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, 1997.
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)
120 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, 1997:
Common Stock 125 shares
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
April 30, 1997 October 31, 1996
CURRENT ASSETS (Unaudited)
Cash $ 1,628,574 $ 3,214,419
Accounts and notes
receivable, net 93,581,134 48,740,388
Inventory 90,262,940 84,215,934
Prepaid expenses
and other current assets 3,438,447 2,256,148
----------- -----------
Total Current Assets 188,911,095 138,426,889
----------- -----------
INVESTMENTS AND LONG-TERM RECEIVABLES
Investments in
other cooperatives 13,076,907 12,974,801
Notes receivable 3,190,316 3,154,281
Deferred income taxes 1,145,844 1,145,844
---------- ----------
Total Investments and
Long-Term Receivables 17,413,067 17,274,926
---------- ----------
PROPERTY AND EQUIPMENT, at cost 69,493,053 57,653,388
Less accumulated depreciation 23,088,624 21,996,709
---------- ----------
Net Property and Equipment 46,404,429 35,656,679
---------- ----------
OTHER ASSETS 814,312 763,565
TOTAL ASSETS $253,542,903 $192,122,059
=========== ============
LIABILITIES AND MEMBERS' EQUITY
<PAGE>
CURRENT LIABILITIES
Notes payable $ 77,322,971 $ 65,582,931
Current maturities of
Long-term debt 3,196,716 3,013,819
Accounts payable 62,628,709 29,094,690
Patrons deposits 14,537,645 14,175,462
Accrued expenses and
other current liabilities 13,516,759 6,591,520
----------- -----------
Total Current Liabilities 171,202,800 118,458,422
----------- -----------
LONG-TERM DEBT,
LESS CURRENT MATURITIES 33,528,766 22,309,220
OTHER LIABILITIES 164,996 168,200
MEMBERS' EQUITY 48,646,341 51,186,217
----------- -----------
TOTAL LIABILITIES AND
MEMBERS' EQUITY $253,542,903 $192,122,059
=========== ===========
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, 1997 April 30, 1996
NET SALES $ 181,244,529 $ 165,172,572
COST OF GOODS SOLD 167,571,032 155,437,988
----------- -----------
GROSS PROFIT 13,673,497 9,734,584
OPERATING EXPENSES 10,222,364 11,334,381
---------- ----------
INCOME (LOSS) FROM OPERATIONS 3,451,133 (1,599,797)
---------- ----------
OTHER INCOME (EXPENSES)
Interest, net (1,181,253) (647,744)
Miscellaneous 172,784 136,781
---------- ----------
(1,008,469) (510,963)
---------- ----------
SAVINGS BEFORE INCOME TAXES 2,442,664 (2,110,760)
INCOME TAX EXPENSE (BENEFIT) 82,801 (1,807,246)
---------- ----------
NET SAVINGS (LOSS) $ 2,359,863 $ (303,514)
========== ==========
NET SAVINGS (LOSS) APPLIED TO:
ALLOCATED EQUITIES
Cash
Capital Equity Credits
(Deficit)- 1,537,334 297,496
RETAINED EARNINGS (DEFICIT) 822,529 (601,010)
---------- ----------
2,359,863 (303,514)
========== ==========
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, 1997 April 30, 1996
NET SALES $ 270,615,380 $ 250,444,945
COST OF GOODS SOLD 251,532,789 235,610,293
----------- -----------
GROSS PROFIT 19,082,591 14,834,652
OPERATING EXPENSES 20,182,879 21,540,388
---------- ----------
INCOME (LOSS) FROM OPERATIONS (1,100,288) (6,705,736)
---------- ----------
OTHER INCOME (EXPENSES)
Interest, net (2,624,301) (1,745,993)
Gain on sale of MCC stock 0 13,680,361
Dividend Income-MCC stock 0 94,010
Miscellaneous 354,964 120,099
---------- ----------
(2,269,337) 12,148,477
---------- ----------
SAVINGS BEFORE INCOME TAXES (3,369,625) 5,442,741
INCOME TAX EXPENSE (BENEFIT) (888,354) 2,632,458
---------- ----------
NET SAVINGS (LOSS) $ (2,481,271) $ 2,810,383
========== ==========
NET SAVINGS (LOSS) APPLIED TO:
ALLOCATED EQUITIES
Cash
Capital Equity Credits
(Deficit)- (1,350,018) (773,783)
RETAINED EARNINGS (DEFICIT) (1,131,253) 3,584,066
---------- ----------
(2,481,271) 2,810,283
========== ==========
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, 1997 April 30, 1996
Cash flows from
operating activities:
Net Margin for the period $ (2,481,271) $ 2,810,283
Items not requiring
(providing) cash:
Depreciation and amortization 1,329,209 1,287,654
Non-cash portion of patronage
dividends from other co-ops (102,106) (504,787)
Gain on sale of property
and equipment (275,296) (21,063)
Gain on sale of MCC stock 0 (13,680,361)
Asset valuation adjustment 0 4,781,398
Changes in operating assets and
liabilities:
Accounts and notes receivable (44,708,634) (25,204,237)
Inventory (6,047,006) (21,617,420)
Prepaid expenses and
other assets (1,401,193) (2,776,507)
Accounts payable 33,534,019 32,700,756
Accrued expenses and
other liabilities 6,922,035 2,562,689
---------- ----------
Net cash (used in)
operating activities (13,230,243) (19,661,595)
---------- ----------
Cash flows from investing
activities:
Purchase of property
and equipment (12,185,325) (6,846,100)
Proceeds from sale of property
and equipment 383,662 222,260
Redemption of investments 0 54,912
Proceeds from sale of MCC stock 0 25,788,125
---------- ----------
Net cash provided by (used in)
investing activities (11,801,663) 19,219,197
---------- ----------
<PAGE>
Cash flows from financing
activities:
Patronage distributions 0 (3,911,754)
Proceeds from borrowings 109,565,745 81,639,104
Repayment of borrowings (86,423,262) (77,075,549)
Redemption of common stock 0 (1,000)
Retirement of preferred stock (58,605) (49,800)
Net change in patron deposits 362,183 213,622
---------- ----------
Net cash provided by
financing activities 23,446,061 814,623
---------- ----------
Net increase (decrease) in cash (1,585,845) 372,225
Cash, beginning of period 3,214,419 645,379
---------- ----------
Cash, end of period $ 1,628,574 $ 1,017,604
========== ==========
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, 1997, the condensed consolidated statements of
cash flows for the six months ended April 30, 1997 and
1996, and the condensed consolidated statements of operations
for the three months and six months ended April 30, 1997 and
1996 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, 1997 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, 1996 audited financial
statements. The results of operations for the six months
ended April 30, 1997 and 1996 are not necessarily indicative
of the operating results for the full year.
<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 and ranch supplies, tires, batteries and
automotive accessories ("TBA"), chemical, petroleum,
fertilizer products, and engages in 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 six months ended
April 30, 1997 and 1996 reflect the seasonality of the
Company's business and are not indicative of results expected
for a full fiscal year.
Sales increased approximately $20.17 million (8%) for the
six months ended April 30, 1997 compared to the prior
year period. Sales increases were realized in Animal
Health, Chemicals, TBA, and Petroleum, while decreases in
sales were realized in Feed, Farm and Ranch, Fertilizer,
Seed, and Catfish Processing. Further analysis of sales
is included under the comparative analysis presented below.
Gross profit increased approximately $4.2 million (29%) for
the six months ended April 30, 1997 compared to the prior
year period. Further analysis of gross profit is included
under the comparative analysis presented below.
<PAGE>
Operating expenses decreased approximately $1.36 million (6%)
for the six months ended April 30, 1997 compared to the
prior year period. Further analysis of operating expenses
is included under the comparative analysis presented below.
Net interest expense increased approximately $878,000 (50%)
for the six months ended April 30, 1997 compared to the
prior year period. This increase was due primarily to higher
investments in fixed assets and higher average borrowing on the
Company's seasonal loan caused by the delayed spring planting
season due to wet weather conditions throughout the Company's
trade area.
On December 31, 1996, the Company purchased the assets of
Matthews of Monette, Inc., a wholesale and retail fuel
business located in Arkansas, for approximately $9.4 million.
This acquisition is expected to add approximately $45 million
in annual sales to the Company. The new operation is being
operated under the name "Northeast Arkansas Oil Company, LLC"
("NEA Oil"), a newly formed, wholly-owned subsidiary. During
the six months ended April 30, 1997, NEA Oil has sales of
approximately $14.1 million.
Comparative Analysis of the Six Months Ended April 30, 1997
to the Six Months Ended April 30, 1996
Wholesale/Retail Operations:
Feed sales decreased approximately 9%. This decrease was
due to lower demand for beef and dairy feed caused by a
reduction in livestock numbers in the trade area during
1996, a mild winter season, and an abundant supply of hay
available for feeding. Tonnage sold for the six months
ended April 30, 1997 was 179,095 tons compared to 216,829
tons sold during the prior year period. Gross margin
decreased approximately $909,000 as a result of the lower
manufacturing level.
Animal Health sales increased approximately 15%. This
increase was a result of aggressive and successful trade
shows. Although cattle numbers are down, producers are
concentrating on herd health as the beef market begins to
return toward profitability. Gross margin as a percent of
sales decreased from 10.7% to 8.6%. This decrease was a
result of a larger volume of low margin products being
sold compared to the prior year period.
Farm & Ranch sales decreased approximately 9.6%. This decrease
was caused by wet weather conditions and a decrease in sales of
row crop equipment and supplies. Cotton acres are being replaced
with more corn and soybean acres. These crops require less
tillage supplies and equipment than cotton. Gross profit as a
percent of sales remained at the same level as experienced in
the prior year period.
<PAGE>
Fertilizer sales decreased approximately $2.8 million (4.8%)
due to extremely wet weather conditions in the trade area.
Gross margin as a percent of sales increased from 5.3% to 6.3%.
This increase was due in great part to the Memphis and
Greenville terminals, which allowed the Company to take advantage
of quantity discounts. Total tons sold for the six months
ended April 30, 1997 was 371,000 tons compared to 395,000 tons
sold during the prior year period.
Chemical sales increased 0.62% due to increased small package
and specialty chemical sales. Gross margin as a percent of
sales increased from 6.5% to 8.4%. This increase was due to
increased sales of specialty products and new product
introductions which allowed the Company to increase gross margin.
Seed sales decreased 0.38% due to lower wheat seed sales
during the first quarter caused by wet weather conditions. This
decrease was substantially offset by increased soybean sales
during the second quarter. Gross margin as a percent of sales
increased from 5.3% to 7.8% due to the increase in soybean sales.
TBA sales increased approximately 0.5% due to an increase in
farm tire sales and improved market share in lubricant products.
Gross margin as a percent of sales remained at approximately the
same level as experienced in the prior year period.
Petroleum sales increased approximately 119%. This increase
was due to heavy volume of sales to non-member customers.
Total gallons sold for the three months ended April 30, 1997
were 98,909,767 gallons compared to 39,803,267 gallons sold
during the prior year period. Gross margin as a percent of
sales decreased from 1.77% to 1.48%. This decrease was due to
the higher volume of sales to non-members, which are of very low
margin.
<PAGE>
Catfish Processing Operations:
Unit sales in the fish processing and marketing operation
decreased 1.95 million pounds (21%). This decrease was due
primarily to fewer sales of processed fish purchased from
other processors for resale ("outside fish"). The unit
average selling price and total pounds processed remained at
approximately the same levels as experienced in the prior year
period. Gross profit increased $1.75 million due to lower
processing costs, fewer sales of outside fish, and lower prices
for live fish purchases due to improved supplies.
Operating Expenses
Company operating expenses decreased approximately $1.36
million (6%) over the prior year period. This decrease
was due to an asset valuation adjustment of $4.78 million
during the prior year period, which was offset by other
changes in operating expenses during the current year period.
The primary areas which experienced operating expense
increases are listed below.
* $800,000 in increased costs associated with the new
computer system, including $150,000 of increased payroll
and related costs, $170,000 of additional lease expense,
and $400,000 of additional software costs.
* $1,150,000 in increased costs associated with the addition
of NEA Oil, including $670,000 in additional payroll and
related costs, $65,000 in additional maintenance and repair,
$86,000 in additional rent, and $138,000 in additional
depreciation.
* $700,000 in increased costs associated with additional
fertilizer terminal operations, including $187,000 in
additional payroll and related costs, $100,000 in additional
depreciation, $126,000 in additional maintenance and repair,
$57,000 in additional rent expense, and $55,000 in additional
demurrage.
<PAGE>
Comparative Analysis of the Three Months Ended April 30, 1997
to the Three Months ended April 30, 1996.
Feed sales decreased approximately 13%. This decrease was
due to lower demand for beef and dairy feed caused by a
reduction in livestock numbers in the trade area during
1996 and better supply of hay available for feeding.
Tonnage sold for the three months ended April 30, 1997 was
88,508 tons compared to 111,074 tons sold during the prior
year period. Gross margin decreased approximately $939,000
as a result of the lower manufacturing level.
Animal Health sales increased approximately 16%. This
increase was due to producers concentrating on herd health as
the beef market begins to return toward profitability.
Gross margin as a percent of sales decreased from 11.4% to 6.5%.
This decrease was a result of a larger volume of low margin
products being sold compared to the prior year period
Farm and Ranch sales decreased approximately 7%. This decrease
was due to primarily to lower sales of row crop equipment
and supplies. Although sales were lower in the row crop
related items, livestock equipment and supply sales began
to improve due to stronger cattle prices. Gross margin
as a percent of sales decreased from 9.4% to 8.5% due to
a higher percentage of direct shipment sales, which carry a
lower gross margin.
Fertilizer sales increased approximately $1.6 million (4%) due
in part to sales that otherwise would have been made in the
first quarter but were not because of unfavorable weather
conditions. Gross margin as a percent of sales increased
from 4.8% to 6.3% due to better purchasing and improved market
conditions. Total tons sold during the three months ended
April 30, 1997 were 278,000 tons compared to 271,000 tons
sold during the prior year period.
Chemical sales increased approximately 2% due to earlier movement
of product to dealers based on marketing programs provided
by the basic manufacturer. Gross margin as a percent of sales
increased from 4.4% to 7.3% due to increased specialty chemical
sales and newly introduced row crop products which allowed the
company to realize a better gross margin.
Seed sales increased approximately 3% due to increased soybean
seed sales. Gross margin as a percent of sales increased from
5.7% to 9.7% due to the improved margin realized on soybean
sales.
<PAGE>
TBA sales decreased approximately 1.8% due primarily to wet
weather conditions. Gross margin as a percent of sales
increased from 16.8% to 19.9% due to improved competitive
situations. The wet weather caused a compressed planting
season reducing competitive price negotiating.
Petroleum sales increased approximately 141% due primarily
to increased sales to non-member customers. Gross margin as
a percent of sales remained at approximately the same level
as experienced in the prior year period. Total gallons sold
for the three months ended April 30, 1997 were 53,971,064
gallons compared to 22,063,765 gallons sold during the
prior year period.
Catfish Processing and Marketing
Unit sales in the fish processing and marketing operation
decreased 930,000 pounds (18.9%). This decrease was due to
fewer sales of processed fish purchased from other processors
for resale ("outside fish"). Total pounds processed and
the unit average selling price remained at approximately the
same level as experienced in the prior year period. Gross profit
increased approximately $1.1 million due to reduced processing
costs, fewer sales of outside fish, and lower prices paid for
live fish caused by improved supplies of fish available for
processing.
Operating Expenses
Company operating expenses decreased approximately $1.1 million
(12%). This decrease was due to an asset valuation adjustment
of $2.3 million during the prior year period, which was offset
by operating expense changes during the current year period.
The primary areas which experienced operating expense increases
are listed below.
* $300,000 in increased costs associated with the new
computer system, including $50,000 in additional payroll
and related costs, $150,000 in additional software costs,
and $85,000 in additional lease costs.
* $850,000 in increased costs associated with the addition
of NEA Oil, including $560,000 in additional payroll and
related costs, $100,000 in additional depreciation, and
$65,000 in additional rent.
* $300,000 in additional costs associated with increased
fertilizer terminal operations, including $120,000 in
additional payroll and related costs, $100,000 in
additional depreciation, and $48,000 in additional rent.
<PAGE>
Liquidity and Capital Resources
Cash used by operating activities decreased to $13.2
million compared to $19.7 million in the prior year period.
This decrease in cash used was due to smaller increases in
inventory levels during the period, which was offset by
increases in accounts receivable caused by the delayed
spring season. Cash used in investing activities was
$11.8 million due primarily to the purchase of NEA Oil,
as well as additional fixed asset purchases at the Memphis
and Greenville fertilizer terminals. Cash provided by
financing activities increased to $23.4 million due to an
increase in term debt used to finance the purchase of
NEA Oil and other fixed assets, and an increase in the
Company's seasonal loan borrowing which was necessary
due to the delayed spring season.
Historically, most of the Company's financing has been with
CoBank, ACB ("CoBank"). The Company has an $80 million
seasonal line of credit and $29.6 million in term loans
with CoBank. The Company has an additional $10 million
temporary line of credit with CoBank to provide the company
with additional liquidity during the period from June 1, 1997
through June 30, 1997. In the opinion of management, current
financing arrangements provide sufficient liquidity.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote
of Security Holders
An annual meeting was held on February 21, 1997, at which the
following directors were elected to terms expiring in 2000.
FOR AGAINST
--- -------
W.B. Madden, Jr. 25 0
W.S. Patrick 25 0
Thomas H. Gist 25 0
Travis Burchfield 25 0
Jerry Connerly 25 0
John M. Evans 25 0
Other directors of the Company and their term expirations
are presented below.
Director Term Expiration
---------- ---------------
Daniel Viator 1999
Gene Bruick 1999
Charlie Starks, Jr. 1999
Joe Wilder 1999
Danny Simpson 1999
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 16, 1997 /s/ Michael P. Sadler
---------------------
Michael P. Sadler
President
Date: June 16, 1997 /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-31-1997
<PERIOD-END> APR-30-1997
<CASH> 1,629
<SECURITIES> 0
<RECEIVABLES> 93,581
<ALLOWANCES> 0
<INVENTORY> 90,263
<CURRENT-ASSETS> 188,911
<PP&E> 69,493
<DEPRECIATION> 23,089
<TOTAL-ASSETS> 253,543
<CURRENT-LIABILITIES> 171,202
<BONDS> 0
0
2,696
<COMMON> 125
<OTHER-SE> 45,825
<TOTAL-LIABILITY-AND-EQUITY> 253,543
<SALES> 270,615
<TOTAL-REVENUES> 0
<CGS> 251,533
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,624
<INCOME-PRETAX> (3,370)
<INCOME-TAX> (888)
<INCOME-CONTINUING> (2,481)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,481)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
