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, 1998.
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, 1998:
Common Stock 124 shares
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SF SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, 1998 October 31, 1997
CURRENT ASSETS (Unaudited)
Cash $ 499,065 $ 4,809,079
Accounts and notes
receivable, net 35,652,137 55,591,458
Inventory 76,170,239 62,903,882
Prepaid expenses
and other current assets 1,922,419 1,526,754
----------- -----------
Total Current Assets 114,243,860 124,831,173
----------- -----------
INVESTMENTS AND LONG-TERM RECEIVABLES
Investments in
other cooperatives 13,710,288 13,549,277
Notes receivable 2,306,737 2,921,728
---------- ----------
Total Investments and
Long-Term Receivables 16,017,025 16,471,005
---------- ----------
PROPERTY AND EQUIPMENT, at cost 69,024,281 71,671,064
Less accumulated depreciation 25,701,236 24,909,488
---------- ----------
Net Property and Equipment 43,323,045 46,761,576
---------- ----------
OTHER ASSETS 1,015,022 731,662
TOTAL ASSETS $174,598,952 $188,795,416
=========== ============
<PAGE>
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 59,889,430 $ 76,518,530
Current maturities of
Long-term debt 4,910,745 4,801,464
Accounts payable 32,722,885 28,130,453
Patrons deposits 8,160,829 4,010,610
Accrued expenses and
other current liabilities 13,618,029 8,775,023
----------- -----------
Total Current Liabilities 119,301,918 122,236,080
----------- -----------
LONG-TERM DEBT,
LESS CURRENT MATURITIES 27,119,454 33,031,344
OTHER LIABILITIES 168,934 168,934
MEMBERS' EQUITY 28,008,646 33,359,058
----------- -----------
TOTAL LIABILITIES AND
MEMBERS' EQUITY $174,598,952 $188,795,416
=========== ===========
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, 1998 January 31, 1997
NET SALES $ 75,580,852 $ 89,370,851
COST OF GOODS SOLD 68,746,464 83,961,757
----------- -----------
GROSS PROFIT 6,834,388 5,409,094
OPERATING EXPENSES 10,790,839 9,960,515
---------- ----------
INCOME (LOSS) FROM OPERATIONS (3,956,451) (4,551,421)
---------- ----------
OTHER INCOME (EXPENSES)
Interest, net (1,659,885) (1,443,048)
Miscellaneous 326,923 182,180
---------- ----------
(1,332,962) (1,260,868)
---------- ----------
SAVINGS BEFORE INCOME TAXES (5,289,413) (5,812,289)
INCOME TAX EXPENSE (BENEFIT) 0 (971,155)
---------- ----------
NET SAVINGS (LOSS) $ (5,289,413) $ (4,841,134)
========== ==========
NET SAVINGS (LOSS) APPLIED TO:
ALLOCATED EQUITIES
Cash
Capital Equity Credits
(Deficit)- (2,679,435) (2,887,352)
RETAINED EARNINGS (DEFICIT) (2,609,978) (1,953,782)
---------- ----------
(5,289,413) (4,841,134)
========== ==========
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, 1998 January 31, 1997
Cash flows from
operating activities:
Net Margin for the period $ (5,289,413) $ (4,841,134)
Items not requiring
(providing) cash:
Depreciation and amortization 1,190,857 815,963
Non-cash portion of patronage
dividends from other co-ops (161,011) 0
Gain on sale of property
and equipment (275,296) (126,631)
Changes in operating assets and
liabilities:
Accounts and notes receivable 17,793,073 26,957,504
Inventory (13,266,357) (21,087,366)
Prepaid expenses and
other assets (679,025) (1,635,414)
Accounts payable 4,592,432 (2,452,647)
Accrued expenses and
other liabilities 4,843,007 6,107,241
---------- ----------
Net cash provided by
operating activities 8,748,267 3,737,516
---------- ----------
Cash flows from investing
activities:
Purchase of property
and equipment (619,472) (9,900,846)
Proceeds from sale of property
and equipment 3,142,442 534,631
Redemption of investments 0 302,843
Collection of notes receivable 2,761,239 1,205,884
---------- ----------
Net cash provided by (used in)
investing activities 5,284,209 (7,857,488)
---------- ----------
<PAGE>
Cash flows from financing
activities:
Proceeds from borrowings 19,444,000 48,615,031
Repayment of borrowings (41,875,709) (49,420,879)
Redemption of common stock (1,000) 0
Retirement of preferred stock (60,000) (58,818)
Net change in patron deposits 4,150,219 2,340,735
---------- ----------
Net cash provided by (used in)
financing activities (18,342,490) 1,476,069
---------- ----------
Net increase (decrease) in cash (4,310,014) (2,643,903)
Cash, beginning of period 4,809,079 3,214,419
---------- ----------
Cash, end of period $ 499,065 $ 570,516
========== ==========
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, 1998, the condensed consolidated statements of
cash flows for the three months ended January 31, 1998 and
1997, and the condensed consolidated statements of operations
for the three months ended January 31, 1998 and 1997 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,
1998 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, 1997 audited financial
statements. The results of operations for the three months
ended January 31, 1998 and 1997 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
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 ("PSLRA")
Certain forward-looking information contained in this report
is being provided in reliance upon the "safe harbor" provisions
of the PSLRA as set forth in Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such information includes, without
limitation, discussions as to estimates, expectations, beliefs,
plans, strategies and objectives concerning the Company's future
financial and operating performance. Such forward-looking
information is subject to assumptions and beliefs based on
current information known to the Company and factors that could
yield actual results differing materially from those
anticipated. Such factors include, without limitation, costs of
feed ingredients and other products sold by the Company, prices
received for products sold by the Company, extreme weather
conditions in the Company's trade area, significant economic
changes within the agriculture industry, and effects of the
Company's restructuring efforts.
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 124 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, 1998 and 1997 reflect the seasonality of the
Company's business and are not indicative of results expected
for a full fiscal year.
<PAGE>
Sales decreased approximately $13.8 million (15%) for the
three months ended January 31, 1998 compared to the prior
year period. Further analysis of sales is included under the
comparative analysis presented below.
Gross profit increased approximately $1.4 million (26%) for
the three months ended January 31, 1998 compared to the prior
year period. Further analysis of gross profit is included
under the comparative analysis presented below.
Operating expenses increased approximately $830,000 (8%)
for the three months ended January 31, 1998 compared to the
prior year period. Further analysis of operating expenses
is included under the comparative analysis presented below.
Comparative Analysis of the Three Months Ended January 31, 1998
to the Three Months Ended January 31, 1997
Wholesale/Retail Operations:
Feed sales decreased approximately $3.3 million. This decrease
due to lower feed prices and lower tonnage sales of dairy
and beef feeds. Gross profit increased approximately
$492,000 due to reduced manufacturing costs.
Animal Health sales decreased approximately $1.05 million.
This decrease was a result of lower herd numbers in the trade
area and improved herd health due to the mild winter weather
conditions. Gross profit as a percent of sales remained at
approximately the same level as experienced during the prior
year period.
Farm & Ranch sales decreased approximately $2.65 million primarily
due to exiting certain lawn & garden and agronomy equipment
product lines. Gross profit as a percent of sales remained at
approximately the same level as experienced during the prior
year period.
<PAGE>
Fertilizer sales decreased approximately $1.87 million due
to the lower market price of nitrogen products. Total
tons sold increased approximately 23% over the prior
year period. Gross profit as a percent of sales remained at
approximately the same level as experienced during the prior
year period.
Chemical sales decreased approximately $4.67 million due to
lower sales of propanil products and changes in sales
programs from suppliers. Gross profit remained at approximately
the same level as experienced during the prior year period.
Seed sales decreased approximately $1.2 million due
to a delay in sales caused by reduced availability of certain
seed products throughout the industry. Gross profit increased
$439,000 reflecting improved margins on wheat seed sales.
TBA sales decreased approximately $1.1 million due
to a loss of market share, and lower battery and antifreeze
sales caused by the mild winter weather. Gross profit decreased
$164,000 due an increase in direct shipments which carry a lower
gross profit margin.
Petroleum sales decreased approximately $8.7 million.due to
exiting the brokered sales programs and lower energy prices.
Gross profit as a percent of sales remained at approximately the
same level as experienced during the prior year period.
Catfish Processing Operations:
Unit sales in the fish processing and marketing operation
increased approximately 104,000 pounds. The unit average
selling price remained at approximately the same level as
experienced during the prior year period. Gross profit
increased approximately $384,000 due primarily to lower prices
paid for live fish and reduced processing costs.
Retail and Wholesale Fuel Subsidiary Operations:
The retail and wholesale fuel subsidiary was only in operation
during one month of the prior year quarter, therefore no
analysis of changes in operations can be made. Sales for
this operation increased approximately $8.7 million, and
gross profit increased approximately $970,000.
<PAGE>
Operating Expenses
Company operating expenses increased approximately
$830,324 over the prior year period. This increase
was due to the addition of the retail and wholesale fuel
subsidiary, which operated only one month during the prior
year period. Operating expenses related to this subsidiary
were approximately $1.29 million for the three months ended
January 31, 1998, and approximately $280,000 for the prior
year period. After eliminating these differences, operating
expenses for the Company remained at approximately the same
level as experienced during the prior year period.
Liquidity and Capital Resources
Cash provided by operating activities increased to $8.7
million due primarily to lower inventory levels. Cash
provided by investing activities increased to $5.3 million
due primarily to the collection of notes receivable and
the sale of fixed assets. Cash used in financing activities
increased to $18.3 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 $24.2 million in term loans
with CoBank. During the first quarter of 1998, the Company
obtained a formal waiver from CoBank with respect to covenant
violations concerning working capital. The Company is currently
implementing plans to improve operations and return to
profitability. These plans include closing or selling
unprofitable operations, creating joint ventures and
distribution alliances with other supply companies, and
increasing direct shipment sales, which will reduce warehouse
inventory levels. Management believes that as these plans
are realized, the current line of credit will provide
sufficient liquidity for current and future operating levels.
During the first quarter of 1998, the Company sold seven
convenience store locations through a sale/leaseback
transaction. No material gain or loss resulted from this
transaction. Proceeds of $2.68 million were used to pay down
term debt with CoBank.
<PAGE>
Part II. Other Information
Item 5. Other Information
During the first quarter of 1998, the Company signed a Letter
of Intent with Wilfarm, LLC ("Wilfarm") in connection with a
proposed transaction whereby Wilfarm will acquire the Company's
chemical distribution business and related assets, and
will operate that business subject to a continuing royalty
interest on the part of the Company. The purchase price shall
be an amount equal to the cost basis of the chemical inventory
in existence as of the closing date, less the amount of trade
payables related to the inventory, which will be assumed by Wilfarm,
and the amount of all related chemical prepayments in existence
as of the closing date, the obligations under which will be
assumed by Wilfarm. Details of this transaction will be reported
in a Current Report on Form 8-K if the transaction is consummated.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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 16, 1998 /s/ Michael P. Sadler
---------------------
Michael P. Sadler
President
Date: March 16, 1998 /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-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 499
<SECURITIES> 0
<RECEIVABLES> 35,652
<ALLOWANCES> 0
<INVENTORY> 76,170
<CURRENT-ASSETS> 114,244
<PP&E> 69,024
<DEPRECIATION> 25,701
<TOTAL-ASSETS> 174,599
<CURRENT-LIABILITIES> 119,302
<BONDS> 0
0
2,664
<COMMON> 124
<OTHER-SE> 25,221
<TOTAL-LIABILITY-AND-EQUITY> 174,599
<SALES> 75,581
<TOTAL-REVENUES> 0
<CGS> 68,746
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,660
<INCOME-PRETAX> (5,289)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,289)
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<EXTRAORDINARY> 0
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<NET-INCOME> (5,289)
<EPS-PRIMARY> 0
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</TABLE>
