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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 29, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11420
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SAVANNAH FOODS & INDUSTRIES, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 58-1089367
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 339, Savannah, Georgia 31402
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (912) 234-1261
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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
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As of June 29, 1997 there were 28,738,196 shares of common stock of Savannah
Foods & Industries, Inc. outstanding for shareholder voting purposes. This
amount includes 2,500,000 shares held by the Registrant's Benefit Trust, which
are not considered outstanding for earnings per share calculations.
The exhibit index is located on page 13 of this filing.
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SAVANNAH FOODS & INDUSTRIES, INC.
INDEX
Part I. FINANCIAL INFORMATION: Page
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Item 1. Financial Statements:
Consolidated Balance Sheets at
June 29, 1997 and September 29, 1996 3
Consolidated Statements of Operations
for the quarter and the three quarters
ended June 29, 1997 and June 29, 1996 4
Consolidated Statements of Cash Flows
for the three quarters ended
June 29, 1997 and June 30, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. OTHER INFORMATION:
Item 5. Other Information - Statement on
Business Risks and Forward Looking
Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Savannah Foods & Industries, Inc.
Consolidated Balance Sheets
(In thousands except for shares and per share amounts)
(Unaudited)
June 29, September 29,
1997 1996
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Assets
Current assets:
Cash and cash equivalents $ 11,249 $ 15,300
Accounts receivable 70,580 76,109
Inventories (net of LIFO reserve of $7,970 in fiscal
1997 and $8,018 in fiscal 1996) (Note 2) 141,386 83,929
Other current assets 6,716 5,214
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Total current assets 229,931 180,552
Property, plant and equipment (net of accumulated
depreciation of $231,333 in fiscal 1997 and
$220,183 in fiscal 1996) 175,927 186,546
Other assets 29,234 31,163
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$ 435,092 $ 398,261
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 3,800 $ 7,500
Current portion of long-term debt 8,253 2,170
Trade accounts payable 88,463 52,701
Accrued expenses related to beet operations 9,730 -
Other liabilities and accrued expenses 23,898 23,575
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Total current liabilities 134,144 85,946
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Long-term debt (Note 3) 26,230 59,754
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Deferred employee benefits 73,785 78,834
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Stockholders' equity:
Common stock $.25 par value; $.55 stated value;
64,000,000 shares authorized; 31,306,800 shares issued 17,365 17,365
Capital in excess of stated value 39,108 31,764
Retained earnings 220,231 193,524
Treasury stock, at cost (2,568,604 shares) (15,849) (15,849)
Minimum pension liability adjustment (14,038) (14,038)
Stock held by benefit trust, at market (2,500,000 shares) (42,344) (35,000)
Other (3,540) (4,039)
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Total stockholders' equity 200,933 173,727
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$ 435,092 $ 398,261
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(The accompanying notes are an integral part of the consolidated financial
statements.)
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Savannah Foods & Industries, Inc.
Consolidated Statements of Operations
(In thousands except for shares and per share amounts)
(Unaudited)
For the
For the Quarter Ended Three Quarters Ended
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June 29, June 30, June 29, June 30,
1997 1996 1997 1996
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Net sales $ 303,546 $ 287,462 $ 883,156 $ 842,675
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Operating expenses:
Cost of sales and operating expenses 263,100 256,336 768,703 760,957
Selling, general and
administrative expenses 15,102 13,475 44,241 41,026
Depreciation and amortization 5,663 6,745 17,769 21,074
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283,865 276,556 830,713 823,057
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Income from operations 19,681 10,906 52,443 19,618
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Other income and (expenses):
Interest and other investment income 339 163 661 575
Interest expense (1,530) (3,013) (5,412) (9,678)
Other income (expense) (94) (481) (301) (632)
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(1,285) (3,331) (5,052) (9,735)
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Income before income taxes and
extraordinary item 18,396 7,575 47,391 9,883
Provision for income taxes (6,994) (2,849) (18,012) (3,657)
------------ ------------ ------------ ------------
Income before extraordinary item 11,402 4,726 29,379 6,226
Extraordinary item, net of tax (Note 3) (376) (698) (376) (698)
------------ ------------ ------------ ------------
Net income $ 11,026 $ 4,028 $ 29,003 $ 5,528
============ ============ ============ ============
Per share:
Income before extraordinary item $ 0.43 $ 0.18 $ 1.12 $ 0.24
Extraordinary item (Note 3) (0.01) (0.03) (0.01) (0.03)
------------ ------------ ------------ ------------
Net income $ 0.42 $ 0.15 $ 1.11 $ 0.21
============ ============ ============ ============
Dividends $ 0.0375 $ 0.0250 $ 0.0875 $ 0.0750
============ ============ ============ ============
Weighted average shares outstanding 26,238,196 26,238,196 26,238,196 26,238,196
============ ============ ============ ============
(The accompanying notes are an integral part of the consolidated financial
statements.)
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Savannah Foods & Industries, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Quarters Ended
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June 29, June 30,
1997 1996
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(In thousands of dollars)
Cash flows from operations:
Net income $ 29,003 $ 5,528
Adjustments to reconcile net income to
net cash provided by operations -
Depreciation and amortization 17,769 21,074
Extraordinary item, net of tax, related to
financing activities 376 698
Net loss on disposal of assets 186 1,871
Decreases (increases) in working capital -
Accounts receivable 5,529 (7,406)
Inventories (57,457) (40,850)
Other current assets (1,502) 5,652
Trade accounts payable 35,762 9,983
Accrued expenses related to beet operations 9,730 15,815
Other liabilities and accrued expenses 323 (3,806)
(Decrease) increase in deferred employee benefits (5,049) 473
Other 1,343 200
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Cash provided by (used for) operations 36,013 9,232
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Cash flows from investing activities:
Additions to property, plant and equipment (6,432) (5,412)
Proceeds from sale of property, plant and
equipment 812 2,458
Sale of investments - 13,869
Liquidation of business - 12,500
Use of escrowed industrial revenue bond funds
for additions to property, plant and equipment - 2,862
Other - (381)
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Cash (used for) provided by investing activities (5,620) 25,896
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Cash flows from financing activities:
(Decrease) increase in short-term borrowings (3,700) (951)
Payments of long-term debt (27,441) (22,907)
Debt prepayment charge, net of tax (376) (698)
Dividends paid (2,296) (1,968)
Other (631) (412)
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Cash (used for) provided by financing activities (34,444) (26,936)
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Cash flows for period (4,051) 8,192
Cash and cash equivalents, beginning of period 15,300 11,574
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Cash and cash equivalents, end of period $ 11,249 $ 19,766
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(The accompanying notes are an integral part of the consolidated financial
statements.
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Savannah Foods & Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(1) The information furnished reflects all adjustments (consisting of only
normal recurring accruals) which are, in the opinion of Management,
necessary for a fair statement of the results for the interim periods.
These consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's
latest Annual Report on Form 10-K. Certain prior year amounts have been
reclassified to conform to the current year presentation.
(2) A summary of inventories by class is as follows:
June 29, September 29,
1997 1996
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(In thousands of dollars)
Raw materials and work-in-process $ 52,033 $17,693
Packaging materials, parts and supplies 16,198 20,713
Finished goods 73,155 36,049
Payments related to future inventory
purchases - 9,474
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$141,386 $83,929
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(3) The Company elected to prepay the remaining $25 million of its Senior
Notes in May 1997. The Company incurred $376,000 (net of $236,000 income
tax benefits), or $.01 per share, of related prepayment penalties which
are reflected as an extraordinary item in the Consolidated Statement of
Operations.
(4) Futures Transactions and Interest Rate Swaps:
The Company uses futures contracts to manage its inventory and fuel
positions, both to set pricing on purchases and to reduce the Company's
exposure to price fluctuations. It also uses interest rate hedges to fix
interest rates on current and anticipated borrowings to reduce exposure to
interest rate fluctuations. Under existing accounting literature, these
activities are accounted for as hedging activities.
To qualify as a hedge the item to be hedged must expose the Company to
inventory pricing or interest rate risk and the related contract must
reduce that exposure and be designated by the Company as a hedge. To
hedge expected transactions, the significant characteristics and expected
terms of such transactions must be identified and it must be probable that
the transaction will occur.
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Gains and losses on futures contracts, including gains and losses upon
termination of the contract, are matched to inventory purchases and are
included in the carrying value of inventory and charged or credited to
cost of sales as such inventory is sold or used in production.
The net cash paid or received on interest rate hedges is included in
interest expense. Gains or losses on the termination of hedges are
deferred and recognized in interest over the period covered by the
interest rate hedge.
If derivative transactions do not meet the criteria for hedges, the
Company recognizes unrealized gains or losses as they occur. If a hedged
transaction no longer exists or a hedged anticipated transaction is deemed
no longer probable to occur, cumulative gains and losses on the hedge are
recognized immediately in income and subsequent changes in fair market
value of the derivative transaction are recognized in the period the
change occurs.
(5) Commitments and Contingencies:
The Company has contracted for the purchase of a substantial portion of
its future raw sugar requirements. Prices to be paid for raw sugar under
these contracts are based in some cases on market prices during the
anticipated delivery month. In other cases prices are fixed and, in these
instances, the Company generally obtains commitments from its customers to
buy the sugar prior to fixing the price, or enters into futures
transactions to hedge the commitment.
The Company uses interest rate swap agreements to manage its interest rate
exposure. The Company is exposed to loss in the event of non-performance
by the other party to these swaps. However, the Company does not
anticipate non-performance by the counter-parties to the transactions.
On April 14, 1997, the Company received a ruling favorable in all material
respects on its protest against a claim of approximately $2,500,000 by the
United States Customs Service (Customs). Customs had alleged that
drawback claims prepared by the Company for certain export shipments were
deficient and that the Company may have to repay such claims. The Company
is currently preparing specific documentation requested by Customs in
order to enable the agency to process and finalize the drawback claims in
accordance with the favorable ruling. The pending resolution of this
matter is not expected to have a material effect on the Company's cash
flows, financial position or results of operations.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Proposed Merger
On July 14, 1997, the Company entered into an agreement and plan of merger
with Florida Crystals, Inc., a major raw sugar producer in South Florida.
Details of the agreement are disclosed in a Form 8-K filed on July 21, 1997,
with the Securities and Exchange Commission.
Results of Operations
The Company's net income for the third quarter of fiscal 1997 was
$11,026,000, or $.42 per share, compared to net income of $4,028,000, or $.15
per share, for the same quarter of fiscal 1996. Net income for the nine months
ended June 29, 1997 was $29,003,000, or $1.11 per share, compared to net income
of $5,528,000, or $.21 per share, for the nine months ended June 30, 1996. Net
income for the third quarter and nine months of fiscal 1997 includes an
after-tax extraordinary charge of ($376,000), or ($.01) per share, for
prepayment penalties incurred on the Company's Senior Notes. Net income for
the same periods of fiscal 1996 includes a similar charge of ($698,000), or
($.03) per share.
Income from operations for both the quarter and nine months improved
significantly from the prior year due to increased operating profits in the
cane sugar division. Volumes and margins for cane refiners continue to be
favorably impacted by the reduction of national beet sugar production. At
approximately 4,050,000 tons, production from the 1996 beet crop is up slightly
from the 1995 beet crop, which was down about 600,000 tons, or 13%, from the
1994 beet crop's record production. Over the same two years, domestic
consumption of sugar increased by about 300,000 tons. With less beet sugar on
the market and with increased consumption, cane sugar volumes have expanded to
meet the overall demand for refined sugar. Refined sugar selling prices have
risen as a result of the tightened supply. Also, average raw sugar spot prices
have fallen from fiscal 1996 levels. Reduced raw sugar costs and increased
selling prices are resulting in higher operating profit margins for fiscal 1997
compared to fiscal 1996.
Operating profits in the Company's beet sugar division increased slightly
from the first nine months of fiscal 1996 as higher selling prices have been
offset by lower volumes resulting from a smaller sugarbeet crop. Due to the
small sugarbeet crop, the beet sugar division is expected to be only modestly
profitable for fiscal 1997.
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The Company is investing more than $4,000,000 in fiscal 1997 in sugarbeet
receiving stations in Michigan to enhance the ability of farmers to deliver
sugarbeets to the Company. This investment, along with the improvement in
sugar prices and corresponding returns to the Company's growers, is expected to
result in an increase in the beet sugar division's sugarbeet supply for the
coming crop year. Sugarbeet acreage planted this spring is 104,000 acres
compared to 89,000 acres harvested last fall.
The Company's net sales for the third quarter and first nine months of
fiscal 1997 are both higher than net sales for the comparable periods of fiscal
1996. Significantly higher net sales in the cane sugar division more than
offset lower net sales in the beet sugar division and the loss of net sales
from the Company's raw sugar mill, which was sold in fiscal 1996.
Selling, general and administrative expense is up $1,627,000, or 12%, for
the quarter and $3,215,000, or 8%, for the nine months. The increase is
primarily due to an incentive compensation program which links employee
earnings to the Company's earnings.
Depreciation and amortization expense is down $1,082,000, or 16%, for the
quarter and $3,305,000, or 16%, for the nine months. Depreciation decreased
due to asset sales and write-downs in fiscal 1996.
Interest expense is down $1,483,000, or 49%, for the quarter and
$4,266,000, or 44%, for the nine months compared to the prior year due
to lower average outstanding debt. Average short-term borrowings were down
about $31,000,000 for the nine months due to higher net income and a lower
investment in inventories. Average long-term debt was down about $48,000,000
compared to the first nine months of last year.
The profit outlook for 1997 fourth quarter operations is good. The
overall outlook for fiscal 1998 is uncertain at this time. The Company's
sugarbeet crop is off to a good start and, assuming reasonable weather, should
be a better crop, produce more sugar, and therefore be more profitable in the
coming fiscal year. Nationally, initial forecasts are that sugar production
from beets will increase from fiscal 1997 levels. Also, consumption of sugar
in the U.S. has been flat in 1997. These factors have caused a softness in
both current and forward sales contract prices. Because of this softness and
because we are early in the beet growing season, our Company has taken a
cautious approach on sales contract bookings for fiscal 1998. As more is known
about the beet crop for 1998, we expect to increase our contracting activity
for that period.
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Liquidity and Capital Resources
For the first nine months of fiscal 1997, the Company generated
$47,000,000 of cash from net income before noncash items, an increase of
$18,000,000 over the first nine months of fiscal 1996. This increase is
attributable to higher net income in fiscal 1997. This cash was used primarily
to repay long-term debt and fund a seasonal increase in the Company's
investment in inventory (inventory, net of trade accounts payable and accrued
expenses related to beet operations). The investment in inventory increased
$11,965,000 from September 29, 1996 as a result of the sugarbeet processing
campaign in the Company's beet sugar division. This division typically
processes sugarbeets and builds inventory levels from October to February,
while sales occur throughout the year.
To provide liquidity for short-term operating needs, the Company maintains
a $120,000,000 Revolving Credit Facility and has the ability to fund seasonal
increases in beet sugar inventory through borrowings from the Commodity Credit
Corporation. These sources of short-term funds, along with cash generated by
the Company's operations, provide ample liquidity to meet the Company's
operating cash requirements. As of June 29, 1997, the Company had $3,800,000
of short-term borrowings outstanding.
During the third quarter of fiscal 1997, the Company paid the remaining
$25,000,000 balance of the Senior Notes ahead of scheduled maturities. This
payment, together with regularly scheduled payments, resulted in total payments
on long-term debt of $27,441,000. Since September 29, 1996, the current
portion of long-term debt increased by $6,083,000 for scheduled debt
maturities.
Stockholders' equity increased primarily by earnings of $29,003,000 and
decreased by dividends of $2,296,000. Changes in debt and equity resulted in a
decrease in the ratio of long-term debt to total capital from 26% at September
29, 1996 to 12% at June 29, 1997.
Dividends increased from the second to third quarters of fiscal 1997 as a
result of a dividend increase from $.10 per share to $.15 per share annually.
This will increase annual dividends by $1,312,000.
Fixed asset additions during the nine months ended June 29, 1997 were
$6,432,000 compared to depreciation for the same period of $16,054,000. The
Company anticipates that fixed asset additions will approximate $17,000,000 in
fiscal 1997. Major projects include the development of new sugarbeet receiving
stations in Michigan and the replacement and upgrade of packaging and
production equipment. The investment in sugarbeet receiving stations is
planned to assist in maintaining and expanding sugarbeet acreage. The other
expenditures are expected to benefit the Company through new packaging,
increased
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efficiency, improved quality control and expanded operational capabilities.
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PART II. OTHER INFORMATION
Item 5. Other Information - Statement on Business Risks and
Forward Looking Information
Savannah Foods & Industries, Inc. periodically makes statements which
could be considered forward looking. Accordingly, we believe it is appropriate
to outline several key factors which impact the Company's future performance.
All phases of the Company's business are very competitive with the primary
competitors being other sugar cane refiners and beet sugar processors. Because
sugar is a commodity, competition is based primarily upon price, but is also
based upon product quality and customer service. The Company is diversified
into all marketing and production (i.e. cane and beet) phases of the refined
sugar industry, but the majority of its capacity, approximately 85%, is cane
sugar, with the remaining 15% being beet sugar. Thus, its operating results
are influenced primarily by factors which affect the cane sugar industry.
Cane sugar refiners operate on large volumes and small margins.
Consequently, a small percentage change in sales prices or in the cost of raw
materials or manufacturing costs can result in a large percentage change in
income from operations.
In today's market, the primary driver of refined sugar sales prices is the
amount of beet sugar produced. A large amount of beet sugar generally means
lower prices as beet producers sell their larger production by undercutting the
prices of cane sugar refiners. The amount of beet sugar produced not only
affects selling prices, but also affects the per unit manufacturing costs of
the sugar industry. Many of the costs in the manufacturing process, whether
beet or cane, are fixed and must be absorbed by the actual production. As
volume increases or decreases, per unit manufacturing costs decrease or
increase, respectively. Thus, forecasting the amount of beet sugar which will
be produced is an essential element in predicting the Company's profitability.
In addition to sales prices and per unit manufacturing costs, the other
primary factor in determining operating income is the cost of raw sugar, which
is the largest single cost of producing refined cane sugar. Raw sugar is a
commodity, and while the Company purchases it using many different pricing
methods, the price is always based in some manner on the market price of raw
sugar as determined by the commodities market. Thus, its price is subject to
the numerous variables that affect the price of any agricultural commodity. In
general, however, the price of raw sugar is supported through the sugar program
portion of the U.S. Government's Farm Bill. This sugar program results in raw
sugar costs for cane refiners that can
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approximate or exceed the cost of refined sugar produced by sugarbeet processors
and raw sugar cane processors who also refine sugar.
Forward looking information affecting the Company and the sugar industry
should be considered within this context.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
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27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
On July 21, 1997, the Registrant filed a Form 8-K announcing that it had
entered into an agreement and plan of merger with Florida Crystals, Inc.
Included in the filing were the following exhibits:
Exhibit
Number Description
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99.1 Agreement and Plan of Merger, dated as of July 14, 1997.
99.2 Unaudited condensed combined financial statements of
Florida Crystals, Inc.
99.3 First Amendment, dated as of July 14, 1997, to the Rights
Amendment, dated as of March 31, 1989, between the
Company and Wachovia Bank, N.A., as successor Rights
Agent to Citizens and Southern Trust Company (Georgia),
N.A.
99.4 Text of Press Release related to the proposed merger
issued on July 15, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAVANNAH FOODS & INDUSTRIES, INC.
By: /s/John M. Tatum
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John M. Tatum
Date: August 5, 1997 Secretary
By: /s/Gregory H. Smith
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Gregory H. Smith
Senior Vice President
Chief Financial Officer
Date: August 5, 1997 and Treasurer
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