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 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 March 3, 1995
Common Stock, $.50
par value per share 16,397,026
SMITHFIELD FOODS, INC.
CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - January 29, 1995 and
May 1, 1994 3-4
Consolidated Statements of Operations - 13 Weeks Ended
January 29, 1995 and January 30, 1994 and 39 Weeks
Ended January 29, 1995 and January 30, 1994 5
Consolidated Statements of Cash Flows - 39 Weeks Ended
January 29, 1995 and January 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
PART I. FINANCIAL INFORMATION
SMITHFIELD FOODS, INC.
CONSOLIDATED BALANCE SHEETS
January 29, May 1,
(In thousands) 1995 1994
ASSETS (unaudited)
Current assets:
Cash $ 9,212 $ 12,350
Accounts receivable less allowances
of $796 and $407 73,992 60,586
Inventories 110,791 119,269
Advances to joint hog production
arrangements 9,942 20,178
Prepaid expenses and other current assets 17,019 13,946
Total current assets 220,956 226,329
Property, plant and equipment 396,537 330,133
Less accumulated depreciation (136,753) (124,112)
Net property, plant and equipment 259,784 206,021
Other assets:
Cost in excess of net assets acquired
less accumulated amortization of
$1,612 and $1,411 7,390 4,385
Investments in and advances
to partnerships 25,279 10,672
Other 10,862 4,872
Total other assets 43,531 19,929
$ 524,271 $ 452,279
See accompanying notes to consolidated financial statements.
SMITHFIELD FOODS, INC.
CONSOLIDATED BALANCE SHEETS
January 29, May 1,
(In thousands) 1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
Current liabilities:
Notes payable $ 36,356 $ 52,135
Current portion of long-term debt
and capital lease obligations 9,636 9,655
Accounts payable 57,446 48,017
Accrued expenses and other current
liabilities 39,964 31,840
Income taxes payable 4,857 3,153
Total current liabilities 148,259 144,800
Long-term debt and capital lease
obligations 157,475 118,942
Other noncurrent liabilities 24,684 23,587
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 16,834,026 and 16,713,126 shares 8,417 8,357
Additional paid-in capital 49,811 47,964
Retained earnings 133,268 106,272
Treasury stock, at cost, 437,000 shares (7,643) (7,643)
Total stockholders' equity 183,853 154,950
$ 524,271 $ 452,279
See accompanying notes to consolidated financial statements.
SMITHFIELD FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
(In thousands, except per share data) Jan. 29, 1995 Jan. 30, 1994 Jan. 29, 1995 Jan. 30, 1994
<S> <C> <C> <C> <C>
Sales $ 454,457 $ 428,982 $ 1,182,499 $ 1,083,085
Costs and expenses:
Cost of sales 366,371 363,552 985,280 933,920
Selling, general and administrative 51,859 38,284 128,472 102,102
Depreciation 5,258 4,557 14,769 17,131
Interest 4,089 3,156 10,690 9,370
427,577 409,549 1,139,211 1,062,523
Income before income taxes 26,880 19,433 43,288 20,562
Income taxes 9,550 7,684 15,786 8,259
Net income $ 17,330 $ 11,749 $ 27,502 $ 12,303
Net income available to common stockholders $ 17,162 $ 11,580 $ 26,996 $ 11,797
Net income per share $ 1.00 $ .69 $ 1.58 $ .70
Weighted average common shares outstanding 17,137 16,763 17,078 16,741
</TABLE>
See accompanying notes to consolidated financial statements.
SMITHFIELD FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 Weeks 39 Weeks
Ended Ended
(In thousands) Jan. 29, 1995 Jan. 30, 1994
Cash flows from operating activities:
Net income $ 27,502 $ 12,303
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,191 18,130
Increase in accounts receivable (13,406) (14,325)
Decrease in inventories 8,477 1,949
Increase in prepaid expenses
and other current assets (3,072) (1,181)
Increase in other assets (10,417) (1,293)
Increase in other liabilities 20,353 17,889
Loss on sale of property, plant
and equipment 555 465
Net cash provided by operating activities 46,183 33,937
Cash flows from investing activities:
Capital expenditures (70,998) (22,319)
Proceeds from sale of property, plant
and equipment 1,911 659
Investments in and advances to
partnerships, net (4,372) 2,964
Net cash used in investing activities (73,459) (18,696)
Cash flows from financing activities:
Net repayments on notes payable (15,779) (16,466)
Proceeds from issuance of long-term debt
and capital lease obligations 50,000 6,240
Principal payments on long-term debt
and capital lease obligations (11,485) (5,768)
Exercise of stock options 1,908 102
Preferred dividends (506) (506)
Net cash provided by (used in)
financing activities 24,138 (16,398)
Net decrease in cash (3,138) (1,157)
Cash at beginning of period 12,350 3,079
Cash at end of period $ 9,212 $ 1,922
Supplemental disclosures of cash flow information:
Cash payments during period:
Interest (net of amount capitalized) $ 10,476 $ 9,041
Income taxes $ 10,465 $ 1,182
See accompanying notes to consolidated financial statements.
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 1, 1994 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 29, May 1,
(In thousands) 1995 1994
Fresh and processed meats $ 75,147 $ 90,219
Livestock and manufacturing supplies 26,868 19,809
Other 8,776 9,241
$ 110,791 $ 119,269
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
13 Weeks Ended January 29, 1995 -
13 Weeks Ended January 30, 1994
Sales in the third quarter of fiscal 1995 increased $25.5 million, or 5.9%, from
the same quarter a year ago. The increase resulted primarily from a 17.1%
increase in sales tonnage offset by a 10.3% decrease in unit selling prices due
to sharply lower live hog costs. The increase in sales tonnage was primarily
the result of a 19.2% increase in fresh pork tonnage combined with a 12.7%
increase in processed meats tonnage.
Cost of sales increased $2.8 million, or 0.8%, in the third quarter of
fiscal 1995, reflecting increased sales tonnage offset by decreased raw material
costs due to significantly lower live hog prices. Gross profit (sales less cost
of sales) in the third quarter of fiscal 1995 increased by $22.7 million, or
34.6%, compared to the same quarter of fiscal 1994. This increase in gross
profit resulted from higher margins on increased sales tonnage of both fresh
pork and processed meats. Gross profit was adversely impacted by operating
losses at Brown's of Carolina, Inc. ("Brown's") and Smithfield-Carroll's, the
Registrant's hog production operations.
The start-up costs associated with the commencement of operations in the
new 130,000 square foot conversion room at the Bladen County plant, which
substantially increased the Company's capacity to produce value-added boneless
fresh pork cuts, also adversely impacted the quarter's results. Moreover, the
Company expects the on-going costs of getting this operation to maximum
productive capacity to be substantial for the next several quarters. In
addition, the Company has made several major modifications to the Bladen County
plant that will allow it to shift to cryovac packaging of nearly all the fresh
pork produced at the plant. Cryovac packaging extends the shelf life of fresh
pork and adds value to it. The Company expects that all the cryovac packaging
equipment necessary for this operation to operate on a one-shift basis will be
installed by June. However, until this occurs, the Company is having to operate
a costly second cryovac packaging shift and, at the same time, is experiencing
inefficiencies in this operation which are affecting profitability.
Selling, general and administrative expenses increased $13.6 million, or
35.5%, in the third quarter of fiscal 1995. The increase reflected higher
storage, distribution and delivery costs associated with the increased sales
tonnage, including significantly higher export tonnage, and increased
compensation and administrative costs related to support staff for current and
anticipated future growth.
Depreciation expense increased $0.7 million, or 15.4%, in the third quarter
of fiscal 1995 from the corresponding period a year ago. The increase reflected
depreciation charges related to expansion at the Registrant's Bladen County
plant and Brown's.
Interest expense increased $0.9 million, or 29.6%, in the third quarter of
fiscal 1995, reflecting higher long-term debt related to funding of capital
projects, including additions to the Bladen County plant and additional hog
production facilities at Brown's.
The effective income tax rate for the third quarter of fiscal 1995
decreased to 35.5% from 39.5% in the corresponding period a year ago, reflecting
increased incentive credits, lower tax rates on foreign sales, and benefits
related to certain insurance contracts.
Reflecting the factors discussed above, net income increased to $17.3
million in the third quarter of fiscal 1995 compared to net income of $11.7
million in the third quarter of the prior fiscal year.
Hog prices have increased over the last month and a half and both fresh
pork and processed meat margins have narrowed considerably since December. The
Company believes that industry conditions in its fiscal fourth quarter, as well
as in much of its next fiscal year, will be more difficult than those it
experienced during the last 12 months.
39 Weeks Ended January 29, 1995 -
39 Weeks Ended January 30, 1994
Sales in the first nine months of fiscal 1995 increased $99.4 million, or 9.2%,
from the same period a year ago. The increase resulted primarily from a 17.2%
increase in sales tonnage offset by a 6.9% decrease in unit selling prices due
to sharply lower live hog costs. The increase in sales tonnage was the result
of a 20.5% increase in fresh pork tonnage combined with an 11.0% increase in
processed meats tonnage.
Cost of sales increased $51.4 million, or 5.5%, in the first nine months of
fiscal 1995, reflecting increased sales tonnage offset by decreased raw material
costs due to substantially lower live hog prices. Gross profit (sales less cost
of sales) in the first three quarters of fiscal 1995 increased by $48.1 million,
or 32.2%, compared to the same period of fiscal 1994. This increase in gross
profit resulted from higher margins on increased sales tonnage of both fresh
pork and processed meats. Gross profit was adversely impacted by an aggregate
operating loss at Brown's and Smithfield-Carroll's, the Registrant's hog
production operations.
Selling, general and administrative expenses increased $26.4 million, or
25.8%, in the first nine months of fiscal 1995. The increase reflected higher
storage, distribution and delivery costs associated with the increased sales
tonnage, including significantly higher export tonnage, and increased
compensation and administrative costs related to support staff for current and
anticipated future growth.
Depreciation expense decreased $2.4 million, or 13.8%, in the first nine
months of fiscal 1995 from the corresponding period a year ago. The decrease
reflected reduced depreciation charges resulting from a revision in the
estimated useful lives of certain assets beginning in the third quarter of
fiscal 1994, totalling $3.9 million, offset by increased depreciation charges
related to expansion at the Registrant's Bladen County plant and Brown's.
Interest expense increased $1.3 million, or 14.1%, in the first nine months
of fiscal 1995, reflecting higher long-term debt related to funding of capital
projects, including additions to the Bladen County plant and additional hog
production facilities at Brown's.
The effective income tax rate for the first nine months of fiscal 1995
decreased to 36.5% from 40.2% in the corresponding period a year ago, reflecting
increased employment incentive credits, lower tax rates on foreign sales, and
benefits related to certain insurance contracts.
Reflecting the factors discussed above, net income increased to $27.5
million in the first nine months of fiscal 1995 compared to net income of $12.3
million in the same period of the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1995, the Registrant's cash provided by
operating activities was $46.2 million, largely the result of profitable
operations and substantial noncash charges.
Capital expenditures in the first nine months totaled $71.0 million,
consisting primarily of $45.1 million for a rapid carcass chilling system, a new
ham and loin conversion room and additional hog coolers at the Bladen County
plant, and $15.1 million related to additional hog production facilities at
Brown's.
During this period, borrowings under existing lines of credit were reduced
by $15.8 million. The repayment resulted from substantial operating cash flows
and proceeds from the issuance of long-term debt. During the period, the
Registrant placed $50.0 million of three-year notes with a bank, secured by the
Bladen County plant. The notes bear interest at a rate ranging from prime to
three-quarters of a percentage point above prime. The note agreement requires
that the Registrant prepay the loan with the proceeds of any new long-term
financings.
As of January 29, 1995, the Registrant had definitive commitments of
approximately $30.0 million, primarily for capital additions to the Bladen
County plant and new hog production facilities at Brown's.
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.
None
<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: March 3, 1995
<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: March 3, 1995
Exhibit 11
SMITHFIELD FOODS, INC.
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
Net income and the number of shares and common equivalent shares used in the
computation of net income per share were computed as follows:
<TABLE>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
Jan. 29, 1995 Jan. 30, 1994 Jan. 29, 1995 Jan. 30, 1994
<S> <C> <C> <C> <C>
Income (in thousands)
Net income $ 17,330 $ 11,749 $ 27,502 $ 12,303
Dividends accumulated for Series B
preferred stock (168) (169) (506) (506)
Net income available to
common stockholders $ 17,162 $ 11,580 $ 26,996 $ 11,797
Shares (in thousands)
Weighted average shares:
Outstanding 16,391 16,275 16,386 16,275
Net effect of dilutive stock options 746 488 692 466
Shares for computation 17,137 16,763 17,078 16,741
Net income per share $ 1.00 $ .69 $ 1.58 $ .70
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> JAN-29-1995
<CASH> 9,212
<SECURITIES> 0
<RECEIVABLES> 74,788
<ALLOWANCES> 796
<INVENTORY> 110,791
<CURRENT-ASSETS> 220,956
<PP&E> 396,537
<DEPRECIATION> 136,753
<TOTAL-ASSETS> 524,271
<CURRENT-LIABILITIES> 148,259
<BONDS> 157,475
<COMMON> 8,417
10,000
0
<OTHER-SE> 175,436
<TOTAL-LIABILITY-AND-EQUITY> 524,271
<SALES> 454,457
<TOTAL-REVENUES> 454,457
<CGS> 366,371
<TOTAL-COSTS> 366,371
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 309
<INTEREST-EXPENSE> 4,089
<INCOME-PRETAX> 26,880
<INCOME-TAX> 9,550
<INCOME-CONTINUING> 17,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,330
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 0
</TABLE>
