SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended January 30, 1994 Commission File Number 0-2258
SMITHFIELD FOODS, INC.
501 North Church Street
Smithfield, Virginia 23430
(804) 357-4321
Delaware 52-0845861
(State of Incorporation) (I.R.S. Employer
Identification Number)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Class Shares outstanding
Common Stock, $.50 at March 4, 1994
par value per share
16,275,126
1-11
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SMITHFIELD FOODS, INC.
CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - January 30, 1994 and
May 2, 1993 3-4
Consolidated Statements of Operations - 13 Weeks Ended
January 30, 1994 and January 31, 1993 and 39 Weeks
Ended January 30, 1994 and January 31, 1993 5
Consolidated Statements of Cash Flows - 39 Weeks Ended
January 30, 1994 and January 31, 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 10
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PART I. FINANCIAL INFORMATION
SMITHFIELD FOODS, INC.
CONSOLIDATED BALANCE SHEETS
January 30, May 2,
(In thousands) 1994 1993
- -------------- ------------- ------------
ASSETS (unaudited)
Current assets:
Cash $ 1,922 $ 3,079
Accounts receivable less allowances
of $445 and $407 65,148 50,823
Inventories 92,873 94,822
Advances to joint hog production
arrangement 16,890 19,830
Prepaid expenses and other assets 10,598 9,417
------------- -------------
Total current assets 187,431 177,971
------------- -------------
Property, plant and equipment 328,300 307,566
Less accumulated depreciation (119,882) (103,127)
------------- -------------
Net property, plant and equipment 208,418 204,439
------------- -------------
Other assets:
Cost in excess of net assets acquired
less accumulated amortization of
$1,521 and $1,485 4,420 4,572
Investments in partnerships 8,391 8,415
Other 4,699 4,170
------------- -------------
Total other assets 17,510 17,157
------------- -------------
$ 413,359 $ 399,567
============= =============
See accompanying notes to consolidated financial statements.
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PART I. FINANCIAL INFORMATION
SMITHFIELD FOODS, INC.
CONSOLIDATED BALANCE SHEETS
January 30, May 2,
(In thousands) 1994 1993
- -------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES:
Notes payable to banks $ 31,347 $ 47,813
Current portion of long-term debt 7,978 6,655
Current portion of capitalized lease
obligations 678 -
Accounts payable 38,286 33,378
Accrued expenses and other current
liabilities 31,210 25,454
Income taxes payable 5,648 -
------------- ------------
Total current liabilities 115,147 113,300
------------- ------------
Long-term debt 100,517 124,517
Long-term capitalized lease obligations 22,471 -
------------- ------------
Total long-term debt 122,988 124,517
------------- ------------
Other noncurrent liabilities:
Deferred income taxes 6,992 6,256
Pension and post retirement benefits 6,452 6,814
Minority interest 3,506 2,173
Other 606 737
------------- ------------
Total other noncurrent liabilities 17,556 15,980
------------- ------------
Series B 6.75% cumulative convertible
redeemable preferred stock, $1.00 par
value, 1,000 shares authorized, issued
and outstanding 10,000 10,000
------------- ------------
Stockholders' equity:
Preferred stock $1.00 par value,
authorized 1,000,000 shares - -
Common stock, $.50 par value,
authorized 25,000,000 shares,
issued 16,712,126 shares 8,356 8,350
Additional paid-in capital 47,913 47,818
Retained earnings 99,042 87,245
Treasury stock, at cost, 437,000 shares (7,643) (7,643)
------------- ------------
Total stockholders' equity 147,668 135,770
------------- ------------
$ 413,359 $ 399,567
============= ============
See accompanying notes to consolidated financial statements.
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<TABLE>
SMITHFIELD FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
(Dollars in thousands, except per share data) Jan. 30,1994 Jan. 31,1993 Jan. 30,1994 Jan. 31,1993
- --------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 428,982 $ 339,425 $ 1,083,085 $ 833,279
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales 362,589 298,901 931,968 728,121
Selling, general and administrative 38,284 31,796 102,102 79,702
Depreciation 4,557 5,719 17,131 13,268
Interest 3,156 2,096 9,370 4,265
Minority interest 963 107 1,952 440
Plant closing costs - - - 3,598
------------- ------------- ------------- -------------
409,549 338,619 1,062,523 829,394
------------- ------------- ------------- -------------
Income before income taxes 19,433 806 20,562 3,885
Income taxes 7,684 298 8,259 1,570
------------- ------------- ------------- -------------
Income before cumulative effect of change
in accounting for income taxes 11,749 508 12,303 2,315
Cumulative effect of change in accounting
for income taxes - - - 1,138
------------- ------------- ------------- -------------
Net income $ 11,749 $ 508 $ 12,303 $ 3,453
============= ============= ============= =============
Net income available for common stockholders $ 11,580 $ 315 $ 11,797 $ 3,260
============= ============= ============= =============
Before cumulative effect in change in
accounting for income taxes $ .69 $ .02 $ .70 $ .13
Cumulative effect of change in accounting
for income taxes - - - .07
------------- ------------- ------------- -------------
Net income $ .69 $ .02 $ .70 $ .20
============= ============= ============= =============
Average shares outstanding (thousands) 16,763 16,772 16,741 16,264
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
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SMITHFIELD FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 Weeks 39 Weeks
Ended Ended
(Dollars in thousands) Jan. 30,1994 Jan. 31,1993
- ---------------------- ------------ ------------
Cash flows from operating activities:
Net income $ 12,303 $ 3,453
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 18,130 13,714
(Increase) in accounts receivable (14,325) (18,832)
(Increase) decrease in inventories 1,949 (23,757)
Decrease in prepaid expenses
and other current assets (1,181) 4,121
Increase in other assets (1,293) (1,976)
Increase in other liabilities 15,820 11,667
Increase (decrease) in deferred
income taxes 736 (1,605)
Loss on disposition of property and
equipment 465 228
------------ ------------
Net cash provided by (used in)
operating activities 32,604 (12,987)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (22,319) (78,349)
Proceeds from sale of property
and equipment 654 772
(Increase) decrease in partnership
investment 24 74
Advances (repayments) under joint hog
production arrangement 2,940 (5,945)
Other 5 -
------------ ------------
Net cash used in investing activities (18,696) (83,448)
------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) on short-term
notes payable to banks (16,466) 39,711
Proceeds from issuance of long-term debt
and long-term lease obligations 6,240 30,600
Proceeds from issuance of preferred stock - 10,000
Principal payments on long-term debt (5,768) (3,276)
Proceeds from sale of common stock - 16,750
Dividends on preferred stock (506) (137)
Proceeds from exercise of stock
options and warrants 102 895
Increase in minority stockholders' interest 1,333 420
------------ ------------
Net cash provided by (used in)
financing activities (15,065) 94,963
------------ ------------
Net decrease in cash (1,157) (1,472)
Cash at beginning of the period 3,079 1,736
------------ ------------
Cash at end of period $ 1,922 $ 264
============ ============
Cash payments during period:
Interest (net of amount capitalized) $ 9,041 $ 5,627
============ ============
Income taxes $ 1,182 $ 5,057
============ ============
See accompanying notes to consolidated financial statements.
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SMITHFIELD FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Notes to Financial Statements included in Registrant's Annual Report
for the fiscal year ended May 2, 1993 should be read in conjunction with
the quarterly financial statements.
(2) The financial information furnished herein is unaudited. The
information reflects all adjustments (which included only normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of the results of operations for the interim periods included in
this report.
(3) Inventories consist of the following:
January 30, May 2,
(In thousands) 1994 1993
-------------- ------------- ------------
Fresh and processed meats $ 66,868 $ 75,273
Livestock and manufacturing supplies 17,662 12,976
Other 8,343 6,573
------------- ------------
$ 92,873 $ 94,822
============= ============
(4) Effective November 1, 1993, the Registrant revised the estimated useful
lives of certain assets. This change in accounting estimate was made to
more accurately reflect the economic useful lives of these assets and to
better align them with those generally used in the meat packing industry.
Buildings and improvements lives were revised from 10-40 years to 20-40
years. Machinery and equipment was revised from 3-12 years to 10-25 years.
This change was only made to assets acquired after April 30, 1990 and is
reflected only on a prospective basis beginning in the current quarter of
fiscal 1994. This change reduced depreciation charges and increased net
income and net income per share by $1,934,000, $1,161,000 and $.07,
respectively.
(5) Effective May 4, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." This
statement requires the use of the liability method in accounting for income
taxes. The cumulative effect of adopting this change as of May 4, 1992,
totaled $1,138,000 and has been reflected in the statement of operations as
the cumulative effect of a change in accounting principle. As required,
the previously reported 39 weeks results for the period ended January 31,
1993 have been restated to reflect the impact of the cumulative effect.
(6) In the second quarter of fiscal 1993, the Registrant recognized a non-
recurring pretax charge of $3,598,000 related to the closing of Esskay,
Inc.'s plant in Baltimore, Maryland.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
13 Weeks Ended January 30, 1994 -
13 Weeks Ended January 31, 1993
Sales in the third quarter of fiscal 1994 increased $89.5 million, or 26.4%,
from the same quarter a year ago. The increase resulted from a 16.3%
increase in sales tonnage and an 8.1% increase in unit sales prices. The
increase in sales tonnage was primarily the result of a 39.6% increase in
fresh pork tonnage and a 4.0% increase in processed meats tonnage. The
increase in fresh pork tonnage reflected increased sales of fresh pork items
produced at the Registrant's Bladen County, North Carolina fresh pork
facility which began operations in October 1992.
Cost of sales increased $63.7 million, or 21.3%, in the third quarter of
fiscal 1994, reflecting the increased sales tonnage. Gross profit (sales
less cost of sales) in the third quarter of fiscal 1994 increased $25.8
million, or 63.6%, compared to the same quarter of fiscal 1993. This
increase in gross profit resulted from higher margins on increased sales
tonnage of both fresh pork and processed meats. Gross profit was favorably
affected by a reduction in cost of sales as a result of a sharply improved
performance at Brown's of Carolina, Inc., the Registrant's hog production
operation.
Selling, general and administrative expenses increased $6.5 million, or
20.4%, in the third quarter of fiscal 1994. The increase reflected sharply
higher distribution and sales and marketing costs associated with the
increased sales tonnage, and higher storage costs associated with
substantially increased inventories of hams for the fall holiday season.
Depreciation expense decreased $1.2 million, or 20.3%, in the third
quarter of fiscal 1994. In light of the Registrant's aggressive capital
expenditures program over the past four fiscal years during which the
Registrant invested approximately $212.0 million in new plant and equipment,
the estimated useful lives of these assets which were being used for
depreciation purposes were revised. The Registrant, effective November 1,
1993, revised those lives to more accurately reflect the economic useful
lives of the assets and to better align them with those generally used in the
meat processing industry. This change in accounting estimate increased net
income in the third quarter of fiscal 1994 by $1.2 million. This change will
continue to have a positive impact on net income in the fourth quarter of
fiscal 1994 and in future years.
Interest expense increased $1.1 million, or 50.6%, in the third quarter
of fiscal 1994, reflecting significantly higher long-term debt related to the
funding of capital projects, including the Bladen County plant, and the
impact of replacing short-term borrowings with long-term debt at somewhat
higher rates.
Minority interest increased $0.9 million in the third quarter of fiscal
1994, reflecting increased profitability at Brown's of Carolina, Inc. and
Patrick Cudahy Incorporated, each of which have minority ownership.
Reflecting the factors discussed above, the Registrant recorded net
income of $11.7 million in the third quarter of 1994, up sharply from net
income of $0.5 million in the same quarter of the prior fiscal year.
8-11
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39 Weeks Ended January 30, 1994 -
39 Weeks Ended January 31, 1993
Sales in the first nine months of fiscal 1994 increased $249.8 million, or
30.0%, from the same period a year ago. The increase resulted from a 23.2%
increase in sales tonnage and a 5.1% increase in unit sales prices. The
increase in sales tonnage was the result of a 49.9% increase in fresh pork
tonnage and a 5.6% increase in processed meats tonnage. The increase in
fresh pork tonnage reflected the sale of fresh pork items produced at the
Registrant's Bladen County, North Carolina fresh pork facility which began
operations in October 1992.
Cost of sales increased $203.8 million, or 28.0%, in the first nine
months of fiscal 1994, reflecting increased sales tonnage and increased raw
material costs due to higher live hog prices. Gross profit (sales less cost
of sales) in the first nine months of fiscal 1994 increased by $46.0 million,
or 43.7%, compared to the same period of fiscal 1993. This increase in gross
profit primarily resulted from lower margins on substantially increased sales
tonnage of fresh pork and higher margins on increased sales tonnage of
processed meats. Gross profit was favorably affected by a reduction in cost
of sales as a result of a sharply improved performance at Brown's of
Carolina, Inc., the Registrant's hog production operation.
Selling, general and administrative expenses increased $22.4 million, or
28.1%, in the first nine months of fiscal 1994. The increase reflected
sharply higher distribution and sales and marketing costs associated with the
increased sales tonnage, which was in part attributable to the operation of
the Bladen County plant during the entire nine-month period, and higher
storage costs associated with substantially increased inventories of hams for
the fall holiday season.
Depreciation expense increased $3.9 million, or 29.1%, in the first nine
months of fiscal 1994, reflecting the high levels of capital expenditures in
recent years related to the expansion of the Registrant's hog production
facilities and modernization and expansion of its meat processing plants,
including depreciation related to the Bladen County plant.
In light of the Registrant's aggressive capital expenditures program over the
past four fiscal years during which the Registrant invested approximately
$212.0 million in new plant and equipment, the estimated useful lives of
these assets which were being used for depreciation purposes were revised.
The Registrant, effective November 1, 1993, revised those lives to more
accurately reflect the economic useful lives of the assets and to better
align them with those generally used in the meat processing industry. This
change in accounting estimate increased net income in the first nine months
of fiscal 1994 by $1.2 million. This change will continue to have a positive
impact on net income in the fourth quarter of fiscal 1994 and in future
years.
Interest expense increased $5.1 million, or 120.0%, in the first nine
months of fiscal 1994, reflecting significantly higher long-term debt related
to the funding of capital projects, including the Bladen County plant,
significantly higher short-term borrowings related to increased levels of
inventories and accounts receivable, and the impact of replacing short-term
borrowings with long-term debt at somewhat higher rates.
Minority interest increased $1.5 million in the first nine months of
fiscal 1994, reflecting increased profitability at Brown's of Carolina, Inc.
and Patrick Cudahy Incorporated, each of which have minority ownership.
Plant closing costs of $3.6 million in the first nine months of fiscal
1993 reflect a nonrecurring pretax charge related to the closing of Esskay,
Inc.'s meat processing plant in Baltimore, Maryland.
9-11
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Reflecting the factors discussed above, the Registrant recorded net
income of $12.3 million in the first nine months of 1994, up sharply from net
income of $3.5 million in the same period of the prior fiscal year. The
results for the first nine months of fiscal 1993 have been restated to
reflect the cumulative effect of a change in accounting principle associated
with the adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective May 4, 1992.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1994, the Registrant's cash provided
by operating activities was $32.6 million, largely the result of profitable
operations and substantial noncash charges.
During the nine month period, capital expenditures totaled $22.3
million, consisting primarily of $10.8 million related to hog production
facilities at Brown's of Carolina, Inc. and $7.2 million related to projects
at the Bladen County plant designed to improve operating efficiencies and
lower plant operating costs.
During this period, borrowings under existing lines of credit were
reduced by $16.5 million. The repayments resulted from substantial operating
cash flows which have only partially been used for capital improvements.
During the period, the Registrant completed the placement of a five-
year, 6.48% $25.0 million loan with a bank secured by a second security
interest in the Bladen County plant, and a five-year, 7.0% $2.8 million
secured loan with an institutional lender. In addition, Brown's of Carolina,
Inc. completed a $23.5 million partial funding of a $28.0 million sale and
leaseback arrangement of certain of its hog production facilities with an
institutional lender.
As of January 30, 1994, the Registrant had definitive commitments of
approximately $14.0 million for the remainder of fiscal 1994, primarily
related to the construction of new hog production facilities at Brown's of
Carolina, Inc. In addition, the Registrant plans to make several major
additions to the Bladen County plant in fiscal 1995 to increase boneless
fresh pork capacity and add more refrigeration. These capital improvements
are expected to be financed with a combination of internally generated funds
and additional long-term financing.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
Exhibit 11 - Computation of Net Income Per Share
B. Reports on Form 8-K.
During the quarter, Registrant filed a report on Form 8-K
dated December 29, 1993, reporting Item 5. Other Events.
10-11
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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.
SMITHFIELD FOODS, INC.
/s/ Aaron D. Trub
Aaron D. Trub
Vice President, Secretary
& Treasurer
/s/ C. Larry Pope
C. Larry Pope
Controller
Date: March 7, 1994
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SMITHFIELD FOODS, INC.
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
Net income per share and the number of shares used in the computation of net
income per share were computed as follows (in thousands, except per share
data):
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
Jan. 30,1994 Jan. 31,1993 Jan. 30,1994 Jan. 31, 1993
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Weighted average shares:
Outstanding 16,275 16,188 16,275 15,701
Incremental shares for outstanding
stock options 488 584 466 563
------------ ------------ ------------ -------------
Shares for computation 16,763 16,772 16,741 16,264
============ ============ ============ =============
Net income $ 11,749 $ 508 $ 12,303 $ 3,453
Dividends accumulated for
Series B preferred stock (169) (193) (506) (193)
------------ ------------ ------------ -------------
Net income available for
common stockholders $ 11,580 $ 315 $ 11,797 $ 3,260
============ ============ ============ =============
Net income per share $ .69 $ .02 $ .70 $ .20
============ ============ ============ =============
</TABLE>
