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 October 29, 1995 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 [ ]
Shares outstanding
Class at December 8, 1995
Common Stock, $.50
par value per share 16,437,526
1-11
<PAGE>
SMITHFIELD FOODS, INC.
CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - October 29, 1995 and
April 30, 1995 3-4
Consolidated Statements of Operations - 13 Weeks Ended
October 29, 1995 and October 30, 1994 and 26 Weeks
Ended October 29, 1995 and October 30, 1994 5
Consolidated Statements of Cash Flows - 26 Weeks Ended
October 29, 1995 and October 30, 1994 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
2-11
<PAGE>
PART I. FINANCIAL INFORMATION
SMITHFIELD FOODS, INC.
CONSOLIDATED BALANCE SHEETS
October 29, April 30,
(In thousands) 1995 1995
ASSETS (unaudited)
Current assets:
Cash $ 11,800 $ 14,790
Accounts receivable less allowances
of $573 and $540 94,772 66,727
Inventories 183,563 119,170
Advances to joint hog production
arrangements 8,998 14,042
Prepaid expenses and other current assets 16,274 18,564
Total current assets 315,407 233,293
Property, plant and equipment 457,484 415,839
Less accumulated depreciation (151,623) (141,533)
Net property, plant and equipment 305,861 274,306
Other assets:
Cost in excess of net assets acquired
less accumulated amortization of
$1,508 and $1,429 4,271 4,835
Investments in partnerships 34,326 27,209
Other 11,585 10,582
Total other assets 50,182 42,626
$ 671,450 $ 550,225
See accompanying notes to consolidated financial statements.
3-11
<PAGE>
SMITHFIELD FOODS, INC.
CONSOLIDATED BALANCE SHEETS
October 29, April 30,
(In thousands) 1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
Current liabilities:
Notes payable $ 128,600 $ 69,695
Current portion of long-term debt
and capital lease obligations 10,468 9,961
Accounts payable 62,957 55,371
Accrued expenses and other current
liabilities 42,417 37,355
Total current liabilities 244,442 172,382
Long-term debt and capital lease
obligations 180,637 155,047
Other noncurrent liabilities 32,021 28,781
Redeemable preferred stock 30,000 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 16,874,526 and 16,834,026 shares 8,437 8,417
Additional paid-in capital 50,250 49,804
Retained earnings 133,306 133,437
Treasury stock, at cost, 437,000 shares (7,643) (7,643)
Total stockholders' equity 184,350 184,015
$ 671,450 $ 550,225
See accompanying notes to consolidated financial statements.
4-11
<PAGE>
SMITHFIELD FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
(In thousands, except per share data) Oct. 29, 1995 Oct. 30, 1994 Oct. 29, 1995 Oct. 30, 1994
<S> <C> <C> <C> <C>
Sales $455,799 $ 373,839 $ 823,127 $ 705,599
Cost of sales 396,240 315,892 719,743 603,964
Gross profit 59,559 57,947 103,384 101,635
Selling, general and administrative expenses 41,688 36,933 79,580 68,955
Depreciation expense 5,869 4,698 11,248 9,292
Interest expense 5,249 3,206 9,541 6,221
Income from continuing operations before
income taxes 6,753 13,110 3,015 17,167
Income taxes 2,138 5,030 994 6,540
Income from continuing operations 4,615 8,080 2,021 10,627
Loss from discontinued operations,
net of tax -- (278) (1,800) (455)
Net income $ 4,615 $ 7,802 $ 221 $ 10,172
Net income (loss) available to common
stockholders $ 4,431 $ 7,633 $ (131) $ 9,834
Income (loss) per common share:
Continuing operations $ .26 $ .47 $ .10 $ .61
Discontinued operations -- (.02) (.11) (.03)
Net income (loss) $ .26 $ .45 $ (.01) $ .58
Weighted average common shares outstanding 16,921 17,081 16,909 17,034
</TABLE>
See accompanying notes to consolidated financial statements
5-11
<PAGE>
SMITHFIELD FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
26 Weeks 26 Weeks
Ended Ended
(In thousands) Oct. 29, 1995 Oct. 30, 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 221 $ 10,172
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 12,303 10,404
Increase in accounts receivable (28,045) (12,052)
Increase in inventories (64,393) (24,101)
(Increase) decrease in prepaid
expenses and other current assets 2,290 (1,310)
Increase in other assets (1,509) (4,575)
Increase in accounts payable, accrued
expenses and other liabilities 15,888 8,357
Loss on sale of property, plant
and equipment 702 553
Net cash used in operating activities (62,543) (12,552)
Cash flows from investing activities:
Capital expenditures (44,665) (49,864)
Proceeds from sale of property, plant
and equipment 1,175 987
Investments in partnerships (7,117) (1,138)
(Increase) decrease in advances to
joint hog production arrangements 5,044 (1,411)
Net cash used in investing activities (45,563) (51,426)
Cash flows from financing activities:
Net borrowings on notes payable 58,905 16,156
Proceeds from issuance of long-term debt
and capital lease obligations 31,000 50,000
Proceeds from issuance of preferred stock 20,000 --
Principal payments on long-term debt
and capital lease obligations (4,903) (4,070)
Exercise of stock options 466 1,778
Preferred dividends (352) (338)
Net cash provided by financing activities 105,116 63,526
Net decrease in cash (2,990) (452)
Cash at beginning of the period 14,790 12,350
Cash at end of period $ 11,800 $ 11,898
Supplemental disclosures of cash flow information:
Cash payments during period:
Interest (net of amount capitalized) $ 9,679 $ 6,448
Income taxes $ 526 $ 6,320
</TABLE>
See accompanying notes to consolidated financial statements.
6-11
<PAGE>
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 April 30, 1995 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 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:
October 29, April 30,
(In thousands) 1995 1995
Fresh and processed meats $143,391 $ 82,957
Livestock and manufacturing supplies 35,476 28,596
Other 4,696 7,617
$183,563 $119,170
(4) During the second quarter, the Registrant authorized and issued 2,000
shares of Series C 6.75% cumulative convertible redeemable preferred stock
in a private transaction for $20 million. These shares are convertible into
667,000 shares of the Registrant's common stock at $30.00 per share. The
shares are mandatorily redeemable in October, 2005, at $10,000 per share,
plus accumulated and unpaid dividends and have an equivalent liquidation
preference. Redeemable preferred stock consists of the following:
October 29, April 30,
(In thousands) 1995 1995
Series B 6.75% cumulative
convertible redeemable preferred stock,
$1.00 par value, 1,000 shares authorized,
issued and outstanding $10,000 $10,000
Series C 6.75% cumulative convertible
redeemable preferred stock, $1.00 par
value, 2,000 shares authorized, issued
and outstanding 20,000 --
$30,000 $10,000
(5) As of April 30, 1995, the Registrant adopted a plan to dispose of the
assets and business of Ed Kelly, Inc. ("Kelly"), its retail electronics
subsidiary, which is stated separately as discontinued operations in the
Registrant's consolidated statements of operations. Because of a delay in
the timing of the planned disposal, operating losses that exceeded those
that were estimated for the first quarter, and an unanticipated
deterioration in the estimated realization value of Kelly's assets, an
additional loss from discontinued operations, net of tax, of $1,800,000 was
recorded in the quarter ended July 30, 1995.
(6) On October 6, 1995, the Registrant entered into a letter of intent to
acquire all of the common stock of John Morrell & Co. from Chiquita Brands
International, Inc. for $58 million. The report on Form 8-K dated October
6, 1995 gives more details on the proposed transaction.
7-11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
13 Weeks Ended October 29, 1995 -
13 Weeks Ended October 30, 1994
Sales in the second quarter of fiscal 1996 increased $82.0 million, or
21.9%, from the same quarter a year ago. The increase was the result of an 11.5%
increase in sales tonnage and a 9.3% increase in unit sales prices. The increase
in sales tonnage was the result of a 24.8% increase in fresh pork tonnage offset
by a 7.7% decrease in processed meats tonnage. The increase in fresh pork
tonnage reflected increased slaughter levels at the Registrant's Bladen County,
North Carolina plant.
Cost of sales increased $80.3 million, or 25.4%, in the second quarter of
fiscal 1996, reflecting the increased sales tonnage and sharply higher live hog
prices. Gross profit in the second quarter of fiscal 1996 increased by $1.6
million, or 2.8%, compared with the same quarter of fiscal 1995. The gross
profit reflected lower margins on sales of both fresh pork and processed meats
compared with the second quarter of fiscal 1995. These margins were offset by
substantially improved results at the Registrant's hog production operations,
Brown's of Carolina, Inc. ("Brown's") and the Smithfield-Carroll's joint hog
production arrangement. Costs associated with the start-up of a second shift in
the slaughter operations at the Bladen County plant also adversely affected
gross profit in the fiscal 1996 quarter.
Selling, general and administrative expenses increased $4.8 million, or
12.9%, in the second quarter of fiscal 1996. The increase reflected higher
warehousing and transportation costs as well as higher selling and marketing
costs associated with the 11.5% increase in sales tonnage.
Depreciation expense increased $1.2 million, or 24.9%, in the second
quarter of fiscal 1996 from the same quarter a year ago. The increase is related
to continued expansion at the Bladen County plant and additional hog production
facilities at Brown's.
Interest expense increased $2.0 million, or 63.7%, in the second quarter of
fiscal 1996, reflecting higher long-term debt related to the funding of capital
projects at the Bladen County plant and Brown's, and higher short- and long-term
interest rates.
The effective income tax rate for the second quarter of fiscal 1996
decreased to 31.7% from 38.4% in the corresponding period a year ago, reflecting
a lower tax rate on foreign sales and benefits related to certain insurance
contracts.
The income from continuing operations of $4.6 million in the second quarter
of fiscal 1996 compared with income from continuing operations of $8.1 million a
year ago reflects the factors discussed above.
As of April 30, 1995, the Registrant adopted a plan to dispose of the
assets and business of Ed Kelly, Inc., its retail electronics subsidiary, which
is reported separately as discontinued operations in the Registrant's
consolidated statements of operations. There were no losses accrued in the
second quarter of fiscal 1996, compared with a small loss in the same period of
fiscal 1995.
Reflecting the factors discussed above, net income for the second quarter
of fiscal 1996 was $4.6 million compared with net income of $7.8 million in the
same quarter of the prior fiscal year.
8-11
<PAGE>
26 Weeks Ended October 29, 1995 -
26 Weeks Ended October 30, 1994
Sales in the first six months of fiscal 1996 increased $117.5 million, or
16.7%, from the same period a year ago. The increase resulted from a 13.1%
increase in sales tonnage and a 3.1% increase in unit selling prices. The
increase in sales tonnage was the result of a 24.7% increase in fresh pork
tonnage offset by a 4.7% decrease in processed meats tonnage. The increase in
fresh pork tonnage reflected increased slaughter levels at the Registrant's
Bladen County, North Carolina plant.
Cost of sales increased $115.8 million, or 19.2%, in the first six months
of fiscal 1996, reflecting increased sales tonnage and increased raw material
costs due to higher live hog prices. Gross profit in the first half of fiscal
1996 increased by $1.7 million, or 1.7%, compared to the same period of fiscal
1995. The gross profit reflected lower margins on sales of both fresh pork and
processed meats compared with the first six months of fiscal 1995. These margins
were offset with improved results at Brown's and Smithfield-Carroll's. Costs
associated with the start-up of a second shift in the slaughter operations and
labor inefficiencies in the new conversion operations at the Bladen County plant
also adversely affected gross profit in the fiscal 1996 period.
Selling, general and administrative expenses increased $10.6 million, or
15.4%, in the first six months of fiscal 1996. The increase reflected higher
warehousing and transportation costs as well as higher selling and marketing
costs associated with the increased sales tonnage.
Depreciation expense increased $2.0 million, or 21.1%, in the first half of
fiscal 1996 from the corresponding period a year ago. The increase is related to
continued expansion at the Bladen County plant and additional hog production
facilities at Brown's.
Interest expense increased $3.2 million, or 51.9%, in the first six months
of fiscal 1996, reflecting higher long-term debt related to the funding of
capital projects at the Bladen County plant and Brown's, and higher short- and
long-term interest rates.
The effective income tax rate for the first six months of fiscal 1996
decreased to 33.0% from 38.1% in the corresponding period a year ago, reflecting
a lower tax rate on foreign sales and benefits related to certain insurance
contracts.
The income from continuing operations of $2.0 million in the first six
months of fiscal 1996 compared with income from continuing operations of $10.6
million a year ago reflects the factors discussed above.
As of April 30, 1995, the Registrant adopted a plan to dispose of the
assets and business of Ed Kelly, Inc., its retail electronics subsidiary, which
is reported separately as discontinued operations in the Registrant's
consolidated statements of operations. As a result of the delay in the timing of
the planned disposal, operating losses that exceeded those that were anticipated
for the quarter, and an unanticipated deterioration in the estimated realization
value of Kelly's assets, an additional loss from discontinued operations, net of
tax, of $1.8 million was recorded in the first quarter of fiscal 1996. This
compares with a small loss in the first six months of fiscal 1995.
Reflecting the factors discussed above, net income for the first six months
of fiscal 1996 was $.2 million compared with net income of $10.2 million in the
same period of the prior fiscal year.
9-11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1996, the Registrant's cash used in
operations was $62.5 million, largely the result of a significant increase in
the levels of inventories and accounts receivable associated with a build-up of
freezer stocks for the fall holiday season, and an increased level of business
related to the continued increase in slaughter level at the Bladen County plant.
Traditionally, the Registrant builds large inventories of hams in the spring and
summer months which are sold during the heavy fall selling season. These sales
are converted to cash and used to reduce short-term bank debt in the
Registrant's fiscal third quarter.
Capital expenditures in the first six months of fiscal 1996 totaled $44.7
million, consisting primarily of $19.3 million to increase storage and
distribution capacities at the Bladen County plant, and $16.1 million for hog
production facilities at Brown's.
The significant increases in the levels of inventories and accounts
receivable, and the capital expenditures were funded with $89.9 million in
borrowings under the Registrant's bank revolving credit facility and $20.0
million in cash from the private sale in October of the Registrant's Series C
6.75% cumulative convertible redeemable preferred stock to Sumitomo Corporation
of America. The preferred stock is convertible into 667,000 shares of the
Registrant's common stock at $30.00 per share. On July 31, 1995, the Registrant
increased its revolving credit facility to $200 million from $110 million. The
amended revolving facility, which was provided by a group of six banks, consists
of a 364-day, $150 million revolving credit facility and a two-year, $50 million
revolving credit facility. The short-term facility is being used for seasonal
inventory and receivable needs and the long-term facility is being used for
working capital and capital expenditures.
As of October 29, 1995, the Registrant had definitive commitments of $39.3
million for capital expenditures for the remainder of fiscal 1996, related to
capital projects at certain of its meat processing facilities and construction
of new hog production facilities at Brown's.
On October 6, 1995, the Registrant entered into a letter of intent to
acquire all of the common stock of John Morrell & Co. from Chiquita Brands
International, Inc. for $58 million, consisting of $33 million of Registrant's
common stock and $25 million in cash, which will be borrowed under Registrant's
revolving credit facility. The Registrant will also assume all of John Morrell's
liabilities. John Morrell is a large fresh pork and processed meats processor
headquartered in Cincinnati, Ohio, with plants in Sioux Falls, South Dakota,
Sioux City, Iowa, Great Bend, Kansas, Cincinnati, Ohio and Chicago, Illinois.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
Exhibit 11 - Computation of Net Income Per Share
Exhibit 27 - Financial Data Schedule (electronically submitted)
B. Reports on Form 8-K.
The following reports on Form 8-K were filed during quarter
ended October 29, 1995:
Report on Form 8-K dated October 6, 1995 reporting Item 5. Other Events.
Report on Form 8-K dated October 26, 1995 reporting Item 5. Other Events.
10-11
<PAGE>
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.
Aaron D. Trub
Vice President, Secretary & Treasurer
C. Larry Pope
Controller
Date: December 8, 1995
11-11
<PAGE>
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: December 8, 1995
11-11
SMITHFIELD FOODS, INC.
EXHIBIT 11
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income (loss) and the number of common shares and common equivalent shares
used to present net income (loss) per common share were computed as follows:
<TABLE>
<CAPTION>
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
Oct. 29, 1995 Oct. 30, 1994 Oct. 29, 1995 Oct. 30, 1994
Income (loss) (in thousands)
<S> <C> <C> <C> <C>
Net income $ 4,615 $ 7,802 $ 221 $ 10,172
Dividends accumulated for Series B
and C preferred stock (184) (169) (352) (338)
Net income (loss) available to
common stockholders $ 4,431 $ 7,633 $ (131) $ 9,834
Common shares (in thousands)
Weighted average common shares:
Outstanding 16,421 16,343 16,409 16,311
Incremental common shares for
outstanding stock options 500 738 500 723
Common shares for computation 16,921 17,081 16,909 17,034
Net income (loss) per common share $ .26 $ .45 $ (.01) $ .58
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-28-1996
<PERIOD-END> OCT-29-1995
<CASH> 11,800
<SECURITIES> 0
<RECEIVABLES> 95,345
<ALLOWANCES> 573
<INVENTORY> 183,563
<CURRENT-ASSETS> 315,407
<PP&E> 457,484
<DEPRECIATION> 151,623
<TOTAL-ASSETS> 671,450
<CURRENT-LIABILITIES> 244,442
<BONDS> 180,637
<COMMON> 8,437
30,000
0
<OTHER-SE> 175,913
<TOTAL-LIABILITY-AND-EQUITY> 671,450
<SALES> 455,799
<TOTAL-REVENUES> 455,799
<CGS> 396,240
<TOTAL-COSTS> 396,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 5,249
<INCOME-PRETAX> 6,753
<INCOME-TAX> 2,138
<INCOME-CONTINUING> 4,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,615
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
