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 July 31, 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 September 10, 1996:
Common Stock 125 shares
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
July 31,1996 October 31,1995
CURRENT ASSETS (Unaudited)
Cash $ 2,055,508 $ 645,379
Marketable securities 2,130,171 34,176,546
Accounts and notes
receivable, net 72,053,970 47,669,054
Inventory 60,143,333 67,277,893
Prepaid expenses 1,675,623 1,109,566
----------- -----------
Total Current Assets 138,058,605 150,878,438
----------- -----------
INVESTMENTS AND LONG-TERM RECEIVABLES
Investments in
other cooperatives 13,066,180 11,662,378
Notes receivable 2,680,539 2,977,192
---------- ----------
Total Investments and
Long-Term Receivables 15,746,719 14,639,570
---------- ----------
PROPERTY AND EQUIPMENT, at cost 56,415,261 53,484,153
Less accumulated depreciation 21,623,969 20,007,598
---------- ----------
Net Property and Equipment 34,791,292 33,476,555
---------- ----------
OTHER ASSETS 2,341,936 667,326
TOTAL ASSETS $190,938,552 $199,661,889
=========== ============
LIABILITIES AND MEMBERS' EQUITY
<PAGE>
CURRENT LIABILITIES
Notes payable $ 54,009,577 $ 65,432,437
Current maturities of
Long-term debt 2,557,250 2,820,453
Accounts payable 33,783,725 23,261,092
Patrons deposits 13,265,562 9,701,825
Accrued expenses and
other current liabilities 12,153,125 13,495,013
----------- -----------
Total Current Liabilities 115,769,239 118,710,820
----------- -----------
LONG-TERM DEBT,
LESS CURRENT MATURITIES 20,531,155 19,842,812
OTHER LIABILITIES 605,599 229,406
MEMBERS' EQUITY 54,032,559 60,878,851
----------- -----------
TOTAL LIABILITIES AND
MEMBERS' EQUITY $190,938,552 $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
July 31, 1996 July 31, 1995
NET SALES $ 208,493,287 $ 166,725,856
COST OF GOODS SOLD 197,575,141 160,083,059
----------- -----------
GROSS PROFIT 10,918,146 6,642,797
OPERATING EXPENSES 10,424,978 7,498,291
---------- ----------
INCOME (LOSS) FROM OPERATIONS 493,168 (855,494)
---------- ----------
OTHER INCOME (EXPENSES)
Interest, net (1,311,875) (1,516,693)
Gain on sale of MCC stock 2,936,831 2,734,327
Dividend Income-MCC stock 0 186,068
Miscellaneous 362,589 (173,913)
---------- ----------
1,987,545 1,229,789
---------- ----------
SAVINGS BEFORE INCOME TAXES 2,480,713 374,295
INCOME TAX EXPENSE (BENEFIT) 943,292 0
---------- ----------
NET SAVINGS (LOSS) $ 1,537,421 $ 374,295
========== ==========
NET SAVINGS (LOSS) APPLIED TO:
ALLOCATED EQUITIES
Cash 34,136
Capital Equity Credits
(Deficit)- (324,709) 136,546
RETAINED EARNINGS (DEFICIT) 1,862,130 203,613
---------- ----------
1,537,421 374,295
========== ==========
See notes to Condensed Consolidated Financial Statements.
<PAGE>
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Nine Months Ended
July 31, 1996 July 31, 1995
NET SALES $ 458,938,232 $ 406,224,978
COST OF GOODS SOLD 433,185,434 384,402,741
----------- -----------
GROSS PROFIT 25,752,798 21,822,237
OPERATING EXPENSES 31,965,366 20,868,457
---------- ----------
INCOME (LOSS) FROM OPERATIONS (6,212,568) 953,780
---------- ----------
OTHER INCOME (EXPENSES)
Interest, net (3,057,868) (3,477,737)
Gain on sale of MCC stock 16,617,192 4,347,616
Dividend Income-MCC stock 94,010 377,969
Miscellaneous 482,688 590,332
---------- ----------
14,136,022 1,838,180
---------- ----------
SAVINGS BEFORE INCOME TAXES 7,923,454 2,791,960
INCOME TAX EXPENSE (BENEFIT) 3,575,750
---------- ----------
NET SAVINGS (LOSS) $ 4,347,704 $ 2,791,960
========== ==========
NET SAVINGS (LOSS) APPLIED TO:
ALLOCATED EQUITIES
Cash 868,139
Capital Equity Credits
(Deficit)- (1,098,492) 3,472,554
RETAINED EARNINGS (DEFICIT) 5,446,196 (1,548,733)
---------- ----------
4,347,704 2,791,960
========== ==========
See notes to Condensed Consolidated Financial Statements.
<PAGE>
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
July 31, 1996 July 31, 1995
Cash flows from
operating activities:
Net Margin for the period $ 4,347,704 $ 2,791,960
Items not requiring
(providing) cash:
Depreciation and amortization 1,909,264 1,937,887
Non-cash portion of patronage
dividends from other co-ops (1,479,787) (518,515)
Gain on sale of property
and equipment (30,175) (304,850)
Gain on sale of MCC stock (16,617,192) (4,347,616)
Asset valuation adjustment 4,781,398
Changes in operating assets and
liabilities, net of effects from
merger with DPF:
Accounts and notes receivable (24,192,352) (23,688,960)
Inventory 7,134,560 (12,496,827)
Prepaid expenses and
other assets (2,240,667) 212,137
Accounts payable 10,522,633 15,351,506
Accrued expenses and
other liabilities 6,820,339 2,799,726
---------- ----------
Net cash (used in)
operating activities (9,044,275) (18,263,552)
---------- ----------
Cash flows from investing
activities:
Purchase of property
and equipment (8,209,614) (5,683,210)
Proceeds from sale of property
and equipment 234,390 2,458,619
Purchase of common stock (202,499)
Proceeds from equity redemption 75,985 288,297
Proceeds from sale of MCC stock 31,644,375 9,617,066
---------- ----------
Net cash provided by
investing activities 23,745,136 6,478,273
---------- ----------
<PAGE>
Cash flows from financing
activities:
Net cash received in DPF merger 977,428
Patronage Distributions (3,993,404) (3,931,351)
Proceeds from borrowings 141,113,347 139,051,339
Repayment of borrowings (153,914,012) (125,857,116)
Redemption of common stock (2,000) (3,000)
Retirement of preferred stock (58,400) (467,977)
Net change in patron deposits 3,563,737 1,522,843
---------- ----------
Net cash provided by (used in)
financing activities (13,290,732) 11,292,166
---------- ----------
Net increase (decrease) in cash 1,410,129 (493,113)
Cash, beginning of period 645,379 1,314,734
---------- ----------
Cash, end of period $ 2,055,508 $ 821,621
========== ==========
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
July 31, 1996, the condensed consolidated statements of cash
flows for the nine months ended July 31, 1996 and 1995, and
the condensed consolidated statements of operations for the
three months and nine months ended July 31, 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 July 31,
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 nine months ended July 31, 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 July
31, 1996 amounted to $1,121,359 and $2,130,171, respectively,
with an unrealized gain of $1,008,812.
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 125 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 nine months ended July 31, 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 $52.7 million (13%) for the nine
months ended July 31, 1996 as compared to the nine months
ended July 31, 1995. Sales for the wholesale/retail
operations increased approximately $51.7 million (13.7%).
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 $48.8 million (12.7%)
for the nine months ended July 31, 1996 compared to the nine
months ended July 31, 1995. Cost of sales for the
wholesale/retail operations increased approximately $46.0 million
(12.9%). Further analysis of cost of sales is included under
the comparative analysis of periods presented below.
Gross profit increased approximately $3.9 million (18%) for
the nine months ended July 31, 1996 compared to the nine months
ended July 31, 1995. Gross profit for the wholesale/retail
operations increased approximately $5.7 million (25%).
Further analysis of gross profit is included under the
comparative analysis of periods presented below.
<PAGE>
Operating expenses increased approximately $11.1 million
(53%) for the nine months ended July 31, 1996 compared to
the nine months ended July 31, 1995. Operating expenses for
the wholesale/retail operations increased approximately
$11.2 million (57%). Further analysis of operating expenses
is included under the comparative analysis of periods presented
below.
Net interest expense decreased $419,869 (12.1%). This
decrease was due to the use of proceeds from the sale of MCC
stock to pay down seasonal debt.
During the nine months ended July 31, 1996, the Company sold
1,420,000 shares of MCC stock for $31,644,375.
Comparative Analysis of the Nine Months Ended July 31, 1996
to the Nine Months Ended July 31, 1995
Wholesale/Retail Operations:
Feed sales increased approximately 30%. This increase was due
to higher feed prices caused by a sharp increase in ingredient
prices, and increased beef & dairy feed sales due to a decrease
in available roughage caused by drought conditions. Also,
catfish feed sales increased because of an increase in the
number of acres in catfish production. Tonnage sold for the
nine months ended July 31, 1996 was 344,465 tons compared to
312,870 tons sold during the prior year period. 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 depressed
livestock prices. Gross profit as a percent of sales remained
at the prior year level.
Farm Supply sales decreased approximately 11%. This decrease
was due to the depressed livestock market. Gross profit as a
percent of sales remained at approximately the same level as
experienced in the prior year period.
<PAGE>
Fertilizer sales increased approximately 14% due to the
merger with Delta Purchasing Federation ("DPF"), and increased
sales to independent dealers. Total tons sold for the nine
months ended July 31, 1996 was 723,180 tons compared to
632,589 tons sold during the prior year period. Gross profit
decreased approximately 20% due to predatory pricing and
unfavorable changes in market prices of fertilizer.
Chemical sales decreased approximately 7%. This decrease
was due to growers switching to crops that require lower
input costs. Gross profit as a percent of sales decreased
slightly due to competitiveness in the market.
Seed sales increased approximately 30% due to higher
average per unit prices, and increased corn seed sales,
which have a higher unit value. The increase was also due
to a gain in market share. Gross profit as a percent of
sales decreased slightly due to competitive pressures.
TBA sales decreased approximately 4%. This decrease was a
result of the delayed passing of the 1996 Farm Bill, which
caused many farmers to delay their purchases. Gross profit
remained at approximately the same level as experienced
in the prior year period.
Petroleum sales increased approximately 85% due to a gain
in market share as a result of improved programs and better
supply positions with major suppliers. There was also an
increase in the use of diesel powered irrigation wells
as a result of dry weather conditions. Total gallons sold
during the nine months ended July 31, 1996 was 77,140,274
gallons compared to 45,239,282 during the prior year period.
Gross profit as a percent of sales decreased slightly due to
competitive pressures, and a change in supplier volume
purchase programs.
Company operating expenses increased approximately 54%.
This increase was due to the asset valuation adjustment
(see Note 3 to the the Condensed Conlolidated Financial
Statements), the merger with DPF, payroll and related
expenses to support the growth in sales, 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 553,000 pounds (4%)
due to an increase in market share. The unit average
selling price remained approximately the same as experienced
in the prior year period. Total pounds processed decreased
approximately 9% due to a lower supply of quality fish.
Gross profit decreased approximately $1.77 million due to
a lower processing yield. Operating expenses increased
approximately $1.6 million due to the asset valuation
adjustment (see Note 3 to the Condensed Consolidated
Financial Statements).
Comparative Analysis of the Three Months Ended July 31, 1996
to the Three Months Ended July 31, 1995
Wholesale/Retail Operations:
Feed sales increased approximately 38%. This increase was
due to higher feed prices caused by the higher cost of
ingredients, and increased dairy feed sales caused by a
decrease in available roughage due to drought conditions.
Also, catfish feed sales increased because of an increase
in the number of acres in catfish production. Tonnage sold
during the three months ended July 31, 1996 was 127,626 tons
compared to 116,787 tons sold during the prior year period.
Gross profit remained at approximately the same level as
realized during the prior year period.
Animal Health sales decreased approximately 6% because of
the producers' reluctance to purchase due to depressed
livestock prices. Gross profit remained at approximately the
same level as experienced in the prior year period.
Farm Supply sales decreased approximately 16% due to the
weak demand for supply products, which was caused by low
cattle prices. Gross profit as a percent of sales increased
approximately 21% due to a larger percentage of warehouse
sales, which carry a higher profit margin than sales that
are shipped directly from the manufacturer.
Fertilizer sales increased approximately 12% due to an
increase in the unit price of fertilizer, and increased
sales to independent dealers. Total tons of fertilizer
sold during the three months ended July 31, 1996 was
382,342 tons compared to 326,406 tons sold during the
prior year period. Gross profit decreased approximately
47% due to predatory pricing by competitors, and unfavorable
changes in market prices.
<PAGE>
Chemical sales decreased approximately 9%. This decrease
was caused by growers switching to crops that require lower
input costs. Gross profit remained at approximately the
same level as experienced in the prior year period.
Seed sales increased approximately 64% due to higher
average per unit prices, and increased corn seed sales,
which have a higher unit value. The increase was also due
to a gain in market share. Gross profit as a percent of
sales increased approximately 75% due to increased
processing revenue from proprietary soybean sales.
TBA sales increased approximately 4% due to increased
sales of passenger and light truck tires. Also, farm
tire sales began to recover from earlier months of
farmers' purchasing resistance. Gross profit as a percent
of sales increased slightly over the prior year period.
Petroleum sales increased approximately 120% due to
increased per unit prices, and a gain in market share as
a result of improved programs. There was also an increase
in the use of diesel powered irrigation wells as a result
of dry weather conditions. Total gallons sold during the
three months ended July 31, 1996 was 37,337,007 gallons
compared to 18,574,797 gallons sold during the prior year
period. Gross profit as a percent of sales decreased
approximately 32% as a result of increased spot market
sales which carry a lower profit margin.
Company operating expenses increased approximately 40%.
This increase was due to increased payroll and related
expenses to support the growth in sales, and miscellaneous
other expenses due to the new fertilizer facilities and
retail locations.
Catfish Processing Operations:
Unit sales in the fish processing and marketing operation
decreased approximately 310,000 pounds (7%) due to competition.
The unit average selling price increased approximately 3%
over the prior year period due to increased demand.
Pounds processed decreased approximately 24% due to a shortage
of adequate fish available for processing. Gross profit
decreased approximately $422,000 due to lower processing
yields. Operating expenses remained at approximately the same
level as experienced in the prior year period.
<PAGE>
Liquidity and Capital Resources
Cash used by operations decreased approximately $9.0 million
due to the decreased inventory levels. Cash provided by
investing activities increased approximately $17.3 million
due to the sale of MCC stock. Cash used by financing
activities increased approximately $24.6 million due to
the repayment of debt.
Historically, most of the Company's financing has been with
CoBank, ACB ("CoBank"). The Company has an $80 million
seasonal line of credit and $20.7 million in term loans
with CoBank. In the opinion of management, current
financing arrangements provide sufficient liquidity.
During the nine months ended July 31, 1996, the Company
sold 1,420,000 shares of MCC stock for $31,644,375.
Proceeds from these transactions were used to pay down the
seasonal line of credit.
<PAGE>
Part II. Other Information
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: September 12, 1996 /s/ Robert P. Dixon
-------------------
Robert P. Dixon
President
Date: September 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> JUL-31-1996
<CASH> 2,056
<SECURITIES> 2,130
<RECEIVABLES> 72,054
<ALLOWANCES> 0
<INVENTORY> 60,143
<CURRENT-ASSETS> 138,059
<PP&E> 56,415
<DEPRECIATION> 21,624
<TOTAL-ASSETS> 190,939
<CURRENT-LIABILITIES> 115,769
<BONDS> 0
0
2,757
<COMMON> 125
<OTHER-SE> 51,150
<TOTAL-LIABILITY-AND-EQUITY> 190,939
<SALES> 458,938
<TOTAL-REVENUES> 0
<CGS> 433,185
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (14,136)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,058
<INCOME-PRETAX> 7,923
<INCOME-TAX> 3,576
<INCOME-CONTINUING> 4,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,348
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
