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 July 30, 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 September 8, 1995
Common Stock, $.50
par value per share 16,437,526
SMITHFIELD FOODS, INC.
CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - July 30, 1995 and
April 30, 1995 3-4
Consolidated Statements of Operations - 13 Weeks Ended
July 30, 1995 and July 31, 1994 5
Consolidated Statements of Cash Flows - 13 Weeks Ended
July 30, 1995 and July 31, 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8-9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 9-10
Item 6. Exhibits and Reports on Form 8-K. 10
PART I. FINANCIAL INFORMATION
SMITHFIELD FOODS, INC.
CONSOLIDATED BALANCE SHEETS
July 30, April 30,
(In thousands) 1995 1995
ASSETS (unaudited)
Current assets:
Cash $ 11,584 $ 14,790
Accounts receivable less allowances
of $553 and $540 78,773 66,727
Inventories 149,181 119,170
Advances to joint hog production
arrangements 9,982 14,042
Prepaid expenses and other current
assets 16,993 18,564
Total current assets 266,513 233,293
Property, plant and equipment 437,812 415,839
Less accumulated depreciation (146,410) (141,533)
Net property, plant and equipment 291,402 274,306
Other assets:
Cost in excess of net assets acquired
less accumulated amortization of
$1,468 and $1,429 4,795 4,835
Investments in partnerships 30,030 27,209
Other 9,879 10,582
Total other assets 44,704 42,626
$ 602,619 $ 550,225
See accompanying notes to consolidated financial statements.
SMITHFIELD FOODS, INC.
CONSOLIDATED BALANCE SHEETS
July 30, April 30,
(In thousands) 1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
Current liabilities:
Notes payable $ 102,304 $ 69,695
Current portion of long-term debt
and capital lease obligations 9,937 9,961
Accounts payable 58,894 55,371
Accrued expenses and other current
liabilities 37,672 37,355
Total current liabilities 208,807 172,382
Long-term debt and capital lease
obligations 174,665 155,047
Other noncurrent liabilities 29,689 28,781
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 16,834,526 and 16,834,026
shares 8,417 8,417
Additional paid-in capital 49,810 49,804
Retained earnings 128,874 133,437
Treasury stock, at cost, 437,000 shares (7,643) (7,643)
Total stockholders' equity 179,458 184,015
$ 602,619 $ 550,225
See accompanying notes to consolidated financial statements.
SMITHFIELD FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 Weeks 13 Weeks
Ended Ended
(In thousands, except per share data) July 30, 1995 July 31, 1994
Sales $ 367,328 $ 331,761
Cost of sales 323,503 288,073
Gross profit 43,825 43,688
Selling, general and administrative expenses 37,892 32,022
Depreciation expense 5,379 4,594
Interest expense 4,292 3,015
Income (loss) from continuing operations
before income taxes (3,738) 4,057
Income taxes (credit) (1,144) 1,510
Income (loss) from continuing operations (2,594) 2,547
Loss from discontinued operations, net of tax (1,800) (177)
Net income (loss) $ (4,394) $ 2,370
Net income (loss) available to common $ (4,563) $ 2,201
stockholders
Income (loss) per common share:
Continuing operations $ (.16) $ .14
Discontinued operations (.11) (.01)
Net income (loss) $ (.27) $ .13
Weighted average common shares outstanding 16,886 16,987
See accompanying notes to consolidated financial statements.
SMITHFIELD FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
13 Weeks 13 Weeks
Ended Ended
(Dollars in thousands) July 30, 1995 July 31, 1994
Cash flows from operating activities:
Net income (loss) $ (4,394) $ 2,370
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 5,991 5,100
Loss on sale of property and equipment 339 222
Increase in accounts receivable (12,046) (3,048)
Increase in inventories (30,011) (17,631)
(Increase) decrease in prepaid expenses
and other current assets 1,571 (1,380)
(Increase) decrease in other assets 200 (3,672)
Increase (decrease) in other liabilities 3,873 (2,639)
Increase (decrease) in deferred
income taxes 875 (137)
Net cash used in operating activities (33,602) (20,815)
Cash flows from investing activities:
Capital expenditures (23,405) (27,381)
Proceeds from sale of property, plant
and equipment 522 615
Investments in partnerships (2,821) 58
(Increase) decrease in advances to joint
hog production arrangements 4,060 (1,825)
Net cash used in investing activities (21,644) (28,533)
Cash flows from financing activities:
Net borrowings on notes payable 32,609 (3,105)
Proceeds from issuance of long-term debt 22,000 50,000
Principal payments on long-term debt
and capital lease obligations (2,406) (1,525)
Dividends on preferred stock (169) (169)
Exercise of common stock options 6 107
Net cash provided by financing activities 52,040 45,308
Net decrease in cash (3,206) (4,040)
Cash at beginning of quarter 14,790 12,350
Cash at end of quarter $ 11,584 $ 8,310
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest (net of amount capitalized) $ 3,529 $ 2,444
Income taxes $ 358 $ 5,071
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 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 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:
July 30, April 30,
(In thousands) 1995 1995
Fresh and processed meats $111,661 $ 82,957
Livestock and manufacturing supplies 32,824 28,956
Other 4,696 7,617
$ 149,181 $119,170
(4) 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 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
13 Weeks Ended July 30, 1995 -
13 Weeks Ended July 31, 1994
Sales in the first quarter of fiscal 1996 increased $35.6 million, or 10.7%,
from the same quarter a year ago. The increase was the result of a 15.1%
increase in sales tonnage offset by a 3.8% decrease in unit sales prices. The
increase in sales tonnage was the result of a 24.7% increase in fresh pork
tonnage offset by a 1.2% 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 $35.4 million, or 12.3%, in the first quarter of
fiscal 1996, due primarily to increased sales tonnage. Gross profit in the
first quarter of fiscal 1996 increased by $0.1 million, or 0.3%, compared to the
same quarter of fiscal 1995. The gross profit reflected sharply lower margins
on sales of both fresh pork and processed meats compared to the first quarter of
fiscal 1995. These margins were offset by 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 and labor
inefficiencies in the new conversion operations at the Bladen County plant also
adversely affected gross profit in the fiscal 1996 quarter.
Selling, general and administrative expenses increased $5.9 million, or
18.3%, in the first quarter of fiscal 1996. The increase reflected higher
warehousing and transportation costs as well as higher selling and marketing
costs associated with the 15% increase in sales tonnage.
Depreciation expense increased $0.8 million, or 17.1%, in the first 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 $1.3 million, or 42.4%, in the first 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 first quarter of fiscal 1996
decreased to 30.6% from 37.2% in the corresponding period a year ago, reflecting
a lower tax rate on foreign sales and benefits related to certain insurance
contracts.
The loss from continuing operations of $2.6 million in the first quarter of
fiscal 1996 compared to income from continuing operations of $2.5 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.
Reflecting the factors discussed above, the Registrant incurred a net loss
of $4.4 million in the first quarter of 1996 compared to net income of $2.4
million in the same quarter of the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1996, the Registrant's cash used in
operations was $33.6 million, largely the result of a significant increase in
the levels of inventories associated with a build-up of freezer stocks for the
fall holiday season. Traditionally, the Registrant builds large inventories of
hams in the spring and summer months which are sold during the heavy fall
selling season.
Capital expenditures in the first quarter of fiscal 1996 totaled $23.4
million, consisting primarily of $12.4 million related to capital improvements
at the Bladen County plant and $7.7 million related to hog production facilities
at Brown's.
The significant increases in the levels of inventories and capital
expenditures were funded with $54.6 million in borrowings under a bank revolving
credit facility. On July 31, 1995, the Registrant increased this credit
facility to $200 million from $110 million. The amended facility, which was
provided by a group of six banks, consists of a 364-day, $150 million facility
and a two-year, $50 million facility. The short-term facility will be used for
seasonal inventory and receivable needs and the long-term facility will be used
for working capital and capital expenditures. As a result of the long-term
facility, the Registrant reclassified $22.0 million of notes payable to
long-term debt as of July 30, 1995.
As of July 30, 1995, the Registrant had definitive commitments of $39.3
million for capital expenditures for the remainder of fiscal 1996, related to
capital projects at the Bladen County plant, improvements at certain of the
Registrant's other meat processing facilities, and construction of new hog
production facilities at Brown's.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Annual Meeting of Stockholders held August 30, 1995.
(b) and (c) There were 16,397,526 shares of Registrant's Common stock
outstanding as of July 14, 1995, the record date for the 1995
Annual Meeting of Stockholders. A total of 12,289,844 shares were
voted at the meeting.
(b) All of management's nominees for directors of the Registrant were
elected with the following vote:
Votes
Director Nominee Votes For Withheld
F. J. Faison, Jr. 11,980,762 309,082
Joel W. Greenberg 11,974,562 315,282
Cecil W. Gwaltney 11,981,999 307,845
George E. Hamilton, Jr. 11,979,374 310,470
Richard J. Holland 11,981,649 308,195
Roger R. Kapella 12,178,562 111,282
Lewis R. Little 12,177,962 111,882
Joseph W. Luter, III 12,179,289 110,555
Robert W. Manly, IV 12,179,389 110,455
Wendell H. Murphy 11,980,727 309,117
John O. Nielson 12,178,537 111,307
William H. Prestage 11,980,727 309,117
Aaron D. Trub 12,178,174 111,670
(c) The selection of Arthur Andersen LLP as independent public
accountants to audit and report on Registrant's financial
statements for the year ending April 28, 1996 was ratified by the
stockholders with the following vote:
Votes Votes
Votes For Against Withheld
12,237,356 9,444 43,044
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
Exhibit 11 - Computation of Net Income (Loss) Per Share
B. Reports on Form 8-K.
None
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: September 8, 1995
SMITHFIELD FOODS, INC.
EXHIBIT 11
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) and the number of shares and common equivalent shares used in
the computation of net income (loss) per common share were computed as follows:
13 Weeks 13 Weeks
Ended Ended
Income (loss) (in thousands) July 30, 1995 July 31, 1994
Net income (loss) $ (4,394) $ 2,370
Dividends accumulated for Series B
preferred stock (169) (169)
Net income (loss) available to
common stockholders $ (4,563) $ 2,201
Shares (in thousands)
Weighted average common shares:
Outstanding 16,398 16,279
Incremental common shares for
outstanding stock options 488 708
Common shares for computation 16,886 16,987
Net income (loss) per common share $ (.27) $ .13
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