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 January 31, 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 March 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
January 31, 1997 October 31, 1996
CURRENT ASSETS (Unaudited)
Cash $ 570,516 $ 3,214,419
Accounts and notes
receivable, net 20,907,434 48,740,388
Inventory 105,303,300 84,215,934
Prepaid expenses
and other current assets 3,516,857 2,256,148
----------- -----------
Total Current Assets 130,298,107 138,426,889
----------- -----------
INVESTMENTS AND LONG-TERM RECEIVABLES
Investments in
other cooperatives 12,671,958 12,974,801
Notes receivable 2,991,994 3,154,281
Deferred income taxes 1,145,844 1,145,844
---------- ----------
Total Investments and
Long-Term Receivables 16,809,796 17,274,926
---------- ----------
PROPERTY AND EQUIPMENT, at cost 67,556,231 57,653,388
Less accumulated depreciation 22,998,337 21,996,709
---------- ----------
Net Property and Equipment 44,557,894 35,656,679
---------- ----------
OTHER ASSETS 745,791 763,565
TOTAL ASSETS $192,411,588 $192,122,059
=========== ============
LIABILITIES AND MEMBERS' EQUITY
<PAGE>
CURRENT LIABILITIES
Notes payable $ 53,385,221 $ 65,582,931
Current maturities of
Long-term debt 3,539,338 3,013,819
Accounts payable 26,642,043 29,094,690
Patrons deposits 16,516,197 14,175,462
Accrued expenses and
other current liabilities 12,699,512 6,591,520
----------- -----------
Total Current Liabilities 112,782,311 118,458,422
----------- -----------
LONG-TERM DEBT,
LESS CURRENT MATURITIES 33,175,563 22,309,220
OTHER LIABILITIES 167,449 168,200
MEMBERS' EQUITY 46,286,265 51,186,217
----------- -----------
TOTAL LIABILITIES AND
MEMBERS' EQUITY $192,411,588 $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
January 31, 1997 January 31, 1996
NET SALES $ 89,370,851 $ 85,272,373
COST OF GOODS SOLD 83,961,757 80,172,305
----------- -----------
GROSS PROFIT 5,409,094 5,100,068
OPERATING EXPENSES 9,960,515 7,706,007
---------- ----------
INCOME (LOSS) FROM OPERATIONS (4,551,421) (2,605,939)
---------- ----------
OTHER INCOME (EXPENSES)
Interest, net (1,443,048) (1,098,249)
Gain on sale of MCC stock 0 13,680,361
Dividend Income-MCC stock 13 94,010
Miscellaneous 182,167 (16,682)
Asset valuation adjustment 0 (2,500,000)
---------- ----------
(1,260,868) 10,159,440
---------- ----------
SAVINGS BEFORE INCOME TAXES (5,812,289) 7,553,501
INCOME TAX EXPENSE (BENEFIT) (971,155) 4,439,704
---------- ----------
NET SAVINGS (LOSS) $ (4,841,134) $ 3,113,797
========== ==========
NET SAVINGS (LOSS) APPLIED TO:
ALLOCATED EQUITIES
Cash
Capital Equity Credits
(Deficit)- (2,887,352) (1,071,279)
RETAINED EARNINGS (DEFICIT) (1,953,782) 4,185,076
---------- ----------
(4,841,134) 3,113,797
========== ==========
See notes to Condensed Consolidated Financial Statements.
<PAGE>
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
January 31, 1997 January 31, 1996
Cash flows from
operating activities:
Net Margin for the period $ (4,841,134) $ 3,113,797
Items not requiring
(providing) cash:
Depreciation and amortization 815,963 674,500
Non-cash portion of patronage
dividends from other co-ops 0 (30,414)
Gain on sale of property
and equipment (126,631)
Gain on sale of MCC stock 0 (13,680,361)
Asset valuation adjustment 2,500,000
Changes in operating assets and
liabilities:
Accounts and notes receivable 26,957,504 21,003,000
Inventory (21,087,366) (29,287,992)
Prepaid expenses and
other assets (1,635,414) (1,178,124)
Accounts payable (2,452,647) 7,501,741
Accrued expenses and
other liabilities 6,107,241 11,093,035
---------- ----------
Net cash (used in)
operating activities 3,737,516 1,709,182
---------- ----------
Cash flows from investing
activities:
Purchase of property
and equipment (9,900,846) (2,561,148)
Proceeds from sale of property
and equipment 534,631
Redemption of investments 302,843
Collection of notes receivable 1,205,884 243,567
Proceeds from sale of MCC stock 0 25,788,125
---------- ----------
Net cash provided by
investing activities (7,857,488) 23,470,544
---------- ----------
<PAGE>
Cash flows from financing
activities:
Proceeds from borrowings 48,615,031 31,860,170
Repayment of borrowings (49,420,879) (65,327,164)
Redemption of common stock 0 (1,000)
Retirement of preferred stock (58,818) (48,600)
Net change in patron deposits 2,340,735 8,316,963
---------- ----------
Net cash provided by (used in)
financing activities 1,476,069 (25,199,631)
---------- ----------
Net increase (decrease) in cash (2,643,903) (19,905)
Cash, beginning of period 3,214,419 645,379
---------- ----------
Cash, end of period $ 570,516 $ 625,474
========== ==========
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 January 31, 1997, the condensed consolidated statements of
cash flows for the three months ended January 31, 1997 and
1996, and the condensed consolidated statements of operations
for the three months ended January 31, 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 January 31,
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 three months
ended January 31, 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 three months ended
January 31, 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 $4.1 million (4.8%) for the
three months ended January 31, 1997 compared to the prior
year period. Sales increases were realized in Animal
Health, TBA, and Petroleum, while decreases in sales were
realized in Feed, Farm and Ranch, Fertilizer, Chemicals,
Seed, and Catfish Processing. Further analysis of sales
is included under the comparative analysis presented below.
Gross profit increased approximately $309,000 (6%) for
the three months ended January 31, 1997 compared to the prior
year period. Further analysis of gross profit is included
under the comparative analysis presented below.
<PAGE>
Operating expenses increased approximately $2.25 million (29%)
for the three months ended January 31, 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 $345,000 (31%)
for the three months ended January 31, 1997 compared to the
prior year period. This increase was due primarily to higher
average borrowing on the Company's seasonal loan caused by
higher inventory levels.
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 first quarter, NEA Oil had sales of approximately $2.9
million.
Comparative Analysis of the Three Months Ended January 31, 1997
to the Three Months Ended January 31, 1996
Wholesale/Retail Operations:
Feed sales decreased approximately 5%. 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 a mild winter season. Tonnage sold for the three
months ended January 31, 1997 was 90,587 tons compared to
105,755 tons sold during the prior year period. Gross margin
decreased approximately $95,000 as a result of the lower
manufacturing level.
Animal Health sales increased approximately 13%. This
increase is 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 10.5% to 9.4%. 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 13%. This decrease
was due to cautious purchasing of supplies by cattle producers
caused by low cattle prices during the prior six months.
Extremely wet weather conditions have also contributed to the
sales decrease. Gross margin as a percent of sales increased
from 8.55% to 9.07%. This increase was due to better purchase
prices at more efficient quantities for shipment.
<PAGE>
Fertilizer sales decreased approximately 25%. This decrease
was due to the extremely wet weather conditions in the trade
area. Total tons sold for the three months ended January 31,
1997 was 92,416 tons compared to 124,031 tons sold during the
prior year period. Gross margin as a percent of sales
decreased from 6.44% to 5.98%. This decrease was due to
competitive situations in the trade area.
Chemical sales decreased approximately 9%. This decrease was
caused by a lower volume of herbicide applications due to the
wet weather conditions in the trade area. Gross margin as a
percent of sales decreased from 19.2% to 15.1% due to
competitive pressure in the market.
Seed sales decreased approximately 16% due to the low volume
of wheat seed sales caused by wet weather conditions. Gross
margin as a percent of sales decreased from 9% to -3% due to
an over-supply of wheat seed caused by the reduction in wheat
acres planted.
TBA sales increased approximately 3%. This increase was due
to successful marketing programs, an increase in rear 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 88%. This increase
was due to heavy volume of sales to non-member customers and
increased propane sales due to more severe weather conditions
than experienced in the prior year period. Total gallons
sold for the three months ended January 31, 1997 were
25,556,654 gallons compared to 17,739,502 gallons sold during
the prior year period. Gross margin as a percent of sales
decreased from 3.09% to 1.32%. 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 approximately 1,022,000 pounds (24%). This decrease
was due primarily to fewer sales of processed fish that were
purchased from other processors ("outside fish"). The unit
average selling price remained at the same level as experienced
in the prior year period. Total pounds processed remained at
approximately the same level as experienced in the prior year
period. Gross profit increased approximately $645,000. This
increase was due to lower processing costs and fewer sales of
outside fish.
Operating Expenses
Company operating expenses increased approximately $2.25
million (29%) over the prior year period. This increase
was due primarily to increased costs associated with the
new computer system ($500,000), new fertilizer terminals
($356,000), new retail locations ($485,000), the petroleum
transportation operation ($171,000), and the addition
of NEA Oil ($283,000).
Liquidity and Capital Resources
Cash provided by operating activities increased to
$3.7 million due to the collection of accounts receivable.
Cash used in investing activities increased to $7.9 million
due to the purchase of property and equipment. Cash provided
by financing activities increased to $1.5 million due to an
increase in patrons' deposits.
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. In the opinion of management, current
financing arrangements provide sufficient liquidity.
<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: March 12, 1997 /s/ Michael P. Sadler
---------------------
Michael P. Sadler
President
Date: March 12, 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> JAN-31-1997
<CASH> 571
<SECURITIES> 0
<RECEIVABLES> 20,907
<ALLOWANCES> 0
<INVENTORY> 105,303
<CURRENT-ASSETS> 130,298
<PP&E> 67,556
<DEPRECIATION> 22,998
<TOTAL-ASSETS> 192,412
<CURRENT-LIABILITIES> 112,782
<BONDS> 0
0
2,696
<COMMON> 125
<OTHER-SE> 43,465
<TOTAL-LIABILITY-AND-EQUITY> 192,412
<SALES> 89,371
<TOTAL-REVENUES> 0
<CGS> 83,962
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,443
<INCOME-PRETAX> (5,812)
<INCOME-TAX> (971)
<INCOME-CONTINUING> (4,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,841)
<EPS-PRIMARY> 0
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</TABLE>
