UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Main Street, North Little Rock, Arkansas 72114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (501) 945-2371
Securities registered pursuant to Section 12(b) of the Act
Name of each exchange on
Title of each class which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act
NONE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference to Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting common
equity held by nonaffiliates of the registrant was $124,000 at
January 27, 1998.
The number of shares outstanding of the registrant's common stock,
$1,000.00 par value per share, was 124 at January 27, 1998.
FORM 10-K
PART I
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.
ITEM 1: BUSINESS
SF Services, Inc. is a farm supply cooperative which was
organized under the laws of the State of Arkansas in 1945.
As of January 27, 1998 it was made up of 124 local member
cooperatives in Arkansas, Louisiana, Mississippi, Alabama,
Oklahoma, and Texas. The local member cooperatives are owned
and controlled by individual farmers. 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 ("TBA"), chemical, petroleum
and fertilizer products to its members and other customers.
SF Services, Inc. attempts, through pooling of resources
and sharing risks, to secure farm input products of the best
quality and price, to cooperatively achieve economies in the
manufacturing and procurement of goods and supplies, and to
render service to its local member cooperatives. SF Services,
Inc. has 15 operating and service divisions: Farm and Ranch;
Petroleum; TBA; Fertilizer; Chemical; Seed; Feed; Animal
Health; Catfish Processing and Marketing; Warehouse and
Transportation; Field Services; Corporate Services;
Information Services; Credit and Financial Analysis; and
General Corporate.
SF Services, Inc. also controls eight subsidiaries which are
included in the consolidated financial reports of SF Services,
Inc. The eight subsidiaries are Cloverleaf Cooperative; SFA,
Inc.; Deep South Farmers Supply, Inc.; Professional
Technologies, Inc.; AgGrow Finance, Inc.; Southern Farm Fish
Processors, Inc.; SF Technical Services, Inc.; and Northeast
Arkansas Oil Company, LLC ("NEA Oil Company"). SFA, Inc.
conducts retail farm supply sales and services. AgGrow
Finance, Inc. provides financing to individual farmers of
member cooperatives for crop production and equipment purchases.
Southern Farm Fish Processors, Inc. operates a catfish
processing plant. SF Technical Services, Inc., provides
environmental and regulatory compliance services and crop
consulting services. The remaining subsidiary, NEA Oil Company,
is a wholesale and retail fuel business.
In the first quarter of 1997, the Company purchased substantially
all of 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. This business operates under the name
"Northeast Arkansas Oil Company, LLC" a newly formed wholly-owned
subsidiary. The purchase was financed as follows, $2.25 million
in promissory notes issued by the Company, $2.13 million in
capital leases and other debt assumed from the seller, and the
remainder in borrowings from CoBank.
In the first quarter of 1995, pursuant to a plan and
agreement of merger by and between Delta Purchasing
Federation (AAL) ("DPF") and the Company, DPF was merged
into the Company in a statutory merger. In the merger, DPF
shareholders received an equity interest in the Company with
value equal to net book value of DPF's assets plus $500,000.
The acquisition has been accounted for as a purchase by
recording the assets and liabilities of DPF based on their
respective fair market values at acquisition date under the
plan and agreement of merger. The Company's sales for 1995
increased approximately $21 million due to the merger.
In the first quarter of 1993, SF Services, Inc., through a
newly formed wholly-owned subsidiary, Southern Farm Fish
Processors, Inc., purchased the assets of Arkansas Prime Fish
Processors by the assumption of debt in a non-cash transaction.
SF Services, Inc. and its subsidiaries employ approximately
1,310 persons.
Division sales, savings (loss) before income taxes and
identifiable assets for each of the last three fiscal
periods are presented below:
Year Ended Year Ended Year Ended
October 31, October 31, October 31,
1997 1996 1995
------------ ------------ ------------
SALES BY DIVISION
Feed and animal health $113,240,365 $122,397,413 $101,249,886
Fertilizer 119,486,518 129,557,273 120,596,538
Seed 37,922,154 33,028,271 27,246,492
Chemicals 111,763,122 121,382,784 136,743,532
Farm and ranch 30,069,407 35,919,700 39,067,528
Petroleum 103,605,683 70,216,528 37,750,042
Tires, batteries and
automotive 18,970,375 19,659,706 20,322,532
Subsidiary's retail
farm supply sales,
net of eliminations 14,142,897 21,694,459 10,012,504
Subsidiary's catfish
processing and
wholesale sales, net
of eliminations 31,752,577 36,624,223 37,831,922
Subsidiary's technical
services sales, net
of eliminations 233,801
Subsidiary's retail and
wholesale petroleum
sales, net of
eliminations 41,680,545
------------ ------------ ------------
$622,867,444 $590,480,357 $530,820,976
============ ============ ============
Year Ended Year Ended Year Ended
October 31, October 31, October 31,
1997 1996 1995
----------- ---------- -----------
SAVINGS (LOSS) BEFORE
INCOME TAXES BY
DIVISION*
Feed and animal health $ (2,844,090) $(3,489,573) $ 797,252
Fertilizer (5,065,882) 16,838,293 5,635,474
Seed (931,389) (19,325) (93,310)
Chemicals (1,449,878) (249,797) 992,824
Farm and ranch (1,284,712) (139,819) 183,850
Petroleum (150,923) 388,710 40,506
Tires, batteries and
automotive (858,243) (6,050) 238,917
Subsidiary's retail
operations, net of
eliminations (5,495,660) (1,341,332) (561,194)
Subsidiary's finance
operations, net of
eliminations (15,497) 85,817 38,244
Subsidiary's catfish
processing and wholesale
sales, net of
eliminations (922,584) (6,316,888) (2,374,939)
Subsidiary's retail and
wholesale petroleum
operations, net of
eliminations (155,775)
----------- ----------- -----------
$(19,174,633) $ 5,750,036 $ 4,897,624
=========== =========== ===========
*After allocation of general and administrative expenses, interest
expense and other income (expense).
October 31, October 31, October 31,
1997 1996 1995
----------- ----------- -----------
PROPERTY AND EQUIPMENT (NET)
Feed and animal health $ 8,865,929 $ 9,426,682 $13,100,196
Fertilizer 12,865,116 11,278,166 6,294,171
Seed 522,703 476,914 530,319
Chemicals 1,993,661 2,047,747 1,930,296
Farm and ranch 167 199 628
Tires, batteries
and automotive 83,190 89,402 102,062
Petroleum 140,060 95,845 77,914
Warehouse, transportation
and general corporate 10,080,580 7,934,825 5,771,259
Subsidiary's retail
operations 1,814,071 1,393,864 1,013,762
Subsidiary's finance
operations 0 360 1,151
Subsidiary's catfish
processing wholesale
sales 2,795,661 2,912,675 4,654,797
Subsidiary's retail and
wholesale petroleum
operations 7,600,438
----------- ----------- -----------
$46,761,576 $35,656,679 $33,476,555
=========== =========== ===========
The seasonal nature of SF Services, Inc.'s core business
requires the maintenance of significant inventory levels.
The Fertilizer, Chemical and Seed Divisions have peak activity
in the spring planting season and again during the fall
harvest and winter planting season. The geographical spread
of trade areas from south to north makes these peaks fairly
long in duration. However, the Fertilizer, Chemical, and
Seed Divisions do experience lower levels of inventory in the
late winter and late summer months.
SF Services, Inc.'s Feed Division is also subject to seasonal
variance with its slow periods being experienced during the
late spring and summer months when pasture is generally
available. This is mitigated somewhat by the dairy feed
business which is more year round in nature and by catfish
feed sales which occur during the late spring through early
fall period.
These seasonal patterns generally call for higher inventory
levels because products must be stored during the slow period
for delivery during the peak season. The requirements for
competitive pricing has also made it necessary in a variety of
products to purchase in truck, rail and barge lots which also
adds to holding cost. This is especially true in the Farm and
Ranch and TBA Divisions in the purchase of steel products,
tires, and lubricants in truckload lots and Fertilizer and
Seed Divisions in barge and rail quantities.
SF Services, Inc. is not dependent upon any one customer for a
significant portion of its business. However, because of the
cooperative ownership, it is dependent upon its local member
cooperatives with whom it did 55% of its business in the fiscal
year ending October 31, 1997. SF Services, Inc. is very price
conscious because of the competitive environment in its trade
area. Competitors include other regional cooperatives such as
MFA, Inc., Farmland Industries, and Gold Kist as well as major
privately-owned agri-business systems such as Helena Chemical,
Terra International, and Conagra.
OPERATING DIVISIONS
Farm and Ranch
The Farm and Ranch Division makes available to the local
member stores a wide range of products necessary for the
timely schedule of crop and livestock production. Such
products include garden tools, field sprayers, combine parts,
disc blades, baler twine, fencing material, and a full line of
livestock handling equipment. SF Services, Inc. attempts to
maintain a relationship with major manufacturers of these
products in order to guarantee a consistent supply of quality
products for its local members.
Petroleum
This division provides petroleum products, including gasoline
and diesel fuel, to its member stores. SF Services, Inc.
believes that it has a good relationship with suppliers having
strong domestic crude sources, and that this will help SF
Services, Inc. maintain a competitive position in the
agricultural petroleum market.
Tires, Batteries and Automotive
The TBA Division supplies tires, batteries and other
automotive accessories such as antifreeze and lubricants to
the member stores. Products supplied by the TBA Division
are for use in both farm equipment and personal vehicles.
The division operates truck routes out of North Little Rock,
Arkansas to place and service batteries. Farm lubricants
are sold in both small containers as well as bulk containers.
Chemical
The Chemical Division provides to the local member stores
various herbicides, crop protection chemicals, crop soil
surfactants and other adjuvants for use in the production of
such crops as rice, cotton, soybeans, wheat and sugar cane.
The products are also utilized in the development and
protection of pasture land. The products are delivered in a
full range of packaging including the delivery of bulk
reusable containers. This division also markets a
full line of small package lawn and garden products.
The Chemical Division also disseminates information to the
local member stores concerning proper use of crop protection
products. This includes information concerning container
disposal, proper storage and application, contingency planning
as well as compliance with state and federal environmental
regulations.
Fertilizer
The Fertilizer Division provides a full range of fertilizer
products, services and marketing programs. The fertilizer
products handled by the Fertilizer Division include all
nitrogen products as well as phosphate, potash and sulfur.
In addition to fertilizer storage, the division has the
capability to receive and unload barge loads of fertilizer
products. The division also has mixing and blending
capabilities at its North Little Rock, Arkansas facility.
Seed
The Seed Division is responsible for marketing and distributing
agricultural seed to SF Services, Inc.'s membership. The
division operates three seed processing and cleaning plants
located in Blytheville, North Little Rock and Forrest City,
Arkansas. Through these plants, the division contracts for
the production of both public and proprietary brands of seed
which is cleaned, processed and bagged at the plants following
harvest.
Feed
The Feed Division is a basic manufacturer of livestock,
aquaculture, horse and pet feeds. A wide variety of specialized
formulas are provided to meet the various needs of the dairy,
livestock, catfish, horse and pet industries. The division
operates six feed mills located in North Little Rock and
Fayetteville, Arkansas; Shreveport, Louisiana; and Lumberton,
Greenville and Macon, Mississippi.
Animal Health
The Animal Health Division is responsible for the marketing and
distribution of a full line of livestock pharmaceuticals and
related products for the care of livestock. This division
compliments the Feed Division by providing health related
products to the same customers using livestock, aquaculture,
horse and pet feeds.
Warehouse and Transportation
The Warehouse and Transportation Division operates the
primary product distribution center located in North Little
Rock, Arkansas. This division is responsible for the
warehousing and delivery of SF Services, Inc.'s products
sold to its customers. The division maintains a fleet of
truck tractors and trailers for its delivery function.
Field Services
The Field Services Division includes the departments of
Field Sales and Communications. The Field Sales department
promotes SF Services, Inc.'s programs and product lines
at the local store level. This department emphasizes
expansion of the SF Services, Inc.'s market area and
prepares and presents information to educate local
cooperatives in a variety of areas including products
and practices, cooperative development and member services.
The Communications department includes the functions of
member and public relations, advertising coordination and
program development. The advertising coordination function
provides direct support to the member cooperatives when
requested. This support includes ad slicks, mail stuffers,
and other advertising material. The member and public
relations function is responsible for the planning and
coordination of all SF Services, Inc.'s meetings held for
the local cooperatives. This includes the SF Services,
Inc.'s annual meeting, the summer cooperative managers'
meeting and the annual product shows. This division also
represents SF Services, Inc. and the local member
cooperatives in the development, promotion and coordination
of state and regional cooperative activities.
Corporate Services; Information Services; Credit and
Financial Analysis; and General Corporate
These divisions encompass a variety of functions which are
primarily administrative in nature. The functions include
finance, accounting, credit, strategic planning, facility and
property management, risk management, employee benefits
administration, and management support.
The Corporate Services Division also administers the
SF Services, Inc.'s health plan and 401(k) retirement
plan. These are multi-employer plans in which many of the
local member cooperatives participate. The division's risk
management group is responsible for placing and servicing
liability and casualty insurance for SF Services, Inc. and
for many of the local member cooperatives.
Technical Services
Technical Services is responsible for research.
Research may be either exploratory or for the scientific
procurement of information. This department is responsible
for the development and administration of the Technical
Assistance Joint Venture Program and Tech Service program.
These programs encompass agronomic and economic recommendations
to be used by local cooperatives and membership and
coordination of marketing planning for both regional and local
cooperative management. In addition, the department
administers and disseminates information regarding government
regulatory agencies relating to environmental matters,
OSHA and the Department of Transportation as may be applied
to the operations of SF Services, Inc. and member cooperatives.
Assistance is given to testing and remediation of
environmental problems when required.
Catfish Processing and Marketing
Catfish processing and marketing is located in Eudora,
Arkansas. Live catfish for processing are purchased
from local farmer producers located in Arkansas,
Mississippi and Louisiana. Approximately 32.7 million
pounds of live fish are purchased annually at a conversion
rate of about 45.3% yield resulting in approximately 14.9
million pounds of finished product. Sales consist of frozen
and fresh ice pack whole and fillet product with about 60%
frozen and 40% fresh. Primarily sales are made through
brokers to restaurant and grocery concerns.
NEA Oil Company
NEA Oil Company is a wholesale and retail fuel operation which
was acquired during the first quarter of 1997. This wholly-
owned subsidiary operates approximately 18 convenience stores
and sells wholesale fuel to non-member customers, primarily in
northeastern Arkansas.
ITEM 2: PROPERTIES
The principal offices of SF Services, Inc. are located in
North Little Rock, Arkansas. SF Services, Inc.'s other
facilities can be divided into two categories - distribution
and processing. The major distribution warehouse in North
Little Rock, Arkansas is on a concrete tilt-up slab
construction (280,000 square feet). This centralized
distribution warehouse serves SF Services Inc.'s Chemical;
Farm Supply; TBA; Feed; Animal Health; and Seed divisions.
The North Little Rock warehouse is supported by in-season
product storage warehouses at Blytheville, Arkansas; Forrest
City, Arkansas; Bunkie, Louisiana (a leased facility);
Evergreen, Louisiana; and Greenwood, Mississippi.
These metal warehouses are placed for quick product movement
and could handle up to 50% more product in season.
The Fertilizer Division distributes dry fertilizer products
from two warehouses in North Little Rock and one warehouse
in Jonesboro, Arkansas, which have combined storage capacities
of approximately 80,000 tons. These wood and treated metal
warehouses provide off-season and in-season storage. In
addition, approximately 50,000 tons of liquid fertilizer
is distributed through equipment owned by the Company at six
locations throughout Arkansas, Mississippi, and Louisiana,
and approximately 55,000 tons through eleven leased facilities
located in Arkansas, Louisiana, Mississippi, and Texas. The
fertilizer bagging facility in the North Little Rock, Arkansas
warehouse can increase its production to supply additional
demand. All distribution warehouses are kept in good operating
condition with an ongoing repair and maintenance program.
During 1997 the Company completed construction on two
fertilizer river terminals located in Memphis, Tennessee
and Greenville, Mississippi. The Memphis terminal has a
storage capacity 60,000 tons and the Greenville terminal
has a storage capacity 43,000 tons.
SF Services, Inc. operates six feed processing plants located
in North Little Rock, Arkansas (80,000 tons at 89% capacity);
Fayetteville, Arkansas (70,000 tons at 32% capacity);
Shreveport, Louisiana (70,000 tons at 43% capacity); Macon,
Mississippi (110,000 tons at 96% capacity); Lumberton,
Mississippi (100,000 tons at 100% capacity) and Greenville,
Mississippi (90,000 tons at 84% capacity). The facilities
at Fayetteville, Arkansas; Shreveport, Louisiana; Lumberton,
Mississippi; and Greenville, Mississippi are concrete mills,
and the ones at North Little Rock, Arkansas; and Macon,
Mississippi are of steel construction. All mills are in good
operating condition and are capable of running 100% of
capacity without materially changing or adding additional
equipment.
During the year ended October 31, 1997, the Seed Division
operated three seed plants located in Blytheville (600,000
bushel capacity), North Little Rock (160,000 bushel capacity)
and Forrest City (800,000 bushel capacity), Arkansas. Each
plant has up-to-date cleaning equipment with adequate bulk
and flat storage. The seed plant at North Little Rock,
Arkansas operated on an as needed basis with nominal
production for the fiscal year ended October 31, 1997. The
production of the Blytheville and Forrest City plants ran at
approximately 60% of capacity.
SF Services, Inc. acquired a manually operated catfish
processing plant in December, 1992 located in Eudora,
Arkansas. The facility is constructed of concrete foundation
and flooring with a metal building having offices, processing
area, ice pack cooler storage and freezer storage. Following
the acquisition, the plant was upgraded to an automated
operation through the addition of automated processing
equipment and the installation of an ammonia freezing system
and expanded freezer storage. The operating capacity of the
Eudora Facility is 40 million live weight pounds annually using
the current freezing and storage facility.
SF Services, Inc. has numerous other miscellaneous properties
which are leased to member cooperatives, subsidiaries, and
unrelated third parties, as well as several tracts of
undeveloped land. Some of the properties are used in subsidiary
operations, some are used by member cooperatives, and others
were acquired through foreclosures.
A listing of the locations of such properties by state and
town follows:
Louisiana Mississippi Arkansas
- ------------ -------------------------- ----------
Evergreen Belden New Albany Wynne
Eunice Natchez Raymond Stuttgart
Winnsboro Inverness Collins Augusta
Minden Sumner Vicksburg El Dorado
Iowa Wiggins
Mer Rouge
Moreauville
Farmerville
All of the facilities and properties listed in the above table
are held in fee by SF Services, Inc.
SF Services, Inc. believes that its facilities and properties
are adequate for its current needs and for any anticipated
future needs.
ITEM 3: LEGAL PROCEEDINGS
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE AND SECURITY
HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
No market exists for trading of shares of SF Services,
Inc.'s common stock. SF Services, Inc.'s common stock
cannot be transferred by the holders thereof without prior
approval of the Board of Directors and then only to persons
meeting the requirements to be a shareholder as specified in
the bylaws. No dividends may be paid on SF Services, Inc.'s
common stock.
The number of shareholders of record for SF Services, Inc.'s
common stock as of January 27, 1998 was 124.
ITEM 6: SELECTED FINANCIAL DATA
The following is a summary of selected historical financial
data of SF Services, Inc. as of and for the years ended October
31, 1997, 1996, 1995, 1994 and 1993. The financial data has
been derived from the "Consolidated Financial Statements of
SF Services, Inc.," which have been audited by Baird, Kurtz &
Dobson, independent certified public accountants.
The financial data should be read in conjunction with the
"Consolidated Financial Statements and Footnotes" included
elsewhere herein. Particular attention is directed to
Footnote "Acquisitions."
Year Ended Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31, October 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Thousand Dollars)
NET SALES $622,867 $590,480 $530,821 $439,171 $382,545
SAVINGS
(LOSS)
BEFORE
EXTRA-
ORDINARY
ITEM $(17,740) $ 2,072 $ 2,703 $ 3,954 $ 2,263
AT PERIOD END:
TOTAL
ASSETS $188,795 $192,122 $199,662 $159,527 $143,777
LONG-TERM
NOTES
PAYABLE,
NET OF
CURRENT
MATURITIES $ 33,031 $ 22,309 $ 19,843 $ 27,805 $ 30,986
TOTAL
LONG-TERM
OBLIGATIONS $ 33,200 $ 22,477 $ 20,072 $ 29,437 $ 32,221
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The primary products sold by SF Services, Inc., include
processed catfish, farm supply products, animal and fish
feeds, agricultural fertilizers, seeds and chemicals, and
petroleum products. These products are sold primarily to
124 local cooperative retail stores serving the individual
farmer producer, and other non-member customers. 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 animal feed
divisions may be impacted by seasonal changes, as well
as variations in ingredient prices which create changes
in the dollar volume of sales. SF Services, Inc.'s
business cycle is highly seasonal and can be advanced
or delayed by wet, dry, hot, or cold weather conditions.
Total 1997 sales increased approximately 5.5% over the
previous year. Increased sales were realized in Animal
Health, Seed, and Petroleum, while decreases in sales
were realized in Feed, Farm and Ranch, Fertilizer, Chemicals,
TBA, and Catfish Processing. Further analysis of departmental
sales is included under the comparative analysis between
fiscal years which follows.
Cost of sales were 93.6% of sales in 1997 compared to 94.2%
in the previous year. Further analysis of cost of sales
by department is included under the comparative analysis
between fiscal years which follows.
As a result of the factors described in the two preceding
paragraphs, gross profit for the year ended October 31,
1997 increased approximately $5.1 million (15%). Further
analysis of gross profit is included under the comparative
analysis between fiscal years which follows.
Net savings decreased $19.8 million. This decrease was
due primarily to increased operating expenses and increased
interest costs. Also, there was $17.9 million gain on sales
of stock in the prior year.
On August 22, 1994, Mississippi Chemical Corporation ("MCC"),
formerly a Cooperative, became a public entity and the
Company's investment in common stock and allocated equities
of MCC were converted to common stock in the new entity.
Effective July 1, 1994, the Company ceased to receive
patronage refunds from MCC on business done with MCC
subsequent to July 1, 1994.
During 1996, the Company sold 1,525,720 shares of MCC stock.
The sales resulted in a gain of $17,863,024 on proceeds of
$34,027,573.
Subsequent Events
During the first quarter of 1998, the Company sold seven
convenience store locations through a sale/leaseback
transaction. No gain or loss resulted from this transaction.
Proceeds of $2.68 million were used to pay down term debt
with CoBank.
Comparative Analysis of the Fiscal Year Ended October 31, 1997
to the Fiscal Year Ended October 31, 1996
Net sales for the fiscal year ended October 31, 1997
increased approximately 5.5% over the prior year. This
increase was attributable to the following factors:
Farm and Ranch sales decreased approximately 16% due
primarily to a $3 million decline in sales of steel products
and a $2 million decline in sales of agronomy equipment. Gross
margin declined to 7.6% of sales compared to 9.1% in the prior
year. This decrease was primarily the result of the continuing
shift to more direct sales, which carry a lower gross profit
percent.
Feed sales decreased approximately 10% due to a 30,000 ton
decline in beef feeds and a 20,000 ton decline in dairy feeds.
These declines were due to lower livestock numbers in the trade
area and a mild winter season. Gross profit decreased $1.3
million due to the decline in sales , unfavorable ingredient
prices early in the year which were not passed on the
customers, and higher per ton manufacturing costs.
Animal Health sales increased approximately 2% due to improved
market conditions and the producers focus on herd health.
Gross profit as a percent of sales decreased from approximately
10% in 1996 to 7% in 1997. This decrease was due to
competitive situations in the market.
TBA sales decreased 3.5% due to some loss of market share and
the compressed spring season caused by wet weather conditions.
Gross profit as a percent of sales decreased from 13.9% in 1996
to 12.5% in 1997. This decrease was due to increased tire
adjustment costs and lower commissions from vendors.
Petroleum sales increased approximately 48% due to increased
brokered sales to non-member customers. Gross profit as a
percent of sales decreased to 1.5% from 2% in the previous
year. This decrease in gross profit as a percent of sales
was due to the increase in non-member brokered sales, which
carry a lower percent gross profit.
Fertilizer sales decreased approximately 8% due to lower per
unit sales prices. Total tons sold increased approximately
11,000 tons (1%). Gross profit as a percent of sales decreased
to approximately 4% from 5% in the previous year. This
decrease was due primarily to the decline in nitrogen
fertilizer prices during the year.
Chemical sales decreased 8% due to the use of more transgenic
crops, which displace a portion of the agricultural chemical
sales. Also, there were increased sales of generic products,
which sell at lower per unit prices. Gross profit as a percent
of sales increased to approximately 7% from 6% in the previous
year due to higher commission income.
Seed sales increased 15% due to increased sales of Roundup Ready
soybeans. Gross profit as a percent of sales decreased 0.50%
due to the poor wheat crop as a result of unfavorable weather
conditions in the trade area.
Processed catfish sales decreased approximately 13% due to
fewer sales of processed fish purchases from other processors
for resale ("outside fish"). Total units processed remained at
approximately the same level as experienced during the prior
year period. Gross margin improved approximately $3.6 million
due to lower prices paid for live fish and improved processing
efficiency.
NEA Oil Company sales were approximately $41.7 million in 1997
compared to zero in the prior year. Gross profit as a percent
of sales was approximately 9.6% in 1997.
Operating expenses increased approximately 24% over the
previous year. This increase was due to the following
factors.
* $1.4 million in increased expenses associated with the
full year of operating costs at the Greenville and
Memphis fertilizer terminals, including $400,000 of
additional payroll and related expenses, $258,000 of
additional depreciation, and $387,000 of additional
maintenance and repair costs.
* $1 million in increased expenses associated with the
new computer system, including $98,000 in additional
telecommunication costs, $381,000 in costs for
outsource services, $237,000 of additional lease cost,
and $157,000 of additional depreciation.
* $719,000 in increased expenses associated with increased
operations at the Blytheville and Forrest City seed
plants, including $335,000 of additional payroll
and related costs, $34,000 of additional maintenance and
repairs, and $14,000 of additional utilities, and $63,000
of additional storage costs.
* $672,000 for additional severance pay and related
expenses associated with the closing of 10 company
owned retail stores and work force reductions in other
areas of the Company.
* $877,000 for an asset value adjustment associated
with the write-off of a computerized product guide.
* $2.2 million in provision for bad debts, including
approximately $870,000 associated with the closing
of 10 company owned retail stores.
Comparative Analysis of the Fiscal Year Ended October 31, 1996
to the Fiscal Year Ended October 31, 1995
Net sales for the fiscal year ended October 31, 1996
increased approximately 11.2% over the prior year. This
increase was attributable to the following factors:
Farm and Ranch sales decreased approximately 8% due to the
severe decline in the price of beef cattle, which caused
producers to reduce their purchases. Gross margin
increased to 9.4% of sales compared to 9.1% in the prior
year. This increase was mainly due to better purchasing
and product positioning.
Feed sales increased approximately 27% over the previous year
due primarily to increased feed prices caused by the higher
cost of ingredients. Total tons sold increased approximately
25,000 tons (5.6%) due to a gain in market share. Gross
margin decreased approximately $926,000 due to higher
ingredient costs which were not passed on to the customer.
Animal Health sales decreased approximately 4% due to
the lower livestock prices, which caused producers to reduce
their purchases. The lower livestock prices also caused
significant liquidation of cow/calf units in the trade area.
Gross margin as a percent of sales decreased to 10.25% from
10.5% in the previous year. This decrease was due to
competitive pressure for the fewer livestock units in the
market.
TBA sales decreased approximately 3% due to the late passing
of the Farm Bill which caused producers to reduce purchases.
The decrease was also caused by some loss of market share due
to strong competitive pricing from tire manufacturers. Gross
margin as a percent of sales remained approximately the same
as experienced in the previous year.
Petroleum sales increased approximately 86%. This increase
was due to a gain in market share which was lost in previous
years because of competitive pricing and a lack of sufficient
transportation. Also, sales of diesel fuel used in irrigation
wells realized a strong increase due to the dry summer
weather. Total gallons sold increased approximately 65% to
115 million gallons. Gross margin as a percent of sales
decreased to 2.0% from 2.7% in the previous year. This
decrease was due to changes in suppliers' volume rebate
purchase programs.
Fertilizer sales increased approximately 7% due to a gain
in market share. Total tons sold increased approximately
104,000 tons (13%). Gross margin as a percent of sales was
5.1% compared to 2.6% in the previous year. This increase was
due to more favorable market conditions than were experienced
in the previous year. Also, more product was sold through
the Company's facilities, which generates a higher margin.
Chemical sales decreased approximately 11% due to changes in
cropping patterns in the trade area. More corn acres were
planted, replacing cotton acreage, which requires more
chemical applications. Gross margin as a percent of sales
increased to 6.3% from 5.9% in the previous year. This
increase was due to an effort to increase margins to offset
the decline in sales volume.
Seed sales increased approximately 21% because of cotton being
replaced by corn, which has a higher unit value than cotton.
Also, sales of soybean and wheat seed increased. Gross margin
as a percent of sales increased to 10.0% from 9.1% in the
previous year. This increase was due to increased
proprietary seed sales, which carry a higher margin than
public variety products. The introduction of biotechnology
seed products also provided the opportunity to increase
margins.
Processed catfish sales decreased approximately 3% due to
lower processing levels caused by a lack of quality fish
available for processing. Gross margin decreased
approximately $2.1 million due to higher live fish cost
caused by the inadequate supply of quality fish, and a
higher per unit processing cost caused by the inefficiency
of lower processing levels.
Operating expenses increased approximately 49.2% over the
previous year. This increase was due to the following
factors.
* $826,000 of increased expenses due to the addition of
two additional retail locations, including $370,000 of
additional payroll and related costs, $129,000 of
additional rent expenses, $81,000 of additional
maintenance costs, $36,000 of additional vehicle
costs, and $44,000 in additional depreciation.
* $1.5 million of increases at existing retail locations
including $391,000 of additional payroll and related
costs, $221,000 of additional rent expenses, $85,000
of additional maintenance costs, and $344,000 of
increased bad debt expense.
* $1.1 million of increased expenses associated with the
implementation of a new computer system, including
$320,000 of additional payroll and related costs for
additional analysts, $90,000 of additional rent expense,
$70,000 of additional employee training costs, $100,000
of additional telecommunications costs, and $310,000 for
a computer maintenance and operating contract with an
outside firm.
* $1.1 million associated with new fertilizer terminal
operations, including $300,000 of additional payroll and
related costs, $284,000 of additional demurrage and
storage costs, $20,000 of additional rent expense, $64,000
of additional maintenance costs, and additional utilities of
$50,000, and $25,000 of additional insurance expense.
* $487,000 of increased costs due to additional petroleum
transportation operations which added six units, including
$220,000 of payroll and related costs, $80,000 of fuel costs,
and $56,000 in rent costs.
* $273,000 of increased costs due to the addition of a new
office building, including $98,000 of additional
maintenance costs, and $100,000 in additional utilities.
* $5.5 million of increased costs due to asset impairment
adjustments as more fully described in Note 19 to the
Financial Statements.
During 1996, the Company recognized expenses of approximately
$5.0 million to reduce the carrying value of the Eudora,
Arkansas catfish processing plant and the Greenville,
Mississippi feed mill, the values of which have been impaired
due to continued losses resulting from excessive operating
costs. Also, during 1996 the Company recognized expenses of
approximately $516,000 to reduce the carrying value of various
abandoned properties. The amount of the impairments were
estimated based on appraisals performed during the year and
expected future cash flows. These estimates could change
materially in the future.
Liquidity and Capital Resources
Cash provided by operating activities was approximately $5.8
million in 1997 compared to approximately $28.5 million
used in the previous year. This increase in cash provided
by operating activities is due to the reduction of
inventory, primarily fertilizer. Cash used in investing
activities was approximately $10.2 million in 1997 compared
to approximately $24.5 million provided by investing activities
in the prior year. This increase in cash used by investing
activities was due to increased investment in fixed assets,
and there were $34 million of MCC stock sales in the prior
year. Cash provided by financing activities was
approximately $6 million in 1997 compared to approximately
$6.6 million in the previous year. This decrease was due to an
increase in bank debt offset by a reduction in patrons' deposits.
The allowance for doubtful accounts increased to $3,241,948
from $950,000. Analysis of the current accounts and a
review of collection history does not indicate that losses
would be expected to exceed the current reserve balance.
Historically, most of SF Services, Inc.'s financing has been
with CoBank. CoBank has provided the Company with an $80
million seasonal line of credit , of which approximately $76.5
million was used at October 31, 1997. The Company also
has $29.5 million in term loans with CoBank with annual payments
of $2.98 million. During 1997, the Company obtained a formal
waiver from CoBank with respect to covenant violations
concerning capitalized leases, working capital, and
capitalization ratios (see Note 7 to the Financial Statements).
The Company is currently making 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.
Year 2000 Issue
During 1997 the Company completed the implementation of a new
computer system. The software used by this new system
can be upgraded to be year 2000 compliant, therefore, the
Company does not expect any material expenses relating to its
primary operating software. In addition, the Company is in
the process of forming a task force to examine other areas in
and outside the Company which may be required to be updated
to be year 2000 compliant, or which may otherwise affect the
Company.
Reorganization and Operating Outlook
Management recognizes that operating margins have been low
across all business segments of the Company and operating
costs have been increasing significantly. A new president and
CEO was employed by the board of directors in October 1996 and
plans for restructuring the Company operations have been
developed for implementation beginning in January 1998.
The Company is restructuring the field sales force from one
that was product specific to one that covers all products in
a geographic area. This reduced number of field sales staff
will be supported by a centralized group of technical and
product specialists. The total number of sales and technical
personnel will be significantly reduced.
Accounting personnel which were assigned to operating divisions
have been centralized into a single corporate accounting function.
This change was made possible following implementation of the new
integrated computer system, and will result in a significant
reduction in clerical accounting positions.
Product specific operating divisions have been consolidated into
three major areas; livestock production, crop production, and
general farm supplies, to more efficiently support the operating
business units.
The number of employees in the Technical Services division was
reduced by closing unprofitable sites.
Transportation and warehouse functions were consolidated across
the Company. One-half of the truck fleet has been sold,
maintenance shops are being closed, and the North Little Rock
warehouse will cease being used as a major distribution point
during March, 1998. The Company has switched to third party
contract and brokered hauling at a substantially lower cost.
Additionally, three Arkansas chemical warehouses are being
consolidated into one location.
While exiting the warehouse and distribution service, the
Company is replacing the purchasing and storing of inventory
by making alliances with major suppliers of products in
Animal Health, Farm and Ranch, TBA, and small package seed
and chemical products. The alliances with major suppliers
provide for the products to be delivered directly from the
supplier's warehouse to our customer. The Company takes the
order and invoices the customer, and then places the orders
with the supplier. The Company is entering into a joint venture
arrangement with a major agricultural chemical distributor
to handle all of the agricultural chemical business. The joint
venture would provide the Company an ownership interest that
would increase the earning potential for this business
segment while relieving the Company of carrying inventory
and accounts receivable relating to agricultural chemicals.
In January 1998, the company closed ten (10) unprofitable retail
stores located in Mississippi, Arkansas, and Louisiana. The
stores had a history of losses and were requiring working
capital and management attention needed in other areas of the
Company. Fourteen (14) retail locations remain following these
closings.
The results of these plans will eliminate more than 150 employees,
reduce annual operating expenses approximately $15 million,
and reduce inventory and accounts receivable by approximately
$44 million.
ITEM 8: FINANCIAL STATEMENTS
SF Services, Inc.
Accountants' Report
and Financial Statements
October 31, 1997 and 1996
Independent Accountants' Report
Board of Directors
SF Services, Inc.
North Little Rock, Arkansas
We have audited the accompanying consolidated balance
sheets of SF SERVICES, INC. as of October 31, 1997 and 1996,
and the related consolidated statements of operations, changes
in members' equity and cash flows for each of the three years
in the period ended October 31, 1997 and the financial statement
schedule included in Item 14(a)(2). These financial statements
and schedule are the responsibility of the Cooperative's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of SF SERVICES, INC. as of October 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the
three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles. Also, In our opinion, the
financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required
to be included therein.
As discussed in Note 19 to the consolidated financial
statements, in 1996 the Cooperative adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Baird, Kurtz, & Dobson
Little Rock, Arkansas
January 16, 1998
SF SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
ASSETS
1997 1996
CURRENT ASSETS
Cash $ 4,809,079 $ 3,214,419
Accounts receivable,
less allowance for
doubtful accounts;
1997 - $3,241,948,
1996 - $950,000 43,456,434 40,268,809
Accounts receivable - other 6,299,366 6,287,292
Income taxes receivable 3,128,485
Note receivable -
current portion 2,707,173 2,184,287
Inventories 62,903,882 84,215,934
Patronage distributions
receivable 197,319 168,147
Deferred income taxes -
current 834,738
Other 1,329,435 1,253,263
----------- -----------
Total Current Assets 124,831,173 138,426,889
----------- -----------
INVESTMENTS AND
LONG-TERM RECEIVABLES
Notes receivable 2,921,728 3,154,281
Investments in other
cooperatives 13,549,277 12,974,801
Deferred income taxes -
long term 1,145,844
----------- -----------
16,471,005 17,274,926
----------- -----------
PROPERTY AND EQUIPMENT, At Cost
Land and improvements 6,187,878 3,594,565
Buildings 26,208,590 19,236,628
Machinery and equipment 27,109,855 20,438,434
Automobiles and trucks 1,714,562 1,478,513
Furniture and fixtures 5,182,286 4,636,169
Leasehold interests 2,106,038
Construction in progress 3,161,855 8,269,079
----------- -----------
71,671,064 57,653,388
Less accumulated depreciation 24,909,488 21,996,709
----------- -----------
46,761,576 35,656,679
----------- -----------
OTHER ASSETS 731,662 763,565
----------- -----------
$188,795,416 $192,122,059
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
1997 1996
CURRENT LIABILITIES
Note payable $ 76,518,530 $ 65,582,931
Interest payable 1,315,553 222,015
Debentures 1,223,000 1,342,009
Current maturities of
long-term debt 4,801,464 3,013,819
Accounts payable 28,130,453 29,094,690
Patrons' deposits 4,010,610 14,175,462
Accrued expenses 6,236,470 4,287,813
Income taxes payable 739,683
----------- -----------
Total Current Liabilities 122,236,080 118,458,422
----------- -----------
LONG-TERM DEBT 33,031,344 22,309,220
----------- -----------
OTHER LIABILITIES 168,934 168,200
----------- -----------
MEMBERS' EQUITY
Capital stock
Class "A" preferred 2,047,100 2,079,600
Class "B" convertible preferred 676,400 676,400
Common stock 125,000 125,000
Capital certificates 102,709 157,399
Retained earnings (deficit) (5,674,214) 309,478
Allocated equities 36,082,063 47,838,340
----------- -----------
33,359,058 51,186,217
----------- -----------
$188,795,416 $192,122,059
=========== ===========
SF SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
NET SALES $622,867,444 $590,480,357 $530,820,976
COST OF GOODS SOLD 583,275,706 556,030,450 500,731,715
----------- ----------- -----------
GROSS PROFIT 39,591,738 34,449,907 30,089,261
OTHER OPERATING REVENUE 1,420,305 1,957,519 542,926
----------- ----------- -----------
GROSS MARGIN AND OTHER
OPERATING REVENUE 41,012,043 36,407,426 30,632,187
OPERATING EXPENSES 54,655,649 44,958,673 30,131,789
----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (13,643,606) (8,551,247) 500,398
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 2,147,412 1,592,666 1,526,514
Interest expense (8,617,116) (5,939,801) (6,396,350)
Dividend income 123,154 530,037
Miscellaneous 938,677 662,240 146,070
Gain on sale of MCC stock 17,863,024 8,590,955
----------- ----------- -----------
(5,531,027) 14,301,283 4,397,226
----------- ----------- -----------
SAVINGS (LOSS) BEFORE
INCOME TAXES (19,174,633) 5,750,036 4,897,624
PROVISION (CREDIT)
FOR INCOME TAXES (1,434,664) 3,677,875 2,194,361
----------- ----------- -----------
NET SAVINGS (LOSS) $(17,739,969) $ 2,072,161 $ 2,703,263
=========== =========== ===========
NET SAVINGS (LOSS)
APPLIED TO:
Allocated equities
Capital equity credits $(11,756,277) $ $
Cash 1,699,111
----------- ----------- -----------
(11,756,277) 1,699,111
Retained earnings (5,983,692) 2,072,161 1,004,152
----------- ----------- -----------
$(17,739,969) $ 2,072,161 $ 2,703,263
=========== =========== ===========
SF SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
Convertible
Preferred Preferred Preferred
Stock Stock Stock
Class "A" Class "B" Class "D"
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1994 $ 2,189,300 $ 676,400 $ 1,562,580
ISSUANCE OF STOCK
NET SAVINGS
CAPITAL EQUITY
CREDITS ISSUED AS
PATRONAGE
DISTRIBUTIONS
MERGER WITH DELTA
PURCHASING
FEDERATION (AAL)
CAPITAL EQUITY
CREDITS PAID
RETIREMENT OF
COMMON STOCK
DIVIDENDS ON
PREFERRED STOCK
RETIREMENT OF
PREFERRED STOCK (49,900) (1,562,580)
RETIREMENT OF
ALLOCATED EQUITIES
CHANGE IN UNREALIZED
GAIN OR LOSSES
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1995 $ 2,139,400 $ 676,400 $ -0-
=========== =========== ===========
ISSUANCE OF STOCK
NET SAVINGS
RETIREMENT OF
COMMON STOCK
DIVIDENDS ON
PREFERRED STOCK
RETIREMENT OF
PREFERRED STOCK (59,800)
RETIREMENT OF
ALLOCATED EQUITIES
OFFSET AGAINST
ACCOUNTS RECEIVABLE
CHANGE IN UNREALIZED
GAIN ON SECURITIES
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1996 $ 2,079,600 $ 676,400 $ -0-
=========== =========== ===========
NET SAVINGS(LOSS)
CAPITAL EQUITY
CREDITS PAID
RETIREMENT OF
PREFERRED STOCK (32,500)
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1997 $ 2,047,100 $ 676,400 $ -0-
=========== =========== ===========
Retained
Common Capital Earnings
Stock Certificates (Deficit)
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1994 $ 123,000 $ 157,399 $ (2,501,778)
ISSUANCE OF STOCK 7,000
NET SAVINGS 2,703,263
CAPITAL EQUITY
CREDITS ISSUED AS
PATRONAGE
DISTRIBUTIONS (1,699,111)
MERGER WITH DELTA
PURCHASING
FEDERATION (AAL)
CAPITAL EQUITY
CREDITS PAID
RETIREMENT OF
COMMON STOCK (3,000)
DIVIDENDS ON
PREFERRED STOCK (134,021)
RETIREMENT OF
PREFERRED STOCK
RETIREMENT OF
ALLOCATED EQUITIES
CHANGE IN UNREALIZED
GAIN OR LOSSES
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1995 $ 127,000 $ 157,399 $ (1,631,647)
=========== =========== ===========
ISSUANCE OF STOCK 2,000
NET SAVINGS 2,072,161
RETIREMENT OF
COMMON STOCK (4,000)
DIVIDENDS ON
PREFERRED STOCK (131,036)
RETIREMENT OF
PREFERRED STOCK
RETIREMENT OF
ALLOCATED EQUITIES
OFFSET AGAINST
ACCOUNTS RECEIVABLE
CHANGE IN UNREALIZED
GAIN ON SECURITIES
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1996 $ 125,000 $ 157,399 $ 309,478
=========== =========== ===========
NET SAVINGS(LOSS) (5,983,692)
CAPITAL EQUITY
CREDITS PAID (54,690)
RETIREMENT OF
PREFERRED STOCK
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1997 $ 125,000 $ 102,709 $ (5,674,214)
=========== =========== ===========
Unrealized
Gain on
Securities
Allocated Reported at
Equities Fair Value Total
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1994 $ 45,046,212 $ 8,936,166 $ 56,189,279
ISSUANCE OF STOCK 7,000
NET SAVINGS 2,703,263
CAPITAL EQUITY
CREDITS ISSUED AS
PATRONAGE
DISTRIBUTIONS 1,699,111
MERGER WITH DELTA
PURCHASING
FEDERATION (AAL) 4,498,888 4,498,888
CAPITAL EQUITY
CREDITS PAID (1,699,111) (1,699,111)
RETIREMENT OF
COMMON STOCK (3,000)
DIVIDENDS ON
PREFERRED STOCK (134,021)
RETIREMENT OF
PREFERRED STOCK 1,110,456 (502,024)
RETIREMENT OF
ALLOCATED EQUITIES (2,300,889) (2,300,889)
CHANGE IN UNREALIZED
GAIN OR LOSSES 2,119,466 2,119,466
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1995 $ 48,354,667 $ 11,055,632 $ 60,878,851
=========== =========== ===========
ISSUANCE OF STOCK 2,000
NET SAVINGS 2,072,161
RETIREMENT OF
COMMON STOCK (4,000)
DIVIDENDS ON
PREFERRED STOCK (131,036)
RETIREMENT OF
PREFERRED STOCK (59,800)
RETIREMENT OF
ALLOCATED EQUITIES (418,836) (418,836)
OFFSET AGAINST
ACCOUNTS RECEIVABLE (97,491) (97,491)
CHANGE IN UNREALIZED
GAIN ON SECURITIES (11,055,632) (11,055,632)
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1996 $ 47,838,340 $ -0- $ 51,186,217
=========== =========== ===========
NET SAVINGS(LOSS) (11,756,277) (17,739,969)
CAPITAL EQUITY
CREDITS PAID (54,690)
RETIREMENT OF
PREFERRED STOCK (32,500)
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1997 $ 36,082,063 $ -0- $ 33,359,058
=========== =========== ===========
SF SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
CASH FLOWS FROM
OPERATING ACTIVITIES
Net savings (loss) $ (17,739,969) $ 2,072,161 $ 2,703,263
Items not requiring
(providing) cash:
Depreciation and
amortization 3,571,355 2,239,498 2,951,534
Non-cash portion of
patronage dividends
received from
cooperatives (801,549) (1,614,598) (1,284,542)
(Gain) loss on sale
of fixed assets (251,413) (67,348) (202,182)
Gain on sale of
investment (17,863,024) (8,590,955)
Deferred income taxes 1,980,582 (3,392,985) 1,412,403
Writedown of fixed assets
for impairment 877,040 5,497,348
Changes in operating
assets and liabilities,
net of effects from
acquisition of Delta
Purchasing Federation
(AAL) assets:
Accounts payable 916,188 1,833,597 (2,580,816)
Accrued expenses 1,948,657 1,548,535 104,653
Accounts and notes
receivable from
customers (2,459,947) 2,384,932 (7,840,391)
Income taxes receivable (3,128,485)
Inventories 21,972,529 (16,938,041) (11,918,494)
Other current assets 409,798 570,208 1,329,734
Accounts receivable -
other (798,961) (3,730,846) (903,365)
Due from broker 131,868
Patronage distributions
receivable (29,172) (49,740) (11,349)
Income taxes payable (739,683) (42,275) 749,636
Other assets 31,903 (928,551) 828,656
Other liabilities 734 (61,206) (144,804)
----------- ----------- -----------
Net cash provided by
(used in) operating
activities 5,759,607 (28,542,335) (23,265,151)
----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property
and equipment (11,242,951) (10,449,820) (13,465,151)
Proceeds from sale of
property and equipment 805,955 600,198 2,578,737
Net cash received in
the acquisition of
Delta Purchasing
Federation (AAL) assets 977,428
Net cash received in
the acquisition
of Matthews of
Monette, Inc. assets 13,055
Proceeds from investment
redemption and sale 227,073 34,329,962 18,455,358
----------- ----------- -----------
Net cash provided by
(used in) investing
activities (10,196,868) 24,480,340 8,546,372
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance of common stock $ $ 2,000 $ 7,000
Dividends on
preferred stock (131,036) (134,021)
Patronage dividends
paid and retirement
of preferred stock (32,500) (59,800) (4,428,170)
Retirement of capital
certificates (54,690)
Repurchase of common
stock (4,000) (3,000)
Retirement of
allocated equities (418,836)
Proceeds from borrowings 183,886,118 191,317,056 197,981,565
Repayment of borrowings (167,602,155) (188,547,986) (176,528,060)
Net change in deposits (10,164,852) 4,473,637 (2,714,022)
----------- ----------- -----------
Net cash provided by
financing activities 6,031,921 6,631,035 14,181,292
----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS 1,594,660 2,569,040 (537,487)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,214,419 645,379 1,182,866
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 4,809,079 $ 3,214,419 $ 645,379
=========== =========== ===========
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business
SF Services, Inc. and subsidiaries sell seed, feed,
fertilizer, chemicals, petroleum, lubricants, tires, batteries,
accessories, and farm supplies and provide related services to
members and patrons of the Cooperative and its subsidiaries.
One subsidiary processes and markets catfish purchased from
area producers and another subsidiary operates convenience
stores and sells petroleum on a wholesale basis.
The Cooperative and its subsidiaries sell to members,
patrons and wholesale entities in Alabama, Arkansas,
Louisiana, Kansas, Mississippi, Texas, Oklahoma and Missouri
on an unsecured credit basis.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Cooperative and its wholly-owned subsidiaries, AgGrow
Finance, Inc., SFA, Inc., SF Technical Services, Inc., Southern
Farm Fish Processors, Inc. and Northeast Arkansas Oil Co., LLC.
Included with SFA, Inc., are its wholly-owned subsidiaries SFA
of Louisiana, Inc., and SFA of Mississippi, Inc., which were
formed on April 22, 1995 for retail operations in the respective
states. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Inventories
Grains, seed and petroleum inventories are stated at the
lower of market or cost, weighted average method. To reduce
price risk caused by market fluctuations, the Cooperative
follows a policy of hedging a portion of its production
requirements and sales commitments using readily marketable
exchange traded futures contracts and forward contracts (see
Note 18). The changes in market value of such contracts have
a high correlation to the price changes of the hedged
commodity. Losses, if any, on unhedged sales commitments are
recognized based on current market prices of ingredients.
Gains or losses arising from open and closed hedging
transactions are included in inventories as a cost of
the commodities and reflected in the statements of earnings
when the product is sold.
The remaining inventories are stated at the lower of
market or cost, weighted average method.
A summary of inventories follows:
1997 1996
Purchased items held for resale $ 57,222,122 $ 78,816,793
Manufactured feed and
feed ingredients 3,554,592 3,174,337
Processed catfish 2,127,168 2,224,804
----------- -----------
$ 62,903,882 $ 84,215,934
=========== ===========
Property and Equipment
Depreciation is provided for primarily by the straight-line
method using the following estimated useful lives:
Useful Lives
Buildings and improvements 5 - 33 years
Machinery and equipment 2 - 20 years
Automobiles and trucks 3 - 5 years
Furniture and fixtures 5 - 15 years
Patrons' Equities
In accordance with its bylaws, the Cooperative allocates net
savings to its patrons, based on income determined for financial
reporting purposes, in cash, and certificates of equity in
proportions determined by its Board of Directors.
New members are issued one share of common stock. At
any time a member ceases to be active, such shares are
redeemed at par value.
The Cooperative capitalizes interest costs as a component
of construction in progress, based on the weighted average rates
paid for long-term borrowings. Total interest incurred (net of
patronage refunds) was:
1997 1996 1995
Interest costs capitalized $ 217,329 $ 479,943 $
Interest costs charged
to expense 8,617,116 5,939,801 6,396,350
----------- ----------- -----------
Total interest incurred $ 8,834,445 $ 6,419,744 $ 6,396,350
=========== =========== ===========
Income Taxes
The Cooperative, as a non-exempt cooperative, is taxed
on non-patronage margins and any patronage margins not paid or
allocated to patrons. Consistent with industry practice,
deferred income taxes are not provided for temporary tax
differences associated with patronage earnings. The
Cooperative's subsidiaries are not required to pay or allocate
margins to patrons and, therefore, are taxed on applicable
margins and are able to retain all tax benefits related to
losses to the extent such benefits are recoverable from prior
taxes paid.
Deferred tax liabilities and assets are recognized for
the tax effects of differences between the financial statement
and tax basis of assets and liabilities related to non-patronage
margins and unrealized gain on marketable securities. A
valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will
not be realized.
Temporary tax differences relate principally to
non-qualified patronage distributions received from other
cooperatives, inventories, depreciation on property and equipment,
valuation of property and equipment, accrued expenses, and
market value over tax basis of marketable securities.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
NOTE 2: ACCOUNTS RECEIVABLE
Provision for doubtful accounts:
1997 1996 1995
$ 3,653,000 $ 1,362,000 $ 127,397
Accounts receivable - other:
1997 1996
Vendor rebates $ 5,068,599 $ 2,322,396
Other 1,230,767 1,855,896
Proceeds from new leases 2,109,000
----------- -----------
$ 6,299,366 $ 6,287,292
=========== ===========
NOTE 3: MARKETABLE SECURITIES
On August 22, 1994, Mississippi Chemical Corporation
(MCC), formerly a Cooperative, became a public entity and the
Cooperative's investment in common stock and allocated
equities of MCC were converted to common stock in the new
entity. The Cooperative sold its converted common stock during
the years ended October 31 as follows:
1996 1995
Shares sold 1,525,720 875,000
=========== ===========
Proceeds $ 34,027,573 $ 17,812,493
=========== ===========
Gain on sale $ 17,863,024 $ 8,590,955
=========== ===========
The average cost method was used to determine cost basis on
these sales.
NOTE 4: ACCRUED EXPENSES
Accrued expenses consisted of the following:
1997 1996
Accrued taxes payable,
other than income taxes $ 1,598,427 $ 1,368,468
Accrued leave 1,507,369 1,365,115
Accrued payroll 1,996,299 757,222
Miscellaneous accruals 1,134,375 797,008
----------- -----------
$ 6,236,470 $ 4,287,813
=========== ===========
NOTE 5: INVESTMENTS IN OTHER COOPERATIVES
The Cooperative invests in other cooperatives with
which it does business. Investments in those other cooperatives
were as follows:
1997 1996
CoBank $ 7,890,414 $ 7,705,494
Farmland Industries, Inc. 2,933,225 2,491,005
Universal Cooperatives, Inc. 2,030,883 2,023,627
AG Processing 552,111 491,805
Other 142,644 262,870
----------- -----------
$ 13,549,277 $ 12,974,801
=========== ===========
These investments consist of common stock, at cost, and
the Cooperative's share of allocated equities. Allocated
equities are valued at face amount as determined by the issuing
entity and are redeemable by the entity at its discretion at
an amount determined annually. Patronage refunds, which consist
of cash and non-cash equity allocations, are credited to cost of
goods sold, with the exception of patronage refunds from CoBank,
which are credited to interest expense.
The amount of allocated equities previously allocated
to SF Services, Inc., to be retired during 1997 and 1996 has
been included in patronage distributions receivable at October 31,
1997 and 1996.
Patronage distributions received for the years ending
October 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
Amount credited to
cost of goods sold $ 1,566,432 $ 1,482,570 $ 341,061
Amount credited to
interest expense 740,077 677,675 707,538
----------- ----------- -----------
$ 2,306,509 $ 2,160,245 $ 1,048,599
=========== =========== ===========
NOTE 6: NOTE PAYABLE
1997 1996 1995
Note payable
CoBank $ 76,518,530 $ 65,582,931 $ 65,432,437
=========== =========== ===========
Average interest
rate during the
period* 7.95% 7.19% 7.64%
=========== =========== ===========
Average during
the period $ 72,016,720 $ 57,366,013 $ 48,570,883
=========== =========== ===========
Average interest
rate during the
period* 7.06% 6.87% 7.96%
=========== =========== ===========
Maximum amount of
notes - payable at
any month-end
during the period $ 83,322,971 $ 71,169,873 $ 65,432,347
=========== =========== ===========
*Weighted average interest rate is computed by dividing the
average monthly face amount of notes payable into the related
interest expense.
The Cooperative had a committed line-of-credit with
CoBank totalling $80,000,000 for the years ended October 31,
1997 and 1996. The line-of-credit is secured by substantially
all assets of the Cooperative. This line-of-credit bears
interest at a fluctuating rate based on the cost of money to
CoBank and expires May 1, 1998.
NOTE 7: LONG-TERM DEBT
1997 1996
Notes payable - CoBank (A) $ 25,715,500 $ 22,182,750
Notes payable - CoBank (B) 405,000 495,000
Notes payable - CoBank (C) 3,387,867
Notes payable - Municipal (D) 500,000 500,000
Notes payable - Finance
Corporation (E) 100,000 100,000
Notes payable -
Industrial Revenue Bonds (F) 1,180,000 1,375,000
Notes payable -
certificates of indebtedness (G) 210,314 210,414
Notes payable - Farmers Supply (H) 404,805 449,805
Notes payable - Individual (I) 2,250,000
Capital lease obligations (J) 3,405,643
Notes payable - other 273,679 10,070
----------- -----------
37,832,808 25,323,039
Less current maturities 4,801,464 3,013,819
----------- -----------
$ 33,031,344 $ 22,309,220
=========== ===========
Aggregate annual maturities of long-term debt and payments
on capital lease obligations at October 31, 1997 are:
Long-term
Debt Capital Lease
(excl. Leases) Obligations
1998 $ 4,462,455 $ 549,310
1999 3,655,655 578,363
2000 3,671,852 600,973
2001 3,688,110 593,441
2002 3,659,435 416,829
Thereafter 15,289,658 2,619,193
----------- -----------
$ 34,427,165 5,358,109
===========
Less amount representing interest 1,952,466
-----------
Present value of future minimum
lease payments 3,405,643
Less current maturities 339,009
-----------
Noncurrent portion $ 3,066,634
===========
(A) Due 1997 through 2004, with annual installments of $2,572,500
plus interest at fluctuating rates based on the cost of
money to CoBank (average rate of 8.04% at October 31, 1997);
secured by substantially all assets of the Cooperative.
The agreement requires maintenance of $20,000,000 working
capital, a maximum ratio of CoBank term debt to the value
of Mississippi Chemical Stock owned plus the net book value
of assets owned of not more than 60%, a current ratio of
1.2% and requires CoBank approval if distributions to
members exceed 50% of patronage based income or the
Cooperative retires greater than $60,000 of preferred
stock in any fiscal year. A formal waiver of working
capital, capitalization, and capital lease borrowings
was obtained for 1997, and a formal waiver was
obtained during 1996 on working capital and the
current ratio. The agreement requires the
Cooperative to invest in stock of CoBank in amounts
determined by the bank.
(B) Due 1997 through 2002 at $7,500 monthly plus interest at
8.25%; cross-collateralized with (A) above.
(C) Due 1997 through 2004; with annual installments varying
from $317,362 to $704,734; interest at 8.50%; cross-
collateralized with (A) above.
(D) Due at various times through 2002; interest at 7%;
maturities of principal are deferred until Southern
Farm Fish Processors, Inc., obtains various equity
and working capital levels; secured by property and
equipment.
(E) Due at various times through 2002; interest at 6%;
maturities of principal are deferred until Southern
Farm Processors, Inc., obtains various equity and working
capital levels; secured by property and equipment.
(F) Due 1997 through 2002 with annual installments of
principal plus interest at rates of 6% to 6.5%; secured
by property and equipment.
(G) Due 1997 with annual installments of principal plus
interest at interest rates of 8% and 10%; unsecured.
(H) Due in annual installments of $44,980 including interest,
uncollateralized.
(I) Due 2001; interest at 7.5%; secured by property.
(J) Capital leases include leases covering various equipment
and buildings for 3 to 12 years expiring from 2000
through 2009.
Property and equipment include the following property under
capital leases:
1997
Land and buildings $ 2,056,025
Equipment 1,601,745
-----------
3,657,770
Less accumulated depreciation $ 135,482
-----------
$ 3,522,288
===========
NOTE 8: DEBENTURES
The outstanding debentures mature in 1998. Interest rates
vary from 7% to 12%.
1997 1996
Debentures $ 1,223,000 $ 1,348,409
Less current maturities 1,223,000 1,342,009
----------- -----------
Included in other liabilities $ -0- $ 6,400
----------- -----------
NOTE 9: INCOME TAXES
The provision for income taxes includes these components:
1997 1996 1995
Taxes currently
payable (receivable) $ (3,128,485) $ 7,070,860 $ 781,958
Deferred income taxes 1,693,821 (3,392,985) 1,412,403
----------- ----------- -----------
$ (1,434,664) $ 3,677,875 $ 2,194,361
The tax effects of temporary differences related to deferred
taxes shown on the balance sheets were:
1997 1996
Deferred tax assets:
Allowance for doubtful accounts $ 616,551 $ 403,515
Inventory capitalization 547,869 372,178
Accrued expenses not
deductible until paid 286,044 295,722
Writedown of fixed assets 1,991,026 1,971,917
Other 36,504
----------- -----------
3,477,994 3,043,332
----------- -----------
Deferred tax liabilities
Accumulated depreciation 735,127 370,150
----------- -----------
Net deferred tax asset (liability)
before valuation allowance 2,742,867 2,673,182
----------- -----------
Valuation allowance:
Beginning balance (692,600)
(Increase) during the year (2,050,267) (692,600)
----------- -----------
Ending balance (2,742,867) (692,600)
----------- -----------
Net deferred tax asset $ -0- $ 1,980,582
=========== ===========
The above net deferred tax asset (liability) is presented
on the balance sheets as follows:
1997 1996
Deferred tax asset - current $ $ 834,738
Deferred tax asset - long term 1,145,844
----------- -----------
$ -0- $ 1,980,582
=========== ===========
A reconciliation of income tax expense at the statutory
rate to income tax expense at the Cooperative's effective
rate is shown below:
1997 1996 1995
Expected provision (34%) $ (6,539,903) $ 1,955,012 $ 1,665,192
Tax effect of net
savings (loss) applied
to allocated equities 3,304,594 355,086 (577,698)
Excess of benefits of
allocated equity over
taxable income 446,535
State income taxes (249,622) 675,177 660,332
Change in deferred tax
asset valuation allowance 2,050,267 692,600
----------- ----------- -----------
$ (1,434,664) $ 3,677,875 $ 2,194,361
=========== =========== ===========
As of October 31, 1997, the Cooperative had approximately
$200,000 of alternative minimum tax credits available to offset
future patronage based federal income taxes.
In setting the valuation allowance for realization of
deferred tax assets, management uses a tax planning strategy that
recognizes the benefits of impairment losses deductible in the
future based on available refunds of previously paid tax.
NOTE 10: BENEFIT PLANS
The Cooperative has a combination salary deferral/profit-
sharing defined contribution plan. The plan covers
substantially all full-time employees aged twenty-one or older
with at least one year of service. Participants must contribute
a minimum of 2% of their compensation and may contribute up to
the maximum permitted by applicable regulations. The Cooperative
will match employee contributions up to a maximum of 4% of the
participants' compensation. The matching percentage and additional
profit-sharing contributions are determined on a discretionary basis
by the Board of Directors. Participant interests in discretionary
contributions are vested over a five-year period. The Cooperative
contributed $484,282, and $683,158 to the plan during the years
ended October 31, 1997 and 1996, respectively.
The Cooperative and its member cooperatives adopted a
non-qualified defined contribution plan for managers of the member
cooperatives. The amount of annual contribution to the plan for
each participant is based on member cooperatives' purchases and
the profitability of SF Services, Inc. The participants begin
vesting after 14 years of service to the member cooperative and
are 100% vested after 19 years. The Cooperative incurred expenses
of $241,898 and $120,382 related to this plan for the years ended
October 31, 1997 and 1996, respectively.
NOTE 11: RELATED PARTY TRANSACTIONS
The Cooperative owned 7% of the outstanding stock of
Mississippi Chemical Corporation (MCC) at October 31, 1995 and
the President of the Cooperative during that year was a director
of MCC. Following are the material transactions with MCC during
the year ended October 31, 1995:
1995
Fertilizer purchases $ 32,587,243
MCC paid the Cooperative dividends of $123,154 in 1996
and $530,037 during 1995.
NOTE 12: LEASES
Noncancellable operating leases for feed mill buildings
and equipment, other machinery and equipment and trucks expire in
various years through 2013. These leases generally contain
renewal options for periods ranging from one to five years and
require the Cooperative to pay all executory costs (property taxes,
maintenance and insurance).
Future minimum lease payments at October 31, 1997, were:
1998 $ 4,292,019
1999 3,643,866
2000 2,326,373
2001 1,078,065
2002 523,804
Later years 3,890,692
-----------
Future minimum lease payments $ 15,754,819
===========
Rental expense for all operating leases amounted to
the following:
1997 1996 1995
$ 4,437,471 $ 4,574,356 $ 4,208,848
=========== =========== ===========
NOTE 13: ACQUISITION
On December 31, 1996, the Cooperative acquired, through a
newly-formed wholly-owned subsidiary, Northeast Arkansas Oil
Co., LLC, substantially all the assets of Matthews of Monette, Inc.,
a company which operated convenience stores and sold wholesale
petroleum. The acquisition was financed by assuming liabilities
of the acquiree. The acquisition has been accounted for as a
purchase by recording the assets and liabilities acquired at
their estimated fair values at the acquisition date. The operation
of the Cooperative includes the operations of the acquiree from
the acquisition date. Unaudited pro-forma operations, assuming
the purchase was made at the beginning of each year, are as
follows:
1997 1996 1995
Net Sales $629,630,927 $634,596,337 $564,693,283
Net Savings(Loss) (17,845,172) 1,556,926 3,490,354
A summary of the assets acquired is presented below.
Land $ 372,508
Buildings and Improvements 4,346,678
Equipment 1,086,670
Leasehold Interests 1,901,231
Inventory 660,477
Accounts Receivable 1,018,011
Cash on hand 13,055
-----------
$ 9,398,630
===========
On December 1, 1994, the Cooperative acquired all the assets
of and assumed all liabilities of Delta Purchasing Federation (AAL)
("DPF") as follows.
Current assets $ 14,421,424
Other assets 3,490,231
-----------
17,911,655
-----------
Current liabilities 11,814,255
Other liabilities 1,598,512
-----------
13,412,767
-----------
Equities allocated $ 4,498,888
===========
The total consideration delivered to DPF shareholders was
equity interest of $4,998,888, or $500,000 in addition to the net
assets received as carried by DPF before the transaction. The
acquisition has been accounted for as a purchase by recording
the assets and liabilities of DPF at estimated fair value at the
acquisition date. The consolidated operations of the Cooperative
include the operations of DPF from the acquisition date.
NOTE 14: CAPITAL STOCK
Liquidation
Shares and
Authorized Redemption Issued and
Class of Stock Shares Par Value Preference Outstanding
- -------------- ---------- --------- ----------- -----------
Class "A"
preferred (1) 150,000 $ 1 $ 100 20,471
Class "B"
convertible
preferred (2) 15,000 $ 100 6,764
Common 500 $ 1,000 125
(1) Non-voting; non-cumulative dividends not to exceed 8 1/2%
of liquidation and redemption preference if earned and when
declared by the Board of Directors with preference over any
other dividend or distributions declared in any year.
(2) Non-voting; non-cumulative dividends not to exceed 4%
of liquidation and redemption preference if earned and when
declared by the Board of Directors with preference over any
other dividend, except Class A preferred stock, or
distributions declared in any year. At the discretion of
the Board of Directors, the Class B preferred stock shall
become convertible, at the option of the holder, at its
liquidation and redemption preference value into capital
certificates.
Capital certificates may be surrendered upon termination
of membership or expiration of ten years from the date of the
certificate, whichever event shall be last to occur, for Class A
Preferred Stock with a liquidation and redemption preference
equal to the stated amount of the capital certificate. The
certificates are subordinate to all debt and have no voting
rights.
NOTE 15: NOTES RECEIVABLE
The Cooperative has provided long-term financing to
certain members by transferring amounts owed by the members
for purchases to long-term notes receivable pursuant to
agreements with CoBank wherein CoBank provides seasonal
financing directly to such members.
NOTE 16: BUSINESS SEGMENTS
The Cooperative operates in three industries (1)
distribution of seed, feed, fertilizer, chemicals, petroleum,
lubricants, tires, batteries, accessories, farm supplies and
related services; (2) catfish processing and sales and (3)
convenience store operations and wholesale petroleum sales.
Sales between segments are not material. Net sales, operating
income, identifiable assets, capital expenditures, and
depreciation are as follows:
Convenience
Stores and
Distribution Catfish Wholesale
October 31, 1997 Activities Processing Petroleum Total
- ---------------- ------------ ---------- ----------- -----------
Net sales $549,434,322 $ 31,752,577 $ 41,680,545 $622,867,444
Operating income
(loss) $(13,335,190) $ (561,992) $ 253,576 $(13,643,606)
Identifiable assets $167,357,182 $ 8,955,373 $ 12,482,861 $188,795,416
Capital expenditures $ 10,725,269 $ 281,045 $ 236,637 $ 11,242,951
Depreciation $ 2,783,054 $ 345,953 $ 442,348 $ 3,571,355
Distribution Catfish
October 31, 1996 Activities Processing Total
- ---------------- ------------ ---------- -----------
Net sales $553,856,134 $ 36,624,223 $590,480,357
Operating (loss) $ (2,768,125) $ (5,783,122) $ (8,551,247)
Identifiable assets $182,953,280 $ 9,168,779 $192,122,059
Capital expenditures $ 10,139,662 $ 310,158 $ 10,449,820
Depreciation $ 1,866,517 $ 372,981 $ 2,239,498
Distribution Catfish
October 31, 1995 Activities Processing Total
- ---------------- ------------ ---------- -----------
Net sales $492,989,054 $ 37,831,922 $530,820,976
Operating income
(loss) $ 3,116,147 $ (2,615,749) $ 500,398
Identifiable assets $188,582,330 $ 11,079,559 $199,661,889
Capital expenditures $ 11,772,778 $ 1,692,373 $ 13,465,151
Depreciation $ 2,544,970 $ 406,564 $ 2,951,534
For purposes of business segment disclosure, all activities
related to other cooperatives are included in distribution
activities.
NOTE 17: ADDITIONAL CASH FLOW INFORMATION
1997 1996 1995
Interest paid (net of
patronage dividends and
interest capitalized) $ 8,025,028 $ 6,307,994 $ 6,629,921
Income taxes paid
(received) $ (131,219) $ 7,431,000 $ 32,322
Noncash investing transactions:
1997
Purchase of Assets of Matthews of Monette, Inc.
Fair value of assets $ 9,385,575
Liabilities assumed (9,398,630)
-----------
Cash received $ (13,055)
===========
Capital leases entered into $ 3,657,770
Fixed assets transferred to assets held for sale $ 485,970
1995
Acquisition of Delta Purchasing Federation (AAL)
Fair value of assets received $ 16,938,948
Liabilities assumed (13,412,767)
Equities allocated (4,503,609)
-----------
Cash received $ (977,428)
===========
Accrued interest paid with advance on
seasonal line of credit $ 1,475,000
Class "D" stock redeemed with allocated equities $ 1,109,456
Trade receivable transferred to note receivable $ 200,000
NOTE 18: COMMITMENTS
Purchase Agreements
At October 31, 1997, SF Services, Inc. had commitments
(open contracts) to purchase 127,760 tons of feed ingredients
for $20,046,637 and to sell 148,444 tons of feed for $33,077,514.
The Company presells feed from March through October on an
annual basis. During this period, the Company attempts to obtain
commitments for as much as 100% ingredients for presells. The
Company does not overcommit on purchases of ingredients. At
October 31, 1997, the Company had commitments to sell cattle feed
of 38,625 tons for $6,131,083 and catfish feed of 109,519 tons for
$26,946,431. The Cooperative also had commitments to purchase cattle
feed ingredients of 34,025 tons at a cost of $3,255,347 and catfish
feed ingredients of 93,735 tons at a cost of $16,791,290.
Loan Guarantees
The Cooperative has guaranteed $335,000 in loans to CoBank
for member cooperatives. The Cooperative has a second mortgage
related to these guarantees.
NOTE 19: IMPAIRMENT OF LONG-LIVED ASSETS
During 1996, the Cooperative adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Cooperative, as a result of adopting the new standard,
recognized expenses of $4,981,000 to reduce the carrying value
of the Southern Farm Fish Processors, Inc. plant and the
Greenville feed mill, the values of which have been impaired
due to continued losses resulting from excessive operating
costs. Also, during the fourth quarter of fiscal 1996, the
Cooperative recognized expenses of $516,000, to reduce the
carrying value of various abandoned properties. During the
fourth quarter of fiscal 1997, management recognized $877,000
of expense related to the abandonment of a computerized product
guide. The amount of the impairments were estimated based on
appraisals performed during the year and expected future cash
flows. The amount of recognized expense is included in operating
expenses in the consolidated statements of operations.
NOTE 20: DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Investments in Associated Enterprises
Investments in other cooperative's equities are carried
at cost, plus the Cooperative's share of allocated equities,
less cash patronage refunds and allocations. There is no market
for these investments since the securities are redeemable only
by the issuing cooperative at an established contract value.
Because of the lack of marketability, the Cooperative believes
it is not practicable to estimate the fair value of investments
in associated enterprises.
Notes Receivable
Carrying amount is a reasonable estimate of fair value.
Long-Term Debt
Fair value is estimated based on the CoBank National
Variable Rate at October 31, 1997.
October 31, 1997
Carrying Fair
Amount Value
CoBank - term $ 29,508,367 $ 29,510,000
CoBank - seasonal 76,518,530 76,503,500
Other 8,324,441 8,304,367
----------- -----------
$114,351,338 $114,317,867
=========== ===========
NOTE 21: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require
disclosure of certain significant estimates and current
vulnerabilities due to certain concentrations. Those matters
include the following:
Major Lender
The Cooperative obtains most of its financing from CoBank.
The Cooperative's line of credit of $80,000,000, which expires
May 1, 1998, has not yet been renewed.
Income Tax Assessment
During 1996, the Internal Revenue Service (IRS) completed
its examination of the Cooperative's federal income tax returns
for the years ended October 31, 1991, 1992 and 1993, and has
proposed certain adjustments which relate principally to the
Cooperative's method of computing patronage allocations during
those years. As a result, the IRS has proposed additional taxes
of $589,823 for 1991 and $447,961 for 1992, plus interest to
date of payment. This issue involves an Industry Coordinated
Issue which the cooperative industry, and the Cooperative,
are vigorously contesting. The Cooperative has filed its
protest with the Appellate Division of the IRS. No accrual
has been made for losses, if any, that may result, pending the
outcome of the Cooperative's appeal.
Contingent Liabilities
In the course of business, the Cooperative has become
engaged in various litigation matters. In the opinion of
management based on the currently known facts, the litigation
outstanding will not materially impact future financial position
and results of operations; however, circumstances may change
which would require reassessment and revisions of the estimates
of the risk of future litigation losses.
NOTE 22: PATRONS' DEPOSITS
Patrons' deposits are monies on deposit from member
cooperatives. The cooperative pays interest on these deposits
at CoBank's seasonal rate.
NOTE 23: MANAGEMENT PLANS
Management's plan to improve operations and return to profitability
include: 1)selling or closing unprofitable subsidiary operations
(see note 24); 2)creating joint ventures with other farm supply
companies; 3)increasing direct shipment sales, thereby reducing
inventory handling costs and 4)reducing administrative costs (see
note 24 ) including a reduction in workforce.
NOTE 24: UNUSUAL ITEMS
The Cooperative decided during the year ended October 31,
1997, to close ten of its retail operations during the year
ended October 31, 1998. The Cooperative estimates that it will
incur costs of $1,900,000 to close these stores including bad
debts and reduced inventory realization. Additionally,
management intends to reduce the workforce. Severance pay and
related expenses are estimated to be approximately $672,000,
associated with this work force reduction. These estimated
expenses are included in operating expenses in the 1997 statement
of operations and were recorded in the fourth quarter. In
addition, during the fourth quarter the Cooperative recorded
approximately $1,500,000 of expense to reduce inventories to
net realizable value. It is reasonable possible that the
actual costs of implementing these plans could exceed the
estimates reflected in these financial statements.
NOTE 25: SUBSEQUENT EVENT
On November 6, 1997, the Cooperative sold seven convenience
store locations through a sale/leaseback transaction. No gain
or loss resulted from this transaction.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The following table sets forth certain information concerning the
current directors of SF Services, Inc.:
Name Age Principal Occupation Director Since
Johnny H. Wilson 62 Farming 1974
Doyle Yarbrough 66 Farming 1976
Daniel Viator 53 Farming, Agriculture 1987
Consultant, Real Estate
Developer
Robert Little 46 Co-op Manager 1995
Gene Bruick 67 Co-op Manager 1992
Jerry Conerly 64 Dairy Farmer 1992
John M. Evans 55 Farming 1992
Jim Gipson 62 Farming 1992
Steven Henderson 41 Farming 1992
John C. Jay, Jr. 59 Farming, City Mayor 1992
W. B. Madden, Jr. 65 Co-op Manager 1992
Thomas H. Gist, Jr. 63 Farming 1994
W. S. Patrick 57 Farming 1992
Michael Simon 55 Farming 1992
Charlie Starks, Jr. 64 Farming 1992
Joe Wilder 56 Farming 1992
Frederick Branch 50 Farming 1995
Mike Sturdivant 46 Farming 1995
Floyd Trammel 43 Co-op Manager 1996
Travis Burchfield 30 Farming 1997
All persons have been engaged in the occupation identified
in the foregoing table for at least five years.
Executive Officers
The following table sets forth certain information concerning
the current executive officers of SF Services, Inc.:
Principal Office
Name Age Occupation Held Since
Michael P. Sadler (1) 47 President 10/96
John A. Gaston 59 Vice-President 3/91
Lehi German (2) 45 Vice-President 4/97
Larry M. Fortner 43 Vice-President 1/87
Joe LaCour (3) 54 Vice-President 10/97
Joe May (4) 47 Vice-President 10/97
Wayne McDaniel (5) 50 Vice-President 10/97
William C. Mosley 44 Vice-President 3/92
(1) Mr. Sadler previously served as vice president for
Farmland Industries for seven years.
(2) Mr. German previously served as Director of Petroleum
Operations and Planning for Farmland Industries for ten years.
(3) Mr. LaCour joined the Company in 1973, serving in various
capacities. Most recently Mr. LaCour served as a Marketing
Specialist for various product lines.
(4) Mr. May joined the Company in 1993 serving as Regional Sales
Manager.
(5) Mr. McDaniel joined the Company in 1987 serving as Regional
Sales Manager.
ITEM 11: EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table sets forth, for the fiscal years
indicated, the compensation provided by SF Services, Inc. to
the Chief Executive Officer and each of the executive officers
of SF Services, Inc. whose compensation exceeded $100,000 for
the most recent fiscal year.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------
(a) (b) (c) (d) (e)
Other
Name Annual
and Compen-
Principal sation
Position Year Salary ($) Bonus ($) ($)
Michael P. 1997 $419,880 $175,000 $ ---
Sadler 1996 $ 12,531 $ --- $ ---
(CEO)
John 1997 $116,408 $ --- $ ---
Gaston 1996 $110,281 $ --- $ ---
(Vice- 1995 $106,358 $ --- $ ---
President)
Lehi 1997 $111,538 $15,395 $ ---
German
(Vice-
President)
Long-Term Compensation
---------------------------------
Awards Payouts
--------------------- --------
(a) (b) (f) (g) (h) (i)
Name Restricted Securities All Other
and Stock Underlying LTIP Compen-
Principal Awards Options/ Payouts sation
Position Year ($) SARs(#) ($) ($)
Michael P. 1997 $ --- $ --- $ --- $ 85,994 (1)
Sadler 1996 $ --- $ --- $ --- $ ---
(CEO)
John 1997 $ --- $ --- $ --- $ 4,568 (2)
Gaston 1996 $ --- $ --- $ --- $ 4,411
(Vice- 1995 $ --- $ --- $ --- $ 5,070
President)
Lehi 1997 $ --- $ --- $ --- $126,360 (3)
German
(Vice-
President)
(1)Amount represents contribution to SF Services, Inc.'s 401(k)
and deferred compensation plan of $5,012 on behalf of the
named individual, 47,260 for relocation expenses, and
$33,722 premium paid on a life insurance policy of named
individual.
(2)Amount represents contributions to SF Services, Inc's
401(k) and deferred compensation plan on behalf of
named individual.
(3)Amount represents $125,000 for the equity in the employee's
home which was purchased by the Company as per the employee's
employment agreement, and $1,360 premium paid on a life
insurance policy of named individual.
Director Compensation
The members of the Board receive per diem compensation of $250
for each meeting for their services as members of the Board,
and reimbursement to cover expenses while engaged in the
business of SF Services, Inc. The Chairman receives one (1)
additional per diem compensation of $250 for each meeting for
his services as Chairman. Except for the additional
compensation paid the Chairman, no director has any contract,
arrangement, or agreement not accorded other directors on
equal terms. The amount of the per diem compensation is fixed
by the Board.
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
The Company has entered into an agreement effective September
26, 1996, with Michael P. Sadler to serve as President and
Chief Executive Officer. In addition to normal compensation,
the agreement provides for a guaranteed bonus of $175,000
the first year, and annual bonuses of up to $300,000 per year
thereafter. The agreement also provides for an employer
furnished automobile, reimbursed business related expenses,
and life insurance benefits payable to Mr. Sadler's
designated beneficiary. This agreement continues through
October 31, 2001; however, the Company may, under certain
circumstances, terminate Mr. Sadler's employment for cause,
as defined in the agreement.
The Company has entered into an agreement effective April
7, 1997, with Lehi German to serve as Vice President. In
addition to normal compensation, the agreement provides for
a guaranteed annual bonus of $30,000 the first year, and
$15,000 the second year. The agreement also provides for
life insurance payable to the employee's designated
beneficiary, and the purchase of the employee's home in
Kansas City, Missouri, for $550,000. This agreement
continues through March 14, 2000; however, the Company may,
under certain circumstances, terminate Mr. German's employment
for cause, as defined in the agreement.
Compensation Committee Interlocks and Insider Participation
Decisions on compensation of SF Services, Inc.'s executives
are made by the Executive Committee of the Board of
Directors. The members of the Executive Committee are Johnny
Wilson, Doyle Yarbrough, and John Evans. No interlocks exist
with respect to the Executive Committee of the Board of
Directors.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
No individual or "group" (as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended)
owns more than five percent (5%) of the voting stock of SF
Services, Inc.
No director or officer of SF Services, Inc. beneficially
owns any "equity security" (as that term is defined in Rule
13d-1(d) of the Rules promulgated under the Securities and
Exchange Act of 1934, as amended) of SF Services, Inc.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) The following financial statements are included in
Part II, Item 8:
Independent Accountants' Report
Financial Statements:
Consolidated Balance Sheets, October 31, 1997 and 1996
Consolidated Statements of Operations, Years Ended October
31, 1997, 1996 and 1995
Consolidated Statements of Changes in Members' Equity,
Years Ended October 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows, Years Ended
October 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) The following financial schedules are submitted
herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are
not applicable or the required information is
shown in the financial statements or notes
thereto.
(3) The following exhibits indicated by an asterisk
are filed herewith. The balance of the exhibits
have heretofore been filed with the Commission and
are incorporated herein by reference as indicated:
3(i)- Amended and Restated Articles of Incorporation,
as amended
(Exhibit 3(a) to Form 10-K for the fiscal year
ended October 31, 1991 in 33-38051)
* 3(ii)- By-Laws
10(i) - Employment Contract of Michael P. Sadler
(Exhibit 10(a) to Form 10-K for the fiscal year
ended October 31, 1996 in 33-38051)
* 10(ii) - Employment Contract of Lehi German
11 - Statement Re: Computation of earnings per
share (Comparative per share data for SF
Services, Inc. is not presented because the
nature of cooperative associations is such
that earnings per share information is of
little or no significance. Net savings of
a cooperative are not distributed to its
shareholders based on their respective
percentages of share ownership, but rather
on the basis of each shareholder's patronage
to the entity.)
* 21 - Subsidiaries of the Registrant
* 27 - Financial Data Schedule
Listed below are the only management
contracts required to be identified
pursuant to Item 14 (a)(3).
Employment contract of Michael P. Sadler
Employment contract of Lehi German
(b) Reports on Form 8-K
None
SF SERVICES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Thousand Dollars)
Balance at Charged to Balance at
beginning costs and Deductions- end of
Description of period expenses describe (a) period
- ----------- ---------- ---------- ----------- ------------
OCTOBER 31, 1997
ALLOWANCE
FOR
DOUBTFUL
ACCOUNTS $ 950 $ 3,653 $ 1,361 $ 3,242
DEFERRED TAX
ASSET
VALUATION
ALLOWANCE $ 693 $ 2,050 $ -0- $ 2,743
OCTOBER 31, 1996
ALLOWANCE
FOR
DOUBTFUL
ACCOUNTS $ 295 $ 1,362 $ 707 $ 950
DEFERRED TAX
ASSET
VALUATION
ALLOWANCE $ -0- $ 693 $ -0- $ 693
OCTOBER 31, 1995
ALLOWANCE
FOR
DOUBTFUL
ACCOUNTS $ 532 $ 127 $ 364 $ 295
(a) Accounts receivable charge-offs net of recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
(Registrant)
/s/ Michael P. Sadler
--------------------
By: Michael P. Sadler, President
(Principal Executive Officer)
Date: February 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
/s/ Johnny W. Wilson Chairman & Director February 11, 1998
-------------------
Johnny W. Wilson
/s/ Doyle Yarbrough Vice-Chairman & Director February 11, 1998
-------------------
Doyle Yarbrough
/s/ John M. Evans Secretary & Director February 11, 1998
-------------------
John M. Evans
/s/ Frederick Branch Director February 11, 1998
-------------------
Frederick Branch
/s/ Gene Bruick Director February 11, 1998
-------------------
Gene Bruick
/s/ Jerry Conerly Director February 11, 1998
-------------------
Jerry Conerly
/s/ John A. Gaston Senior Vice-President February 11, 1998
------------------- (Principal Financial and
John A. Gaston Accounting Officer)
/s/ Jim Gipson Director February 11, 1998
-------------------
Jim Gipson
/s/ Thomas H. Gist, Jr. Director February 11, 1998
-------------------
Thomas H. Gist, Jr.
/s/ Steven Henderson Director February 11, 1998
-------------------
Steven Henderson
/s/ John C. Jay, Jr. Director February 11, 1998
-------------------
John C. Jay, Jr.
/s/ Robert Little Director February 11, 1998
-------------------
Robert Little
/s/ W. B. Madden, Jr. Director February 11, 1998
-------------------
W. B. Madden, Jr.
/s/ W. S. Patrick Director February 11, 1998
-------------------
W. S. Patrick
/s/ Travis Burchfield Director February 11, 1998
-------------------
Travis Burchfield
/s/ Charlie Starks, Jr. Director February 11, 1998
-------------------
Charlie Starks, Jr.
/s/ Director
-------------------
Mike Sturdivant
/s/ Floyd Trammel Director February 11, 1998
-------------------
Floyd Trammel
/s/ Director
--------------------
Daniel Viator
/s/ Joe Wilder Director February 11, 1998
-------------------
Joe Wilder
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
Registrant, subsequent to the filing of this Annual Report on Form
10-K, intends to furnish its shareholders with an Annual Report
covering the fiscal year ended October 31, 1997. Registrant shall
furnish four copies of such Annual Report to the Commission
when it is sent to shareholders.
Registrant has not provided and will not provide proxy soliciting
material to its shareholders.
EXHIBIT INDEX
The following exhibits indicated by an asterisk are filed
herewith. The balance of the exhibits have heretofore been
filed with the Commission and are incorporated herein by
reference as indicated:
Number in
Exhibit Table Exhibit
- -------------- -------
3(i) Amended and Restated Articles of
Incorporation, as amended (Exhibit 3(a)
to Form 10-K for the fiscal year ended
October 31, 1991 in 33-38051)
* 3(ii) By-Laws
10(i) Employment Contract of Michael P. Sadler
(Exhibit 10(a) to Form 10-K for the fiscal year
ended October 31, 1997 in 33-38051)
* 10(ii) Employment Contract of Lehi German
11 Statement Re: Computation of earnings per
share (Comparative per share data for SF
Services, Inc. is not presented because
the nature of cooperative associations is
such that earnings per share information
is of little or no significance. Net
savings of a cooperative are not
distributed to its shareholders based on
their respective percentages of share
ownership, but rather on the basis of
each shareholder's patronage to the
entity.)
* 21 Subsidiaries of the Registrant
* 27 Financial Data Schedule
EXHIBIT 21
LIST OF SUBSIDIARIES:
NAME STATE OF INCORPORATION
- ------------------------ ----------------------
Cloverleaf Cooperative Mississippi
SFA, Inc. Arkansas
Deep South Farmers Supply, Inc. Louisiana
Professional Technologies, Inc. Arkansas
AgGrow Finance, Inc. Arkansas
Southern Farm Fish Processors, Inc. Arkansas
SF Technical Services, Inc. Arkansas
Northeast Arkansas Oil Company, LLC Arkansas