UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 33-38051
SF SERVICES, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0220282
(State or other (IRS Employer
jurisdiction of incorporation Identification Number)
or organization)
112 MAIN STREET
NORTH LITTLE ROCK, ARKANSAS 72114
(Address of principal executive offices) (Zip Code)
(501) 945-2371
(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 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 the number of shares outstanding of each of the
issuer's classes of common stock as of June 10, 1996:
Common Stock 126 shares
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
April 30,1996 October 31,1995
CURRENT ASSETS (Unaudited)
Cash $ 1,017,604 $ 645,379
Marketable securities 7,950,181 34,176,546
Accounts and notes
receivable, net 73,134,208 47,669,054
Inventory 88,895,313 67,277,893
Prepaid expenses 1,759,834 1,109,566
----------- -----------
Total Current Assets 172,757,140 150,878,438
----------- -----------
INVESTMENTS AND LONG-TERM RECEIVABLES
Investments in
other cooperatives 12,112,253 11,662,378
Notes receivable 2,716,275 2,977,192
---------- ----------
Total Investments and
Long-Term Receivables 14,828,528 14,639,570
---------- ----------
PROPERTY AND EQUIPMENT, at cost 53,153,940 53,484,153
Less accumulated depreciation 21,101,894 20,007,598
---------- ----------
Net Property and Equipment 34,052,046 33,476,555
---------- ----------
OTHER ASSETS 2,793,565 667,326
TOTAL ASSETS $224,431,279 $199,661,889
=========== ============
LIABILITIES AND MEMBERS' EQUITY
<PAGE>
CURRENT LIABILITIES
Notes payable $ 72,759,396 $ 65,432,437
Current maturities of
Long-term debt 2,557,250 2,820,453
Accounts payable 55,961,848 23,261,092
Patrons deposits 9,915,447 9,701,825
Patronage distributions and
equity retirements to be
paid in cash 307,034 4,000,000
Accrued expenses and
other current liabilities 8,322,001 13,495,013
----------- -----------
Total Current Liabilities 149,822,976 118,710,820
----------- -----------
LONG-TERM DEBT,
LESS CURRENT MATURITIES 17,342,611 19,842,812
OTHER LIABILITIES 217,206 229,406
MEMBERS' EQUITY 57,048,486 60,878,851
----------- -----------
TOTAL LIABILITIES AND
MEMBERS' EQUITY $224,431,279 $199,661,889
=========== ===========
See notes to Condensed Consolidated Financial Statements.
<PAGE>
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
April 30, 1996 April 30, 1995
NET SALES $ 165,172,572 $ 162,322,873
COST OF GOODS SOLD 155,437,988 154,161,311
----------- -----------
GROSS PROFIT 9,734,584 8,161,562
OPERATING EXPENSES 11,334,381 7,004,130
---------- ----------
INCOME (LOSS) FROM OPERATIONS (1,599,797) 1,157,432
---------- ----------
OTHER INCOME (EXPENSES)
Interest, net (647,744) (1,000,231)
Gain on sale of MCC stock 0 1,613,289
Dividend Income-MCC stock 0 191,901
Miscellaneous 136,781 471,949
---------- ----------
(510,963) 1,276,908
---------- ----------
SAVINGS BEFORE INCOME TAXES (2,110,760) 2,434,340
INCOME TAX EXPENSE (BENEFIT) (1,807,246) 0
---------- ----------
NET SAVINGS (LOSS) $ (303,514) $ 2,434,340
========== ==========
NET SAVINGS (LOSS) APPLIED TO:
ALLOCATED EQUITIES
Cash 708,645
Capital Equity Credits
(Deficit)- 297,496 2,834,581
RETAINED EARNINGS (DEFICIT) (601,010) (1,108,886)
---------- ----------
(303,514) 2,434,340
========== ==========
See notes to Condensed Consolidated Financial Statements.
<PAGE>
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Six Months Ended
April 30, 1996 April 30, 1995
NET SALES $ 250,444,945 $ 239,499,122
COST OF GOODS SOLD 235,610,293 224,319,682
----------- -----------
GROSS PROFIT 14,834,652 15,179,440
OPERATING EXPENSES 21,540,388 13,370,166
---------- ----------
INCOME (LOSS) FROM OPERATIONS (6,705,736) 1,809,274
---------- ----------
OTHER INCOME (EXPENSES)
Interest, net (1,745,993) (1,961,044)
Gain on sale of MCC stock 13,680,361 1,613,289
Dividend Income-MCC stock 94,010 191,901
Miscellaneous 120,099 572,344
---------- ----------
12,148,477 416,490
---------- ----------
SAVINGS BEFORE INCOME TAXES 5,442,741 2,225,764
INCOME TAX EXPENSE (BENEFIT) 2,632,458
---------- ----------
NET SAVINGS (LOSS) $ 2,810,283 $ 2,225,764
========== ==========
NET SAVINGS (LOSS) APPLIED TO:
ALLOCATED EQUITIES
Cash 795,622
Capital Equity Credits
(Deficit)- (773,783) 3,182,488
RETAINED EARNINGS (DEFICIT) 3,584,066 (1,752,346)
---------- ----------
2,810,283 2,225,764
========== ==========
See notes to Condensed Consolidated Financial Statements.
<PAGE>
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
April 30, 1996 April 30, 1995
Cash flows from
operating activities:
Net Margin for the period $ 2,810,283 $ 2,225,764
Items not requiring
(providing) cash:
Depreciation and amortization 1,287,654 1,315,600
Non-cash portion of patronage
dividends from other co-ops (504,787) (502,073)
Gain on sale of property
and equipment (21,063) (277,459)
Gain on sale of MCC stock (13,680,361) (1,613,289)
Asset valuation adjustment 4,781,398
Changes in operating assets and
liabilities, net of effects from
merger with DPF:
Accounts and notes receivable (25,204,237) (27,726,591)
Inventory (21,617,420) (34,150,107)
Prepaid expenses and
other assets (2,776,507) (441,988)
Accounts payable 32,700,756 37,896,498
Accrued expenses and
other liabilities (5,260,819) (214,032)
---------- ----------
Net cash provided by (used in)
operating activities (27,485,103) (23,487,677)
---------- ----------
Cash flows from investing
activities:
Purchase of property
and equipment (6,846,100) (2,318,136)
Proceeds from sale of property
and equipment 222,260 2,454,603
Purchase of common stock (176,792)
Proceeds from equity redemption 54,912
Proceeds from sale of MCC stock 25,788,125 3,721,069
---------- ----------
Net cash provided by (used in)
investing activities 19,219,197 3,680,744
---------- ----------
<PAGE>
Cash flows from financing
activities:
Net cash received in DPF merger 977,428
Patronage Distributions 3,911,754 (3,931,351)
Proceeds from borrowings 81,639,104 80,425,000
Repayment of borrowings (77,075,549) (53,629,126)
Redemption of common stock (1,000) (2,000)
Retirement of preferred stock (49,800) (412,177)
Net change in patron deposits 213,622 (3,261,596)
---------- ----------
Net cash provided by (used in)
financing activities 8,638,131 20,166,178
---------- ----------
Net increase (decrease) in cash 372,225 359,245
Cash, beginning of period 645,379 1,314,734
---------- ----------
Cash, end of period $ 1,017,604 $ 1,673,979
========== ==========
See notes to Condensed Consolidated Financial Statements.
<PAGE>
SF SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of
April 30, 1996, the condensed consolidated statements of cash
flows for the six months ending April 30, 1996 and 1995, and
the condensed consolidated statements of operations for the
three months and six months ending April 30, 1996 and 1995 have
been prepared by the Company, without audit. In the opinion
of management, all adjustments (consisting only of normal
recurring items) necessary to present fairly the financial
position, results of operations, and cash flows at April 30,
1996 and for all periods presented have been made.
Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted.
It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's October
31, 1995 audited financial statements. The results of operations
for the six months ended April 30, 1996 and 1995, are not
necessarily indicative of the operating results for the full
year.
NOTE 2: MARKETABLE SECURITIES
The investment in marketable securities consists of
Mississippi Chemical Corporation ("MCC") common stock. These
securities are classified as available for sale and are carried
at estimated market value. The unrealized gain, net of tax, is
reported as a separate component of members' equity. The
Company's cost basis and estimated value of MCC stock at April
30, 1996 amounted to $4,034,750 and $7,950,181, respectively,
with an unrealized gain of $3,915,431.
NOTE 3: ASSET VALUE WRITE DOWN
The Company has applied the Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of,"
which requires that assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset or assets in question
may not be recoverable. Based on an appraisal of the
facilities and an analysis of expected future operations, the
Company has written down the asset values of the Greenville,
Mississippi feed mill and the Eudora, Arkansas catfish
processing plant by approximately $3.2 million and $1.6
million respectively. These write down costs are included
in operating expenses on the Company's statements of
operations.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
SF Services, Inc. is a basic manufacturer of agricultural
and pet feeds, a production contractor and distributor of
seeds in the rice, cotton, soybean and wheat production
areas of the midsouth and a basic wholesaler of a wide
variety of farm supply, tires, batteries and automotive
accessories ("TBA"), chemical, petroleum, fertilizer products,
and catfish processing and marketing. These products are
sold primarily to 126 local cooperative retail stores serving
the individual farmer producer and to other non-cooperative
accounts. Weather, federal farm programs, and commodity
prices impact the unit demand for the products sold by
SF Services, Inc. Primarily the Seed, Fertilizer, Chemical
and Feed divisions may be impacted by seasonal changes.
Additionally, variations in ingredient prices precipitate
changes in the Feed Division sales volume. The Company's
business cycle is highly seasonal and can be advanced
or delayed by weather conditions. Results of operations
for the six months ended April 30, 1996 and 1995 reflect the
seasonality of the Company's business and are not indicative
of results expected for a full fiscal year.
Sales increased approximately $10.9 million (4.57%) for the six
months ended April 30, 1996 as compared to the six months
ended April 30, 1995. Sales for the wholesale/retail
operations increased approximately $9.4 million (4.26%).
Increases were realized in Feed, Fertilizer, Seed, and
Petroleum, while decreases in sales were realized in Animal
Health, Farm Supply, Chemicals, and TBA. Further analysis
of sales is included under the comparative analysis of periods
presented below.
Cost of sales increased approximately $11.3 million (5.03%)
for the six months ended April 30, 1996 compared to the six
months ended April 30, 1995. Cost of sales for the
wholesale/retail operations increased approximately $8.4 million
(4.07%). Further analysis of cost of sales is included under
the comparative analysis of periods presented below.
Gross profit decreased approximately $0.3 million (2.27%) for
the six months ended April 30, 1996 compared to the six months
ended April 30, 1995. Gross profit for the wholesale/retail
operations increased approximately $1.1 million (6.83%).
Further analysis of gross profit is included under the
comparative analysis of periods presented below.
<PAGE>
Operating expenses increased approximately $8.2 million
(61%) for the six months ended April 30, 1996 compared to
the six months ended April 30, 1995. Operating expenses for
the wholesale/retail operations increased approximately
$6.7 million (53%). Further analysis of operating expenses
is included under the comparative analysis of periods presented
below.
Net interest expense decreased $215,051 (10.97%). This
decrease was due to the use of proceeds from the sale of MCC
stock to pay down seasonal debt.
During the six months ended April 30, 1996, the Company sold
1,145,000 shares of MCC stock for $25,788,125.
Comparative Analysis of the Six Months Ended April 30, 1996
to the Six Months Ended April 30, 1995
Wholesale/Retail Operations:
Feed sales increased approximately 24%. This increase was due
to higher feed prices caused by a sharp increase in ingredient
prices. Also, sales of beef and dairy feeds increased due to
a decrease in available roughage caused by drought conditions.
Tonnage sold for the six months ended April 30, 1996 was
216,829 tons compared to 196,083 tons sold during the six
months ended April 30, 1995. Gross profit decreased
approximately $0.9 million due to the lack of availability of
certain ingredients and having to substitute ingredients of
much higher value.
Animal Health sales decreased approximately 6% due to the
producers' reluctance to purchase caused by the depressed
livestock prices. Gross profit decreased approximately 8%
due to a change in the distributor margin structure of a major
manufacturer and a more competitive market due to the
depressed livestock market.
Farm Supply sales decreased approximately 9%. This decrease
was due to the depressed livestock market. Gross profit
decreased 12.6% due to the lower sales volume and a greater
percentage of direct sales and sales of early order
truckload quantities which carry a lower gross margin.
<PAGE>
Fertilizer sales increased approximately 16% due to the
merger with Delta Purchasing Federation ("DPF"), increased
sales to independent dealers, and the effectiveness of a
more aggressive sales force. Total tons sold for the six
months ended April 30, 1996 was 394,838 tons compared to
306,183 tons sold during the six months ended April 30,
1995. Gross profit remained at about the same level that
was realized in the prior year period.
Chemical sales decreased approximately 4%. This decrease
was due to delays in planting caused by weather conditions.
The sales decrease was also due to growers switching to
crops that require lower input costs. Gross profit
decreased approximately 22% due to competitiveness
in the market.
Seed sales increased approximately 24%. This increase was
due to higher per unit prices. The increase was also
caused by increased corn seed sales, which have a higher
unit value. Gross profit increased approximately 3% due
to the increased corn seed sales, which are more
profitable.
TBA sales decreased approximately 8%. This decrease was a
result of the delayed passing of the 1996 Farm Bill, which
caused many farmers to delay their purchases. Gross profit
decreased approximately 2% due to a competitive market.
Petroleum sales increased approximately 59% due in part to
an increase in the unit price of petroleum products. The
sales increase was also a result of a gain in market share
due to improved programs and better supply positions with
major suppliers. Total gallons sold for the six months
ended April 30, 1996 was 39,803,276 gallons compared to
26,664,485 gallons sold during the six months ended
April 30, 1996. Gross profit increased approximately 62%
due to improved purchasing positions with major suppliers.
Company operating expenses increased approximately 61%.
This increase was due to the asset valuation adjustment,
the merger with DPF, payroll and related expenses to
support the growth in sales, maintenance and repair, and
miscellaneous other expenses due to new fertilizer
facilities and retail locations.
<PAGE>
Catfish Processing Operations:
Unit sales in the fish processing and marketing operation
were up over the prior year period by 917,000 pounds (11%).
The unit average selling price decreased approximately 5%
due to competitiveness in the market. Total pounds
processed decreased approximately 4%. Gross profit
decreased approximately $1.5 million due to a lower average
selling price and lower processing yield combined with a
higher value of product sold from inventory stock.
Operating expenses increased approximately $1.6 million
due to the asset valuation adjustment.
Comparative Analysis of the Three Months Ended April 30, 1996
to the Three Months Ended April 30, 1995
Wholesale/Retail Operations:
Feed sales increased approximately 36%. This increase was
due to higher feed prices caused by the higher cost of
ingredients. Also, sales of beef and dairy feeds increased
due to a decrease in available roughage caused by drought
conditions. Tonnage sold for the three months ended
April 30, 1996 was 111,074 tons compared to 94,569 tons
sold during the three months ended April 30, 1995. Gross
profit remained at approximately the same level as
experienced during the prior year period.
Animal Health sales decreased approximately 3% because of
the producers' reluctance to purchase due to the depressed
livestock prices. Gross profit decreased approximately 7%
due to a more competitive market which was caused by the
depressed livestock market.
Farm Supply sales decreased approximately 16% due to the
weak demand for supply products, which was caused by low
cattle prices. Gross profit decreased approximately 13%
due to a higher percentage of direct sales, which carry a
lower gross margin.
Fertilizer sales increased approximately 13% due to the DPF
merger, increased sales to independent dealers, and a more
aggressive sales force. Total tons of fertilizer sold
during the three months ended April 30, 1996 was 270,807
tons compared to 214,563 tons sold during the three months
ended April 30, 1995. Gross profit remained at approximately
the same level realized during prior year period.
<PAGE>
Chemical sales decreased approximately 2%. This decrease
was due to delays in planting caused by weather conditions.
The decrease was also caused by growers switching to crops
that require lower input costs. Gross profit decreased
approximately 10% due to competitive pricing.
Seed sales increased approximately 22%. This increase was
due to increased corn seed sales, which are of higher per
unit value. Gross profit remained at approximately the
same level as experienced in the prior year period.
TBA sales decreased approximately 13% due to slow farm tire
sales and farmers' reluctance to purchase caused by the
delayed passing of the 1996 Farm Bill. Gross profit
remained at the same level that was realized during the
prior year period.
Petroleum sales increased approximately 58%. The sales
increase was a result of a gain in market share due
to improved programs and better supply positions with major
suppliers. Total gallons sold during the three months
ended April 30, 1996 was 22,063,765 gallons compared to
15,396,540 gallons sold during the three months ended
April 30, 1995. Gross profit as a percent of sales
remained at approximately the same level as realized during
the prior year period.
Company operating expenses increased approximately 62%.
This increase was due to the asset valuation adjustment,
payroll and related expenses to support the growth in sales,
maintenance and repair, and miscellaneous other expenses
due to new fertilizer facilities and retail locations.
Catfish Processing Operations:
Unit sales in the fish processing and marketing operation
were up over the prior year quarter by 490,000 pounds (11%).
The unit average selling price remained flat as compared to
the prior year period. Pounds processed increased 16%.
Gross profit decreased approximately 8% due to lower
processing yields caused by a smaller average fish size.
Operating expenses increased approximately $0.6 million
due to the asset valuation adjustment.
<PAGE>
Liquidity and Capital Resources
Cash provided by operations decreased approximately
$4.0 million due to the decrease in income from operations.
Cash provided by investing activities increased approximately
$15.5 million due to the sale of MCC stock. Cash provided by
financing activities increased approximately $28.8 million
due to increased borrowing on the seasonal loan.
Historically, most to the Company's financing has been with
CoBank, ACB ("CoBank"). The Company has an $80 million
seasonal line of credit and $17.7 million in term loans
with CoBank. In the opinion of management, current
financing arrangements provide sufficient liquidity.
During the three months ended January 31, 1996, the
Company sold 1,145,000 shares of MCC stock for $25,788,125.
During the period from May 20, 1996 through June 4, 1996,
the Company sold 275,000 shares of MCC stock for $5,856,250.
Proceeds from these transactions were used to pay down the
seasonal line of credit.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote
of Security Holders
An annual meeting was held on March 6, 1996, at which the
following directors were re-elected to terms expiring in
1999.
FOR AGAINST
--- -------
Daniel Viator 31 0
Gene Bruick 31 0
Charlie Starks, Jr. 31 0
Joe Wilder 31 0
Danny Simpson 31 0
Other directors of the Company and their term expirations
are presented below:
Director Term Expiration
---------- ---------------
W.B. Madden, Jr. 1997
W.S. Patrick 1997
Thomas H. Gist 1997
Michael Simon 1997
Jerry Connerly 1997
John M. Evans 1997
Johnny Wilson 1998
Doyle Yarbrough 1998
Jim Gipson 1998
Steve Henderson 1998
John C. Jay 1998
Floyd Trammel 1998
Mike Sturdivant, Jr. 1998
Frederick Branch 1998
Robert Little 1998
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
SF SERVICES, INC. AND SUBSIDIARIES
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.
SF SERVICES, INC.
Date: June 12, 1996 /s/ Robert P. Dixon
-------------------
Robert P. Dixon
President
Date: June 12, 1996 /s/ John A. Gaston
-------------------
John A. Gaston
Senior Vice President
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibits to Form 10-Q
Exhibit Number Exhibit
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND
CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 1,017
<SECURITIES> 7,950
<RECEIVABLES> 73,134
<ALLOWANCES> 0
<INVENTORY> 88,895
<CURRENT-ASSETS> 172,757
<PP&E> 53,154
<DEPRECIATION> 21,102
<TOTAL-ASSETS> 224,431
<CURRENT-LIABILITIES> 149,823
<BONDS> 0
0
2,766
<COMMON> 126
<OTHER-SE> 54,156
<TOTAL-LIABILITY-AND-EQUITY> 224,431
<SALES> 250,445
<TOTAL-REVENUES> 0
<CGS> 235,610
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (13,894)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,746
<INCOME-PRETAX> 5,443
<INCOME-TAX> 2,632
<INCOME-CONTINUING> 2,810
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,810
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
