under 13% 0%
13% 50%
16% 100%
20% or over 150%
Return on Assets - 50%
----------------------
Specific objectives designed to increase the Company's
return on assets are approved annually by the Board of Directors.
</TABLE>
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SAVANNAH FOODS & INDUSTRIES, INC. FOR THE PERIOD ENDED
DECEMBER 29, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> DEC-29-1996
<CASH> 9,068
<SECURITIES> 0
<RECEIVABLES> 67,263
<ALLOWANCES> 0
<INVENTORY> 186,095
<CURRENT-ASSETS> 268,092
<PP&E> 404,516
<DEPRECIATION> 222,652
<TOTAL-ASSETS> 480,695
<CURRENT-LIABILITIES> 161,201
<BONDS> 59,111
0
0
<COMMON> 17,365
<OTHER-SE> 164,838
<TOTAL-LIABILITY-AND-EQUITY> 480,695
<SALES> 303,121
<TOTAL-REVENUES> 303,121
<CGS> 265,469
<TOTAL-COSTS> 265,469
<OTHER-EXPENSES> 6,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,960
<INCOME-PRETAX> 14,520
<INCOME-TAX> 5,372
<INCOME-CONTINUING> 9,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,148
<EPS-PRIMARY> .35
<EPS-DILUTED> 0
</TABLE>
